Every so often, someone with a talent for big thinking dreams up a game-changing move, a strategy that radically shifts the basis of competition in a particular area. If they also have a talent for persuading others to buy into the idea, literally and figuratively, it might actually see the light of day. A recent example was the announcement that a former software executive, Shai Agassi, had raised $200-million in initial funding for a venture proposing an unconventional approach to the electric vehicle market. In this model, consumers would buy electric vehicles without the power source, i.e., the expensive, short-range battery. They would then pay a monthly subscription fee for use of a battery supplied by Agassi’s company, and pay for access to its network of charging sites/service centers. The result: more affordable electric vehicles, a critical mass of recharging stations, and a much faster ramp-up for the electric vehicle (EV) industry.
The game-changing nature of the concept lies in its treatment of the battery as an external fuel source, like gasoline, rather than an integral element of the car. The entrepreneurial Agassi uses an analogy from outside the auto industry, likening the business model to that of mobile telephone operators that build a network of towers for cell phone coverage. The economic calculation of EV consumers then changes; their upfront investment does not include the cost of the battery, which, according to some sources, can account for half the purchase price of the vehicle. Also, the residual value of their asset is higher without the rapid depreciation of the battery. The automakers are spared from being in the battery business, which they do not see as core or desirable to their own strategy. The requirements for battery development will change if a viable charging network can offset the need for more power. Under these circumstances, different companies might be interested in being involved in battery manufacturing. And the opportunity is opened for a set of battery leasing competitors.
The magnitude of the challenge in accomplishing the vision is obvious. How do you persuade the carmakers to build vehicles with easily-accessible, removable batteries that are suited to these service centers? What kinds of connections are needed to be reliable and durable? Will standards and specifications ensure equivalent performance whenever a spent battery is swapped for a fresh one? How do you get started with enough service centers to attract consumers? What if battery technology improves enough to make frequent recharging less of an issue? Who has the billions of dollars in patient money to fund this and see it through?
That all remains to be seen, and history suggests that it could go either way. Two famous game-changers illustrate the point. PEOPLExpress Airlines was one. Its plan in 1980 was simple: buy cheap, used airplanes, make short hops in a densely populated region, and keep fares lower than the cost of driving. The company’s experience proved the elasticity of demand; low fares brought load factors approaching 100% almost immediately. If you lived in the Northeast during that decade, maybe you paid $35 to fly from Newark to Boston and experienced the novelty of no assigned seats, paying your fare on the plane, buying your can of soda, and being entertained by quirky employee-owners. A victim of its own success, the company foundered as it grew and by 1988 it was gone.
A happier story is Federal Express, the air express firm incorporated in 1971, back before we even knew that we “absolutely, positively” had to have it overnight. The challenge for FedEx was in designing an efficient distribution system and building a national network for overnight air package delivery in advance of demand. Today, the $35-billion company has evolved into a set of operating companies in related worldwide businesses of express delivery, ground service, freight carriers, integrated logistics and technology, Kinko’s retail, and others. Of course, this evolution was necessary as FedEx itself was affected over time by the game-changing growth of e-mail and electronic document distribution.
Other instances of game-changing moves within the auto industry take different forms. Building an SUV with unibody rather than body-on-frame construction, for example, gave us the highly-popular crossover SUV, changing the game of SUV design, styling, and handling and creating strong competition for traditional SUV models. Build-to-order as practiced by Dell Computer (if you specify, they will build) would have a broad impact on methods auto manufacturing and distribution, but that is a long way away, unless a visionary finds a way to accelerate this game-changing move. Most innovation, even of the game-changing variety, is on a smaller scale, such as the addition of sliding doors to both sides of a minivan rather than one.
Looking at a product or a system in a different way can change the basis of competition. The ability to see and undertake such a project is not a widespread trait. For the less creative of us, it is exciting and interesting to watch, even if it prompts the question, “Why didn’t I think of that?”