Recently I purchased a solar panel system for my home and I've been sharing my experience with my neighbors. A common component of many of these conversations is some sort of comment about "getting off the grid". As I have reflected on these comments, I realized that solar panels have been attached to a romanticism of independence and escapism, the idea that solar panels not only provide electricity, but a form of independence that many folks long for. I can certainly appreciate the sentiment, but I can't help to reflect how separated from reality these feeling are. Solar panels don't bring independence from the grid, in truth it's the opposite: you will never be more attached to the grid than once your solar system becomes operational.
Let's use my case as an example. My system has been operational for about a month now, and I have tracked my production and energy usage closely during this time. Of all the energy my solar cells produce, I only use just under a third of it. The rest is fed onto the grid. In fact, two-thirds of the energy my house uses comes right off the grid. That's hardly independence. To make the whole thing work economically, it requires the ability to sell my excess power.
That's the amazing thing about solar right now. The big talking point around solar is the 30% federal tax rebate that is set to expire at the end of 2016. In this tax break, if you purchase your own system, you can get up to 30% of the cost back in a refund from the federal government, assuming you paid that much in taxes to begin with. It's a nice deal, but hardly the subsidy that is known as Net Metering. In fact, for many, solar is a good investment with or without the federal tax break, but without Net Metering it's a deal breaker.
Net Metering is the agreement with the utility, often driven by regulatory help, which allows owners of solar panel system to transfer excess electricity onto the grid for others to use. Essentially solar panel owners become producers of energy, just like a coal, nuclear, or other type of plants. The difference is the dollar value of the energy "sold" to the system. If a coal plant sells their energy to the grid, that operation might get 4 cents for every kilowatt hour sold. But in Net Metering, the owner doesn't get paid but gets credits that go against the energy they use, on a one-to-one basis. The end result is that the system owner only pays for energy based on net usage, or what they bought from the grid minus what they sold. In essence, the owner is getting paid as much as 15 cents or more per kilowatt hour, not the market rate which can be a quarter or less than that. It's a sweet deal for the system owner, so maybe being connected to the grid isn't so bad after all.
Net Metering is what makes solar an attractive investment, and without it solar power would simply go away for residential considerations, even with the federal tax break in place. Net Metering is also critical, because storage of energy is so rudimentary that it's near impossible to create a system that can be truly independent from the grid. Telsa has recently announced an economic breakthrough in home energy storage, but even with that, it's near impossible to run an A/C system in the evening hours without a little help from the grid.
Given all this, it's hard not to wonder: what's so bad about the grid anyway? After all, our water and sewage systems are also a grid, and no one seems to complain about them like they do with electricity. I think it all comes down to two things: high prices and the reliability and vulnerability of the system.
If I had to guess, I'd imagine that what really drives people to want to "get off the grid" are folks who are tired of paying a lot for electricity. PG&E rates in particular are quite high compared to the rest of the country, and that probably doesn't help people to feel warm and fuzzy toward their utility. It should be noted though, that PG&E sources it's energy from a higher rate of renewables and less coal that most other utilities, and this factors into the price. We are paying a premium for energy, but we're doing so because it is better for the environment. Still, the sting of a high bill is hard to get over and it's natural to want to find an alternative. Solar feeds well into this sentiment, because not only do you get to escape those high bills, but you can do so while providing clean energy.
The nature of the grid probably factors into many folks thinking as well. Whether we are talking about brown-outs or the vulnerability of the system to a terrorist attack or really bad weather, there's a sense that maybe the answer is local generation and distribution of energy, away from our highly networked and complex system. This seems to drive that sense of independence of getting off the grid.
Regardless, I think the grid is a good thing, although likely in need of restructuring as time goes on. Utilities are always in a bad position, often stuck in an either doing what they were expected to do to begin with, or not delivering on what people want. It's hard to wow people in a position like that. Yet, it's just as easy to overlook the advancements made in the system, and the service these vendors do provide.
I could go on about these things, but I will just offer one example: smart meters. Smart meters have been used by utilities to replace traditional meters and have resulted in providing data to customers that had previously been either impossible or took too much effort to obtain. I have a smart meter at my home, and can tell at any point what energy I have used or sold to the system. I even have an app for that on my smartphone. There's nothing like that for the water system, and in this time of drought, having that level of knowledge about water usage would really come in handy.
