Ember, Rising to Profitability, Wants to Network the Smart Grid—and Home Security Systems

12/1/10Follow @gthuang

Ember is one of those companies that defies a quick explanation. For starters, it has been around for nine years. And if all goes well, 2010 will be its first profitable one.

It has been a long climb for the Boston-based firm, which makes wireless networking technologies that help consumers and utility companies manage home energy consumption. Specifically, Ember focuses on making chips and software for low-power, low-bandwidth radio networks used for two-way communications. That sounds pretty tech-y, but as I learned when I caught up with the company last month, the technology is getting much closer to mainstream use.

Ember works with utilities, but sells its products primarily to companies like Itron (NASDAQ: ITRI) and Landis+Gyr, which make “smart meters” and other cutting-edge equipment for the electric grid. Smart meters are devices that let utilities predict peak energy usage times and adjust homes’ electricity use so as to conserve energy. Coupled with a smart display or thermostat, the devices also let consumers track how much electricity they’re using in their homes so they can save on their individual energy bills (and live greener lifestyles). What Ember provides, essentially, is the secure communication link between these homes and utilities.

The company was founded in 2001 by MIT alums Rob Poor and Andy Wheeler. Their original vision was to develop software for wirelessly networked sensors and control systems for supply-chain management, commercial buildings, and industrial applications like detecting temperature and fluid flow in oil pipes. (You can read my 2003 interview with Poor in Technology Review here.)

Along the way, Poor and Wheeler left the company to pursue other projects. But over the years, Ember hasn’t made so much of a radical change as some minor shifts in its priorities. First, it evolved into a chipmaker as well as a software maker, and has invested heavily in ZigBee, an open industry standard for wireless networking technology. And in 2006, around the time that Bob LeFort came on as CEO, Ember started to focus on energy management as its main commercial application.

Now that approach finally seems to be paying off, in terms of adoption—and revenue. “It’s the first time we’ve heard people talk seriously beyond small pilots of putting things inside the home,” LeFort says. “It’s not mainstream yet, not millions [of homes], but it’s beyond hundreds and a few thousand.”

Ember had its first profitable quarter in the first three months of 2010, and has followed that up with strong enough growth that LeFort predicts it will be profitable for the year. The company’s quarterly revenues have been in the $8-10 million range, he says, and it expects to have total sales of $30-35 million this year, as compared with $13 million in 2009. Ember currently has 63 employees, and has raised some $89 million (including $8 million last year) from venture capitalists and strategic partners. Its investors have included Polaris Venture Partners, GrandBanks Capital, RRE Ventures, Vulcan Capital, DFJ ePlanet Ventures, New Atlantic Ventures, WestLB Mellon Asset Management, STMicroelectronics, Hitachi Corporation, and MIT. Its strategic partners include Chevron Technology Ventures and Stata Venture Partners.

The company faces plenty of competition from the likes of Texas Instruments, Atmel, Freescale Semiconductor, and NXP. But these firms tend to come at problems from a semiconductor perspective, rather than from a networking perspective, as Ember does, LeFort says. And Ember’s networking technology is increasingly being used in smart-metering projects in places like California, Texas, and Michigan, which bodes well for the company’s business.

What about business in Massachusetts? The state is “really doing interesting things in smart energy, but less so in smart grid and infrastructure,” LeFort says. Although Massachusetts is fairly progressive in terms of its state energy policy, he says, it is “not one of the leaders” in smart-energy infrastructure.

Ember does have another major sector it’s working in besides energy—and that is home security, monitoring, and automation. It’s still early, but it’s not too much of a stretch to imagine the same networking technology that’s in smart meters (used by utility companies) being put into light switches and motion detectors, and perhaps being used by cable companies and telecommunications firms to compete with security companies like ADT Security Services.

Lastly, I asked LeFort whether he feels pressure to sell Ember if and when it becomes solidly profitable. “We’re not looking to be acquired,” he says. “We should manage our business every day as if we are going to IPO and be the next Intel. If something else happens along the way that makes sense, then so be it.”

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com or call him at 617-252-7323. Follow @gthuang

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