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Light -- And Shade -- For Today's LEDs

People are stockpiling incandescent bulbs the way they crammed their basements full of canned foods before the Y2K bug.

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Traditional lightbulbs are the last vestige of the vacuum-tube era. LEDs are network-able, solid-state devices. We’re witnessing a technological change that has been 130 years in the making.

And the future for LED lighting is incredibly bright. McKinsey & Co. estimates that worldwide revenue for LEDs for general lighting will mushroom from approximately $6.5 billion in 2011 to more than $75 billion by 2020, while the market share for LEDs will grow from 10 percent to 70 percent by 2020. LED bulbs use 80 percent less energy than regular incandescent bulbs, they last for more than 15 years, and can be linked to motion sensors and smartphones so that the lights dim when you leave the room.

Nonetheless, you still see reports of people stockpiling incandescent bulbs in the same way they crammed their basements full of canned foods before the Y2K bug.

The initial impulse is to blame cost. But advances in technology have nearly leveled the playing field. “Warm” white LED bulbs didn’t exist in 2002. Now, consumers can buy warm white LED bulbs at big-box stores for under $15. These bulbs will cut your home energy costs by $10 a year, reducing the ROI to under two years. If you want to look at it from the component level, white LEDs have fallen from $152 per kilolumen in 2002 to under $7, according to Strategies Unlimited, while their efficiency has risen from 25 lumens per watt to over 130 lumens per watt.

You could also blame the fear of the unknown. The greenish glow and dim light of many compact fluorescent bulbs made a lot of consumers wary.

But there is also an industry inertia problem. Simply put, all of the options that consumers will need and want aren’t on the market yet, and in some ways, that’s caused by the structure of the business. Lighting is about as old-school as an industry can be, vertically integrated and currently dominated by three to four companies. And they produce everything, from bulbs and ballasts all the way down to fixtures and switches. Take a look at a lighting catalog sometime: The thousands of product SKUs is mind-boggling.

The distribution and channel network is equally convoluted. An architect working with a building owner specifies a lighting system. The contractor then might switch the fixtures because he prefers products from a different manufacturer. But then it turns out that both are out of stock, so a third system gets installed.

Innovation can take years to emerge. In 1976, General Electric engineer Ed Hammer designed the first compact fluorescent bulb, a major breakthrough that many had considered impossible. But when GE figured out that a new factory would cost $25 million, the company shelved the idea. The CFL only became reality after the design leaked out.

Solid-state lighting streamlines this by shifting lighting from being a vertically integrated business to a horizontal one. Instead of a single company designing and producing a monolithic product, horizontal technology providers are carving out distinct niches. We’re already seeing the evolution of four horizontal segments.

The first segment consists of component and technology makers such as Bridgelux, Intematix and Nuventix that are developing new LED packaging, phosphors or cooling systems.

The second segment consists of luminaire and fixture providers, who essentially buy the components and technology from the first group to make lamps and bulbs. Networking and software providers, meanwhile, are developing automated control systems that can double the energy savings while adding features such as HVAC control and advanced building monitoring.

Finally, there are the distribution/logistics companies that take the technology developed by the first three horizontal bands and bring it to the market. It’s a move we’ve seen before. Like the cellphone market, and the PC market before that, horizontal business models lead to lower prices, more rapid innovation, greater competition and quicker time-to-market. Inefficiencies and delays get wrung out of the system.

Crossover, of course, exists. You will see networking companies collaborate with component manufacturers, and some companies try to serve as both component manufacturers and full-fledged lighting manufacturers. But, as we saw with information technology, those will be exceptions rather than the rule. Technology markets invariably gravitate toward this structure.

So what happens to today’s multibillion-dollar lighting companies? While many will continue to invest in fundamental lighting technologies, most will become masters of logistics and sales. Traditional lighting companies own the longstanding channel relationships and understand the customer. And the ability to innovate in logistics and distribution remains substantial.

Amazon and Dell, respectively, revolutionized retailing and PCs through innovations in customer relations. Many of the mainstream lighting companies will likely become the leaders in financing models that let customers pay for new lighting from their savings.

While you can argue that LEDs have yet to become a consumer mainstay, solid-state lighting is already firmly ensconced in the commercial market. LED is now the default choice for new construction and retrofits. “Green” buildings enjoy lower vacancy and higher rental rates than conventional buildings, and higher rental rates translate directly into higher capital values. The Department of Energy estimates that solid-state lighting has the potential to reduce lighting electricity by 46 percent. Just by changing lightbulbs, property owners can lower their operating expense and boost their capital expenditure at the same time.

And these benefits are being viewed from the perspective of a U.S. and European buyer. More profound changes await emerging nations, where more than 1.6 billion people will get access to electric light on a regular basis for the first time.

We have the technology. We just need to coordinate our actions.

Brad Bullington is CEO of Bridgelux, the global leader in solid-state lighting (SSL) performance and system optimization. Reach him @Bridgelux.

This article originally appeared on Recode.net.