In my mind, it's not about getting off the grid, but about making the grid better, and utilities are already moving in this direction. Of course there is a lot of work to go and it's not clear that there is a vision of what the right model is. But then again, that's the exciting part about all of this. The future isn't about getting off the grid but making it work better for us, and in that sense, there is much reason for optimism. Solar panels and Net Metering are an example of this in action, although not an economically sustainable one from the utility's point of view. That leaves a lot of tough decisions before us, but exciting ones as well. Just as long as we realize that the answer isn't to simply long to disengage.
How We Got To Today
The beginning of March 2017 saw the release of the Nintendo Switch, the company's 6th home video game console. As usual with the Japanese firm's products, these devices quickly sold out, leaving buyers to either wait patiently or purchase on the secondary market at inflated prices. Meanwhile, articles about the console range from how great it is to all the issues which are holding it back. Sprinkled among these are posts from video game enthusiasts, who express an even more varied opinion of the future of the console and indeed of Nintendo itself. Missing in many of these conversations is the actual strategy Nintendo is pursuing, and why it's pursuing it.
Back in the mid-1980's, Nintendo released the Nintendo Entertainment System, or NES. Following the home video game market crash in the wake of the pioneering console, the Atari 2600, Nintendo quickly rose to the status of industry leader. By estimates from Video Game Chartz, that console sold 62 million units worldwide. It was here that Nintendo established its brands, including the Mario games, the Zelda franchise, and other properties. What many people would be surprised to hear, is that with the exception of the Wii, each successive Nintendo home console sold fewer units than the one before. Competition from Sega, Microsoft, and particularly Sony have ripped away at Nintendo's position as a market leader. This finally cumulated with the Wii U, which to date has captured a paltry 14% of the market, and will likely slide to single digits once the 8th generation of consoles has reached its end.
The main culprit in Nintendo's slide was competition from a fellow Japanese company, Sony. From the outset when they entered the marketplace, Sony claimed the "high end" of the market, offering the most advanced technology from their console. The Playstation 2, for example, was the first console that could also play DVDs, which began the process of integrating video game systems into other home entertainment media. Nintendo made the decision not to follow this path, opting for proprietary media formats, which oddly enough, was generally a staple of Sony's approach to most electronics.
Microsoft's entrance into the "high end" market essentially prevented Nintendo from competing in that realm. A generally stable, and perhaps shrinking market, the "high end" provides few opportunities for a third competitor to be successful. Sony is committed to holding onto its position, as its video game segment is one of the few remaining bright spots for a company that had been an industry leader in so many electronic markets. Microsoft is a massive company with a lot of cash, a strategic advantage in the North American market, and seemingly no intention of backing away from video games. How could Nintendo carve a path as a "me too" competitor? Some would argue that it's Nintendo's unique characters and games which would allow the console-maker to be successful in this market, should they simply provide a similar home console. That's a far from certain strategy however, and more than likely would doom Nintendo to third place and possibly irrelevance. Nintendo had to carve a different path.
Indeed, this has been a proven strategy with the Wii. Using motion controls as their unique identifier, Nintendo actually sold more consoles than either Microsoft or Sony in the 7th generation. This was largely due to Nintendo expanding the market, generating interest from people who otherwise had not considered purchasing a home console. It also succeeded in becoming a second console, one that sat next to higher end Playstations or Xboxs in many homes. Owning a Wii and one of the other machines made sense, because they offered different experiences. Both Sony and Microsoft attempted to cut into Nintendo's new found market with different motion control schemes, but couldn't compete against Nintendo any better than the other way around.
Sadly for Nintendo, they could not capitalize on the Wii's success. Part of the danger of tapping into this new market was holding onto it. As enthusiasm for the Wii dwindled, casual gamers moved away from consoles, likely focusing on mobile games that could be played on tablets or smart phones. While Nintendo attempted to hold onto relevance by focusing on interactive features and including a tablet-like controller with the Wii U, the execution proved disastrous. Nintendo could not maintain the market it created, nor could it compete in the "high end" market. To survive, it needed a different path. That left only two plausible options. First, they could leave the console market and focus on their unique IPs to produce games for other systems, or they could once again innovate and complete in a unique segment of the market.
