A Better Business Model, Please

Here’s how it goes when you buy a car: you buy a car. It’s yours. From then on you’re responsible for putting in gasoline (if you want it to move), insuring it, paying licensing fees and parking and/or speeding tickets if you tend to accumulate those. But it’s the car that you want – probably – since you could choose anything in your budget.

Here’s how it goes when you lease a car: depending on whether it’s a personal or corporate lease you pay some money each month and don’t actually own the car at the end of the lease, although there are leases which allow you to buy the car at the end of the lease. For the most part companies prefer to lease and not own cars so that it becomes an operating expense (and not a capital expense). It’s a tax thing. The leasing company pays for all the associated costs with the exception of fuel.

Here’s how it goes when you get a car from Better Place: you pay for the car, but you also pay them every month. You sort of own the car, but don’t own the battery that gives the car its go-go juice. The fee you pay allows you to drive a certain distance each month. Just like with cell phone plans, there are several packages available. You can get any car you like, as long as it’s one of the models that the company sells, of which there is exactly one: the Renault Fluence ZE. And it comes in three colours, so you can’t say there isn’t choice. Oh, and the company knows where you drive, and even instructs you on what route to take so that you can make it on the remaining charge you have or swap batteries on the way.

When enterprise customers factored in the price of the car and the monthly running costs, they came to the conclusion that the net financial benefit to owning Better Place cars was exactly: nothing. In other words, except for the feel-good of producing pollution somewhere else and not out a tailpipe, Better Place was not making any sort of value proposition. No value proposition – no enterprise or fleet sales.

And even those for whom green is a way of life and not just a colour, the Better Place model was just too difficult to understand.

Oops number three: alienating the natural customer base.

For those who did buy into the vision and were willing to set economics to the side, many suffered greatly from range anxiety or FONGT (Fear Of Not Getting There).

An average commute in the US is about 25 miles, and in the countries where Better Place was active, the average commute is a bit less. But average is just a mathematical mid-point. With a real-world range of roughly 110-120 km (or about an hour’s worth of highway driving, less going up hills) and many users commuting at least that distance daily the need for swapping/charging stations is obvious, but their proximity was never a given. Most travelers plan their routes and find filling stations on the way – with Better Place you navigated between swapping stations and hoped that there was some scenery to fill the space in between.

Quite simply battery technology isn’t where it needs to be to pull off the company’s vision. There are countless stories of founders waiting until technology caught up to their visions before launching their companies, Pixar being one example.

Oops number four: putting the electric cart before the battery.

Better Place could have better served everybody by spending lavishly on battery R&D than on lavish visitor centres. Yes, it could have put them at a competitive disadvantage, giving other companies opportunity to build other parts of the system, but a long-range, quick charge battery is exactly the technology that will push the industry mainstream. That could have been significant enough business for Better Place, giving them far more leverage with all the players than the almost-none they had. That’s for the next post.

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