DIY : Are Smart Windows the future? – Strategy Dynamics – Medium

Advanced materials can change the way you feel, what you see and how you interact between the inside and outside environment

The Why

Windows are a fascinating part of building design. They create a connection between the inside and outside. They are fragile and thus make us more vulnerable. This fascination with windows as a building material since the 13th Century BC and has been a critical material to introduce light into a building. Though it wasn’t until the 1950’s that the modern float glass process for making large scale glass panes that we started to see a movement towards all glass buildings. It is hard to see a modern building that doesn’t have a facade that is largely made of glass.

The downside of a glass window is that it allows the sun’s heat through the window. This is called the solar heat gain. This is where smart windows enter the equation. People often use blinds and curtains to avoid this solar heat gain, but now are disconnected from the outside. A smart window is intended to reduce the solar heat gain while also creating a transparent view to the outside. Below is an example of two companies I evaluated in 2010 for a project. These are two thermochromic solutions where a chemical is activated when the glass heats up with the sun and thus limits the solar heat that can penetrate the glass.

One thing I found surprising is that you may want a solution like the above even if it is below zero outside. This is because on a clear sunny day it can cause a building to heat up — think the greenhouse effect.

The main challenge of heat gain is the strain on air conditioning. The more heat inside the more cooling is needed and thus more heat is created. This also has a secondary effect of creating a heat island due to the exhaust from the air conditioner. I will take a look at future of air conditioning in another post, but the basics of air conditioning is that you are replacing warm air with cool air and pump the warm air into the outside environment.

The options

As I evaluated the space there were two primary dimensions that I evaluated

  1. Is the the transmission of fixed or variable?
  2. Is the mechanism for changing the transmission active or passive?
Source: logos from company sites

Through this 2×2 I was able to define the above quadrants to evaluate the market for smart windows. Generally the goal is to be in the upper right quadrant, which is a true definition of a “smart window”. There are some emerging materials that look to shift a solution from the bottom right to the top right. In a recent Science Mag article there was discussion of a new material out of UC-Berkeley that creates a dynamic smart window that generates electricity. Below is a quote on these new windows from the Science Mag article.

These new windows offer a possible route to smart windows and solar windows at the same time. The best ones convert more than 22% of the energy in sunlight to electricity, compared with 25% for silicon. By changing the elemental components, researchers can also control their transparency. What’s more, the starting materials for these windows are far cheaper than existing solar cells.

The Value Chain

My assessment of smart windows in 2010 was my first exposure to a detailed value analysis, including customer interviews across the value chain. This process was extremely valuable as it helped me to fully understand the complexities of the window value chain and decision making process.

A few key call outs from this process:

  • Lifespan of Building. Given the desired length of a time a building exists this likely impacts decisions to invest in a technology that still hasn’t been proven. The cost to replace windows is nearly the same as the install and thus architects and builders aren’t likely to make decisions with large risks. It will take a while to get adoption and prove the concept.
  • Builder vs. Tenant Decisions. The biggest factor is that windows and window treatments are two decisions and not thought of together. Window treatments to reduce sunlight can cost more than the incremental cost of a smart window. This decision though is generally made by the tenant of a building, not the developer of a building.
  • Margin gain. Companies want to achieve their desired margins. This can be challenging in a complex value chain like windows. If a fabricator sells the product for $25/sf and the glazier needs to hit a 25% EBITDA they will need to markup the film to cover their margins. This is part of the reason you see View and Sage making their own windows to avoid double marginalization.

The future

A competitive strategy wouldn’t be complete without a look at alternatives and substitutes. Clearly glass is a very desirable building material though there is some indication we might have reached “peak glass” as it pertains to the design of buildings. The future buildings may look to other materials that are more sustainable. This change in design might be enough for window manufacturers to start the shift to smart windows.

Though given the explosion of glass buildings over the past couple decades the problem will be how to replace the existing windows with a better solution as they age. The keys to the future lie in the ‘after market’ solutions for window replacement.

Retro

Looking back at the market that I saw 8 years ago and what I see today there is definitely progress being made. View, which was Soladigm in 2010, has raised $700m since my first analysis when they were little more than a research experiment. Sage was acquired in 2012 by Saint-Gobain, one of the largest glass companies. Raven and Suntuitive (formerly Pleotint) have both grown, though not at the same rates as View and Sage.

The reality is that the value of the smart window has not overcome the cost. This is partly due to relatively low electricity prices. In 2010, there was potential of a cost on carbon that would have raised the effective cost of electricity and made the decision more likely. Costs for smart windows are roughly equivalent to solar PV, which would require a cost of carbon at or above 20 euros/tCO2.

Source: McKinsey Cost Abatement Curve

Smart windows can still play a role in our future of home improvement, but the switching costs from the existing passive solutions to a dynamic solution require fundamental shifts across the value chain — including homeowner demand. With rising housing prices it is unlikely that smart windows are a key solution to home improvement within the next 5–10 years. I look forward to looking back in 8 years to see how much has changed. I remain hopeful that a solution will emerge and we won’t need window treatments.

References

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