Thursday, August 28, 2008

Revolutionizing a market just by changing the business model

Yesterday I decided to read in bed a bit and check out the latest issue of my favorite magazine Wired (yes, now that I have borrowed a MacBook Air, I am reconsidering my initial opinion. It is in fact quite light and comfortable, regarless of that it takes almost as much space as a normal computer). Before I comment on what I read, I want to stress how cool it is that Wired issues are all available online. It's just a matter of setting a reminder in the calendar so that you can have a look at the latest issue instead of feeling like browsing an archive. No more expensive subscription for me :-).

Anyway, the article which caught my eye was the title page one. Of how Shai Agassi, 38 years old, is audaciously set on completely getting rid of the dependence on oil in the car industry. That's a pretty highly set goal.

Agassi wants to accomplish this great feat by using existing electric car technology (no hybrids or any of that mess) and circumventing the issues of large investment cost and limited range by setting up the "fuelling" network in a similar way as cell phone operators work - if you commit to a subscription for a certain time, your expensive car will be paid for partly or entirely by the operator. Since the operator also owns the battery in your car, when you need to "fuel up" rapidly, like driving into a car wash, you can having your battery rapidly replaced for a fresh one with little extra cost. They also have other clever details in that system, such as navigation support, parking/refuelling and route planning to make sure you always get the cheapest energy.

Now we of course may have our opinions about the power granted cell phone operators in that existing business model, and maybe it's very basic to an average business student, but I'm really impressed by the way of amortizing large investments onto subscriptions and lowering the entry treshold for new customers. I really hope better place makes it, and fast!

Actually I've myself recently been in touch with a business idea which could benefit from the subscription model in terms of spreading out the cost of an expensive system. Though there's no good way to "lock" the clients to the subscription and otherwise force them to stop using the system, and the initial setup pretty much makes it all run indefinitely, partly because it's a matter of training and knowledge. At the same time, it would be nice to give the clients the opportunity to try things out and realize the system is so good it's actually worth the long-term more expensive subscription, if they initially are reluctant to chuck up all that money for a system the value of which they are not certain of. Anyone good at product management who would share ideas?

(Update: Shai Agassi has a blog called "The Long Tailpipe")

(Update 2: Finally, PRI's The World: Technology Podcast 229 mentions Better Place. PRI's WTP is a very nice podcast, do check it out and subscribe to it)


Henrik Ahlen said...

See that you also like Wired! It has been my favourite mag for a long time. I even have the first issue, 1.01 framed on my kitchen wall!
Check it out and get a feeling of 1993: For exmple the story by Bruce Sterling on electronic warfare.

Carl-Johan Sveningsson said...

Wow... coooool... but how does that numbering work - it's the years since they started and issue in a year?

1993 is a long time ago, I was 12 years old then. I just love that it's available online too, since I barely had time to read the paper issues I paid for. Now I was reading half the night from Opera Mini on the cell phone!

If you like computer history keep your eyes open for my post on the greatest book on that topic!

Ashish Gupta said...

I think its a bit tricky than it appears. For cellular operator, the main source of revenue is its network (voice, sms or anything for that matter). Attracting customers with cheap phone deals is a way to bind them with the netowrk. The more a customer make use of the network, more operators earns.

With this car model, ironically, the real source revenue is the car itself (not like the phone). Customer can always choose not to
use its refueling service. Isn't it ?

Henrik Ahlen said...

Sajten Better Place är ett mycket föredömligt exempel på opinionsdrivande sajt som utnyttjar internets möjligheter väl. Brilliant gränssnitt med "our bold plan" som både funkar som snabb, enkel förklaring av hela konceptet och som meny för att gå djupare.

Jag gillar även att sajten lyfter fram sitt video gallery och att de lagt ner möda på att göra så genomtänkta videos.
T ex det gamla knepet att utnyttja barn, funkar alltid när det gör så här proffsigt:

Jag har bloggat tidigare om vikten av att kommunicera så här snabbt och tydligt på startsidan av en sajt:

Carl-Johan Sveningsson said...

@Ashish: Umm... not sure, but they can definitely commit you to a fixed consumption plan, and then you'd better use it if you had paid for it. And the guidance systems may be tied to an operator... I don't know how you would sim-lock a car :-P

Carl-Johan Sveningsson said...

@Henrik: Yeah, I agree with you! I liked that blog post of yours, and I love sites that just make me feel "GIMME THIS, NOW, PLEASE, WHERE DO I PAY?" even if the second feeling may have a touch more of realism to it.

What do you think, how can BP commit customers to only use their (probably a tad more expensive) power plans?