Octopus Energy has achieved ‘double unicorn’ status with a valuation in excess of $2 billion in just five years. It seems to be on track to be the world’s leading renewable energy business.
The foundation for this remarkable success is clever and agile business model thinking and here Octopus offers inspiration for start-ups and established players alike.
The Octopus Group’s focus on green energy started with Octopus Renewables about 10 years ago. Acquiring renewable energy infrastructure it has become a leading investor in solar power and currently manages a global portfolio of assets of more than £3 billion for institutional and retail investors. Octopus Renewables is in its own right a scale-advantaged business with momentum.
Octopus Energy followed in 2016. Offering competitive pricing it has quickly attracted almost 2 million UK households. Behind this success is a proprietary technology platform called Kraken that automates much of the energy supply chain whilst enabling ‘cost at time-of-use tariffs’ and award-winning customer servicing. As well as very clever it is also cheaper with a cost to serve that is approximately 40% lower than established competitors. Kraken’s better service delivery, lower costs and smarter pricing adds up to a truly disruptive proposition.
The technology-led approach will enable integration with home energy appliances, storage and management systems.
Cleverly, the energy ‘sold’ to UK domestic customers is predominantly that produced by sister company Octopus Renewables. Customers in the UK (at least for now) don’t get 100% green energy direct from Octopus. Instead they are purchasing a mix of green and dirty energy with Octopus producing the equivalent amount in renewable energy for the wholesale market. Octopus Renewables assets are benefiting investors and simultaneously attracting UK consumers looking for green energy.
Octopus Energy is therefore a brilliant example of a business leveraging existing capabilities (renewable energy production at scale) alongside new capabilities (Kraken IT platform) to build a disruptive and competitively advantaged business model.
Furthermore, the model is dynamic. The big cost to serve and agile pricing capabilities make Kraken an attractive asset for other energy companies. Already part of a business highly capable in selling investments it is not surprising Octopus Energy has pivoted to licensing the technology to companies such as E.ON. Kraken is now contracted to serve 17 million accounts globally and with partnership deals with the likes of Origin Energy and Tokyo Gas Octopus has gathered capital for growth.
Octopus Energy, of course, is seeking to evolve the model further with plans to acquire sister company Octopus Renewables. By bringing the supply and generation even closer the business should be better placed to find efficiencies or opportunities in the chain and ultimately offer green energy directly to local consumers.
Drawing inspiration from a clever Octopus Energy I would encourage some dedicated time for thinking about the capabilities and resources your business has today and must acquire in the future. In doing so, you might want to apply VRIO analysis and consider this alongside business model options for faster growth.
Octopus Energy knows its advantaged capabilities, is organised around these and is very open to emerging opportunities. How does your business compare?