The former option had a precedent. Sega had decided to leave the home console market to focus on producing games for other platforms once the Dreamcast failed miserably. To this day, Sega continues as a successful game developer. However game creation is a more competitive market than console making, and is fraught with development houses constantly closing, and constantly features new entrants into the market. We have yet to see any example of a console maker leaving the market and then returning successfully. Indeed, aside from attempts from Atari, we have yet to see anyone try. Thus the risk of this strategy is that there is potentially no turning back. If you leave the console market, you are likely doing so permanently, and then finding yourself in an even more difficult situation. Nintendo's game and console development businesses feed off of each other, and help it to carve out a unique niche in the industry. One without the other would cripple the company, and actually weaken its position. The Sega route, while successful in that particular case, only made sense because Sega had to leave the console market. Nintendo has not yet reached that point, and thus should not have considered that as an option.
Thus, realistically, Nintendo had to innovate and compete as it had with the Wii. In addition, the company had another strength: total dominance of the hand-held video game market. To date, Nintendo has captured about 80% of this market, and has no competitor to speak of, despite valiant attempts by Sony. For example, the 3DS, Nintendo's most recent hand-held, has outsold the Playstation Vita by more than 4-to-1. Despite this dominance, the marketplace for hand-helds seems under attack by the tablets and smartphones mentioned earlier. Thus Nintendo faced a situation where they could not compete on the "high-end" market, and while they dominated on the "low-end", the growth in that sector was limited. In retrospect, their answer was obvious: create a console that fits between these two worlds.
The result was the Nintendo Switch, a device that functions both as a hand-held and as a home console. Nintendo had to carve a niche which made the hybrid device desirable. It could not complete with the Playstation or Microsoft consoles for processing power, graphic capabilities, and the attention of the larger game studios. It also could not be as portable as it's 3DS, or have the same battery life. Thus the trick was to provide value that neither end could match.
It's easy to focus on the shortcomings of the Switch when viewed from the lens of either end of the market. However that's a trap an observer should avoid. The key to the Switch's success is not what it can't do, but what it can do uniquely. In this regard, Nintendo has focused on three key attributes.
The first is play on the go. While docked and operating as a console, you can play games on the TV. You can then remove the device from the console, and take it with you, providing minimal disruption in the process. For example, if one were to be playing a game and then needed to go to work, that person could grab the machine and simply continue playing on the way to work in a train, or during breaks. No other device has that capability.
The second is innovative motion controls. The Switch features two controllers, named Joy Cons, which can be used in various configurations. In addition, they feature robust vibration and motion control technology. Since both Sony and Microsoft have not been particularly successful in motion control gaming, this remains an area Nintendo can use to differentiate itself. This can be done through their first party titles, but it can also be done through indie developers which Nintendo has been focusing on with this generation. For the Wii, there were only a few games which took advantage of the motion controls the system offered. Studios making games for multiple systems would simply tack on these controls for the Wii version of the game, and the result was lackluster. Indie houses, focusing on the capabilities of one system, are better poised to unleash the potential of these controls. If that were to occur, Nintendo would develop a competitive advantage in the market which would increase the attractiveness of their console.
The third attribute is that each system sold can accommodate two players. While this may sound like a minor feature, it is in fact incredibly unique. Before the switch, for two players to play the same game in a mobile situation, it would require those players to have two systems which would then interact with each other. But the Switch allows two players to play against each other on one console, without the need to buy an additional controller. Game developers have already expressed an excitement over this prospect along with the fact that the Switch can more easily reach out to potential new customers in ways other hand-held devices cannot.
Finally, although not unique, it should be noted that the Switch's game stick controllers are an essential component of the overall design. Despite recent innovations in mobile gaming, the game stick remains the best input device available. The limitations of touch screen controls hamper games translating to a mobile device. The Vita is a fantastic example of this executed successfully, and the Switch is taking advantage of that as well.
No one else is competing in the space Nintendo is trying to capture. They are coming to market with a device designed to create and capture a new segment, and have done a solid job. Ultimately, the success of the Switch will come down to the games, and their ability to take advantage of the attributes described above. It may seem like a risk, but it's a well calculated one, and in reality it may have been the only reasonable option Nintendo had.