LEDs Open New Markets And Business Models For Osram & Philips

As replacement rates decline, Osram and Philips are seeking to stabilize revenue with multi-year contracts. Key to the new business model is to provide installation and management services over many years, said Eric Rondolat, head of Philips’ lighting operations. “It’s not about product anymore: It’s about product, systems and services,” Rondolat said in an interview in Frankfurt.

“It used to be the case you could leave a light bulb in a warehouse for three years without any problem,” Osram Chief Executive Officer Wolfgang Dehen said at a Munich conference on March 18. “Now, LEDs are developed, produced and sold all within six to nine months.”

While they pose challenges to manufacturers’ profits, demand for energy-efficient LEDs help open up new markets such as Africa, where many people have limited access to electricity.

Next to Nyachebe Beach along the Kenyan shore of Lake Victoria, 50 miles south of the equator, Osram has been trialing a service solution. Battery-powered lighting packs can be leased by locals and returned to solar-powered energy stations. That enables local fishermen to harvest their catch well after sundown.

“We focus on Africa as we regard this as a big untapped market,” Nick Kelso, a spokesman for Philips Lighting in Africa, said by phone. “That we’re able to tap into this market has become possible only in the last few years due to the LED revolution.”

For city clients, both Philips and Osram can also connect their lighting systems to mobile phones or motion sensors in office blocks so that areas can shut off lighting and air conditioning if nobody is around. Philips’ Rondolat said his company is already making about 428 million euros in annual sales from connected light offerings, which involves all light sources, not only LEDs.