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To boost their buildings' IQ, companies tap "Internet of things"

When General Electric (GE) announced the creation of a new company called Current in October last year, CEO Jeff Immelt said it would take GE's "commitment to energy to the next level." Current is GE's attempt to address the business shift posed by ubiquitous connectivity, cheap sensors and data analytics -- sometimes called the Internet of Things. It was created to sell lighting as a service to GE customers.

Among the big corporations that have signed up to have Current install LED lights and sensors that would feed data into GE's Predix cloud computing service are Hilton (HLT), Intel (INTC) and Simon Property Group (SPG).

And today the fledgling Current announced its first acquisition. It's buying Daintree Networks, a company that provides sensors and software to automate buildings. The deal's value was undisclosed.

Current uses GE's Predix platform to analyze the data fed into it and offer recommendations about how customers should run their lights to lower their energy costs. Current also planned to involve utilities as well as GE's own solar and energy storage businesses to try to match energy demand and energy creation. If done properly, customers would pay Current a set amount each month, and Current would endeavor to deliver the energy the customer needed below that price.

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At the time of Current's launch customers were saving between 10 percent and 20 percent on their energy bills. And several were interested in upcoming applications GE plans to launch using their existing lighting infrastructure. Some of those new apps include real estate optimization based on sensors in the lights tracking the number of people in an office or retail location. Others involved anticipating demand based on cameras tracking the number of cars parked in a retailer's parking lot.

With the acquisition of Daintree, Current says it can fulfill its goal of going beyond lighting and provide all kinds of energy management, including controlling energy consumption by heating, ventilation and air conditioning (HVAC) systems and devices plugged into the buildings outlets. Daintree has worked with Current on a few customer installations, according to Current CEO Maryrose Sylvester, which is how the companies met.

Sylvester said Daintree's software manages a variety of LED lighting systems and other gear that can offer its customers roughly 60 percent in energy savings. She said the Daintree acquisition will help answer the question for Current of "how we can go sit on top of what [customers] have today and make what they have talk to each other and provide data that's consistent, without going back and doing big massive overhauls."

But as it moves deeper into the energy-management business, Current is encroaching on the world of building automation. And bringing building automation into the digital era is a big area of entrepreneurial activity today.

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Current may be one of the newest and largest providers, with a goal of $5 billion in revenue by 2020 and about $500 million in financing available to help potential customers cover the upfront cost of installing a sensor-laden system. But it's not alone. Startups such as Enlighted, Digital Lumens and Lucid are all trying to offer a mix of sensors, analytics and energy savings. Larger companies such as Honeywell (HON) and Johnson Controls (JCI) are also creating services in this sector.

Current's twist is that it's linking the energy demand to energy creation with an eye on controlling the entire loop. And it's a big loop. The U.S. Energy Information Association estimates that commercial buildings used about 19 percent of the total energy the U.S. energy consumed in 2015.

Current doesn't have utility partners yet, but it does have energy storage and solar products as part of its deployments today. So, customers that use solar power can take their own energy production into account when trying to optimize the lighting or HVAC use.

One challenge in connecting buildings to a network is that most of the lighting, HVAC and other energy-consuming systems are managed by the facilities department or the real estate teams. These aren't business divisions that have typically bought into big IT projects. That can make building automation a tough sell. That's why Sylvester said Current's sales pitch starts with the chief financial officer because the payback for investing in automation is generally quick.

Another challenge for Current is that it's trying to figure out how to sell its services to consumers. Some pay a monthly subscription fee, while others pay a percentage of energy saved. Sylvester said the company is working this out with customers as they learn together. IBM (IBM) faces the same revenue dilemma when it negotiates payment for Watson, it's cognitive computing service.

As companies go from selling discrete physical products to services, the revenue model shifts, but it also opens up potential gaps in accounting. For example, Current is replacing some devices with smarter versions of themselves, and it's not clear how long a connected light bulb will last. So, figuring out warranties are a tough.

Additionally, because up-front costs are associated with installing energy-management networks and LED lighting platforms but the customer pays monthly, it's possible that customers who dump the system too early will cause Current to lose money. One answer is accounting for that risk in the contract, much like mobile phone carriers did when they subsidized cell phones.

But the biggest issue for Current and its customers is figuring out how to build an energy-management system that will scale easily to thousands of commercial building owners. Today, an implementation is still fairly customized, requiring about two months to get the product installed and tweaked. Not all of that work is reusable. But Current's goal is to try to shrink the time needed so it can turn this into a real subscription business as opposed to a glorified consulting gig.