Radically re-thinking the automotive business model

The other day, the Wall Street Journal featured one of the most inspiring stories about innovation that I've read in quite some time. Shai Agassi, once a fast-rising senior executive at software giant SAP, left the company in March under mysterious circumstances and dropped off the grid, only to re-surface this week, flush with $200 million in VC funding and a radical idea for disrupting the automotive industry. This, despite the fact that until 2005, he knew little to nothing about automobiles and even less about alternative energy. (At one point, investors were throwing money at Agassi, even though he didn't even have a name for his company). As Jason Hiner of Tech Republic points out, Shai Agassi is now the man of the hour when it comes to thinking about innovation within the automotive industry:

"On Monday when I flew to New York I couldn’t get away from Shai Agassi (right), the former president of enterprise software maker SAP. I first spotted him on an airport TV being interviewed on CNN. Then I read a feature story about him in The Wall Street Journal, which I picked up to read on the plane. Then, when I arrived at my hotel I went online and discovered a blog post about Agassi written by my colleague Dan Farber over on ZDNet.

Agassi was everywhere because he publicly re-emerged from obscurity after resigning from SAP in March. Agassi’s new gig is called Project Better Place and its mission is to create a new platform and ecosystem for electric cars, and Agassi has raised $200 million to get it off the ground.

What Agassi’s Better Place wants to do is to separate the battery from the car, get automakers to standardize on a single battery type, and then set up a network of charging sites (run by Better Place) where cars can drive through and have their batteries changed. Agassi says that current technology allows for batteries that can power cars for 100 miles.

Under the model that Agassi is proposing, cars would be sold without batteries by the car makers (potentially bundled with batteries by the car dealers) and Agassi’s company would sell monthly subscriptions to consumers for swapping out their batteries at charging sites."

This is a radical idea. According to the Wall Street Journal, Shai Agassi basically woke up one day and asked, "Why can't the automotive industry look a lot more like the mobile phone industry?" In other words, Agassi began thinking of auto "re-charging stations" as being part of a large national network, with people owning electric cars having access to this network. Instead of paying cash for gas at gas stations, consumers would now pay a monthly subscription fee to "re-up" their electric batteries:

"In the early years of his company, he expects to distribute cars directly to companies or other large buyers. But he eventually expects consumers to get their cars from conventional dealers, while he operates an infrastructure that includes the batteries and the charging network. He likens his company to a wireless provider, such as AT&T, that provides a subscription service that makes phone calls possible, while auto makers would be like handset makers such as Nokia."

Mad props to Agassi for having the conviction to follow his dreams. Be sure to check out his blog: The Long Tailpipe.

[image: Shai Agassi at SAP]

Comments

[James Todhunter]

This is a great example of looking at the whole product ecosystem when developign innovative market strategies.

[K T Cat]

This is a stupid idea. First, 100 miles is nothing. I get 300 miles on a tank of gas and it takes 5 minutes to fill it. Going 100 miles and then taking forever to fill it or then having to swap out batteries is ridiculously bad.

Second, batteries are horrific for the environment. They invariably decay and contain large amounts of incredibly toxic materials. Mounds and mounds of dead batteries are not an environmental improvement.

Telecommuting for all who can do it is the only real alternative to driving.

[Dominic]

Trying to save the environment is a "stupid" idea? The hardest part about "going green" is convincing Americans to pay more for alternative energy and take on a few more inconveniences in order to wean ourselves away from foreign oil. I think Shai Agassi is a brave, visionary leader for challenging us to do exactly that.

Anyway, since you don't like the electric car concept, might I suggest the documentary "Who Killed the Electric Car?" :)

[car contract]

Actually he could have been right if you had to really stop every 100 miles. Yet, if you actually think about it we don't need to take 300 miles worth of energy with us if every place where we stop (usually: work, home, downtown, mall) we get magically topped off. In that case we only swap out a battery when we drive more than 100 miles IN ONE SHOT WITHOT ANY STOP.

If you think about how many times a year you do that (even if you live in Texas) most people answer a handful of times. In that case you would drive through a battery station 5-10 times a year. That is a 5x improvement on the number of times we stop at a gas station...

I call that a convenience...

[car contract]

Actually he could have been right if you had to really stop every 100 miles. Yet, if you actually think about it we don't need to take 300 miles worth of energy with us if every place where we stop (usually: work, home, downtown, mall) we get magically topped off. In that case we only swap out a battery when we drive more than 100 miles IN ONE SHOT WITHOT ANY STOP.

If you think about how many times a year you do that (even if you live in Texas) most people answer a handful of times. In that case you would drive through a battery station 5-10 times a year. That is a 5x improvement on the number of times we stop at a gas station...

I call that a convenience...

[Jim Belfiore]

The proposed change in business model is certainly a fresh idea for the automotive industry.

However, I agree that it shifts one set of problems for another, specifically what to do about the large scale disposal of rechargeable car batteries.

A more revolutionary innovation perhaps might be one that anticipates a need for the materials in the disposed batteries, transforming them from toxic waste into a highly valuable resource.

[Jacob]

The main problem with the electric car is battery costs.
This "new model" of whatever, does nothing toward reducing battery prices.
If batteries weren't that expensive, a lot of people would buy and use electric cars, without this "network".

[Amit Nisenbaum]

What you guys are missing is the fact that these cars are powered by Lithium-Ion batteries that could be recycled and are environmentally friendly.

Also, one could expect that battery technology like other technology based commodities will follow Moore’s law where performance (followed by cost) doubles every 18 months so I expect price to be less of an issue by the time this ventures gets to mass scale commercialization. In addition, solving the price issue is at the core of this venture. Its unique business model is all about that. I suggest that you will read this article for more - http://www.nytimes.com/2008/01/21/world/middleeast/21israel.html?ref=world

[Jane]

I agree with Amit Nisenbaum. It would be ecologically and scientifically amazing to be able to have vehicles that are environmentally friendly to such a large degree. Once they work the kinks out this is going to be the new driving force behind North American industry.