“It’s tough to make predictions, especially about the future”. Or so Yogi Berra said.
What is even harder is to anticipate disruptions before they are upon us. It is tempting to dismiss change as being impossible, especially when it affects businesses that we know intimately. Yet to develop innovative solutions we need to think differently, be adaptive, and embrace disruption. Let me share a few examples that should resonate.
I think of myself as an early adopter, but I remember thinking mobile phones would be more or less limited to business executives. I agreed with McKinsey when they famously told AT&T that the total demand for cellular phones would never amount to more than 900,000 units. Epic miss. There are now over 7 billion mobile subscriptions worldwide. And this growth happened in only about 30 years, disrupting the entire telecom sector and leapfrogging wires-based solutions in developing jurisdictions.
Sorry Mark, but I thought Facebook was a dumb idea. Now there are close to 1.5 billion active users. Facebook made net income of $3B on revenue of $12B last year. Social networks are not just a way to separate us from huge gobs of our time — they are changing how we shop, communicate and interact with each other daily. They are brand new category.
Uber hasn’t really invented anything new. They have just done a pretty flawless job of combining existing technologies, complemented by unflagging ambition and aggressive expansion plans. They are disrupting the taxi and limo business — with a product that hundreds of thousands of people agree is just better in pretty much every dimension (convenient, faster, more transparent, etc., etc.).
So what about disruptive technologies in electricity?
I am not the first to suggest that our energy systems are ripe for disruption. But, there are just as many rational observers who say these systems will resist disruption for some time — the rationale being that energy systems are too physical, can’t easily be unraveled and that alternatives are not yet cost effective. In other words, “those previous disruptions were different”.
But what if they aren’t.
I think we can look at electric vehicles as an example of a complex disruption in progress — of the automotive sector.
As with electricity systems, many observers feel that in the automotive industry, incumbency of established manufacturers, scale of investment required, supply chain complexity, and technical and physical challenges of building cars will somehow protect the sector from disruption.
Tesla has already done what many thought impossible. They have built cars — with all of the supply chain implications – and have achieved global sales success (selling in China, South America, Europe, North America, etc.). They have established dealer channels (really innovative ones, in malls!) and do at least some service remotely (over-the-air upgrades!). I personally know at least five people who own Teslas. These are all people who are ‘car people’ – they have owned Porsches, BMWs. And they all say that the Tesla is the best car they have ever owned. Period.
Elon Musk has said he made a mistake using the Lotus body and drivetrain for the original Tesla Roadster. He says they had to make so many modifications and sacrifices to fit what was already there, that the end result really wasn’t that good (and it wasn’t). So he started from scratch with the Model S. I think this is important, because it highlights why it might well be harder for the incumbents to compete. They, more or less, have to keep what they have, because that is their advantage, right? But what if it isn’t?
Sure, Tesla is still a pretty niche, still low volume manufacturer. The point is that they have actually done it! I have seen some reasonable estimates that for Tesla to get to BMW-ish scale will take about $50B in capital expenditures. But that just doesn’t sound like a crazy amount of money to me, given their market cap.
By the way, Tesla has done all this in about the same time it takes one of the global guys to redesign one of their cars. And Tesla has spent less than $2B so far.
For sure there are challenges. But here is the key point: I don’t think Apple/Google/Tesla will do things the way they are done now. The car will be integrated with home electronics. It will be amazingly designed. It will integrate with other parts of your life. And yes, it will be electric, because that is just simpler. It will be more automated.
The problem with the existing automakers is that they are just evolving their cars, in big companies that don’t move fast, and that really don’t know how to innovate. For this reason, they just might be sitting ducks.
Lessons for the Electricity Sector
So what can we learn from this for the electricity sector? Well, we have to think about solutions entirely from the customer perspective. We have to think about what else should be integrated with a solution to make it better. Home automation? Backup solutions? Turn-key EV solutions? I am not sure I know — but I bet innovators somewhere do.
Who might be interested? Well, it is no secret that Apple and Google are both looking at the car industry. They have great caverns of cash and need to attack markets big enough to matter. TVs? Sure … But that is just a $100B market. Cars? Yeah … perhaps a $2T market. Energy? Even bigger than that! Now THAT is worth going after.
Consumers really are looking for alternatives. Less than two weeks after Tesla announced its new Powerwall, over 38,000 reservations have been made, worth approximately $625M. Despite the fact that it really isn’t economic — but it is offering a different value proposition to customers. It is offering whole home UPS, it is offering ‘cool’ and it is offering ‘different’.
More disruption is coming. To figure out how it will happen, we will have to ‘think differently’.