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Smartphones & Electric Cars: Is Tesla about to disrupt incumbent car manufacturers?

Two days ago, I sat in the passenger seat of a Tesla Model S. The most surprising insight was that there were no surprises while driving this car. In the below blog, I will compare the smartphone market in 2007 and today with the market for electric cars, in order to make predictions for the latter going forward.

When Steve Jobs introduced the iPhone at Macworld in January 2007, the reception in the media was enormous. In the next six months, the iPhone has been the subject of 11,000 printed articles.1 Of course the executives of the big players at that time – Nokia, RIM and Palm – heard about the product but apparently did not take it seriously – their answer to the challenge posed that night launched not earlier than five years later. Building a smartphone is incredibly difficult. The competitors must have been sure, that Apple – having no knowledge base in this areas – would be doomed to fail. When the iPhone was released in June 2007, David Pogue found a few standard features of smartphones missing: “There’s no memory-card slot, no chat program, no voice dialing.” You could not take videos, or send MMS, and not install software made by  others than Apple2. The iPhone – despite being away from being perfect – fascinated the people.

Seven years later, the smartphone market is vastly different. Market leaders have been either acquired, are bankrupt, or both. Two players – Apple and Samsung – make more than 100% of the profits of the market, which means that their competitors are bleeding cash.3 Recently, low cost products from Asia have put more and more pressure on the lower end of the market. “Huawei, LG and Lenovo each grew their smartphone shipments around two times faster than the global industry average”.4 As smartphones are becoming commodity products, differentiation that is rewarded by customers paying a premium is key to make profits. As Apple is a fully vertically integrated company, they are in a comfortable position to do so. They “just” have to incrementally improve hardware and software and support its proprietary leading app ecosystem. Samsung, on the other hand, tries to get there, by adding new features5 and self-developped apps.  Google and Facebook seemingly have shifted their hardware dreams to the next hardware breakthrough.  

We are witnessing textbook disruptive innovation. A new product, initially inferior in many ways and superior in others, improved over time and eventually turned a market upside down. Only companies that initiated that change or adapted quickly were able to stay in the smartphone market.6 I wonder if the same might happen in the car manufacturing market. The electric engine (+ lithium batteries) is a disruptive technology, inferior in range and weight, but superior in acceleration, maintenance costs and in energy consumption, that can be produced eco-friendly and potentially without limit.

When Elon Musk introduced the Tesla Roadster in 2006, the car was seen either as the future of automobile7 or as a toy for the rich. A valid conclusion: low volume means low impact. Other car manufactures started to work on electric cars as well, but only half hearted. However, the ergonomics and the quality of the Tesla Roadster were good reasons for critique. Not only in these regards, Tesla’s second car named Model S, that has been shipped in the U.S. from June 2012 on, was a big step forward. It proved, what most car manufactures said to be impossible: building an electric car with a range of more than 300 km. And this car was not a unique proof of concept but is produced on a higher volume – 22.400 units in 2013 – and due to its price skimming strategy even sold with profits. They were not the only company launching an electric car, but they created the biggest buzz and positioned themselves as the most innovative car manufacturer.

I think it is safe to say, that electric motors will supplant combustion engines. The incumbent car manufacturers probably think that they still can catch up with Tesla once consumers widely adopt EVs. Yet, I am not sure, if this will work out, considering what happened in the smartphone market. Once car manufactures are on the same level technology-wise, it will get even more interesting. Electric drives are not rocket science. It will be more difficult to differentiate from competitors than it is today. The brand (for example based on being the first company that built a desired electric car), or superior design will be important factors. With the smartphone business in mind, there is a probably even more relevant area: Software and services. It is fascinating to see that Tesla obviously has these topics high up on their agenda. Software-wise: A massive touchscreen consequently replaces all other ways of input and internet services are deeply integrated (Google maps, browsing, apps). Charging stations all over the world could become an important service differentiator – and Tesla is already building them. I think that these capabilities will be crucial in the future and Tesla is building them up ahead of everyone else.8

Coming back to the drive with the Tesla Model S, the most stunning fact for me was that this car does not feel like the second car built by a startup. Incumbents were convinced that they were safe from new entrants because building gasoline-driven cars is very complicated. It turns out that with electric vehicles that is no longer true. The quality of the interior is not quite comparable with a BMW, but it is amazingly close. Incumbent car manufacturers should be scared of what is coming next.

The first serious competitor to the Model S in my opinion is BMW’s born-electric i3. While sharing the same drive technology, they differ in key aspects that have major implications:

  • i3 is meant to look  noticeable novel, S like a classic limousine
  • i3 is made for cities, S is not optimized for a specific terrain and offers more space for luggage and passengers
  • i3 is meant to complement to a 5er BMW, S is meant to replace a 5er BMW
  1. http://www.nytimes.com/2007/06/27/technology/circuits/27pogue.html []
  2. the app store was released one year later, in July 2008 []
  3. http://daringfireball.net/linked/2014/02/12/phone-profit-share []
  4. http://stratechery.com/2014/two-bears-revisited/ []
  5. e.g. automatic scrolling []
  6. Documents show, that Android reacted to it immediately and moved from a Blackberry clone to an iOS clone http://www.theatlantic.com/technology/archive/2013/12/the-day-google-had-to-start-over-on-android/282479/ []
  7. http://www.washingtonpost.com/wp-dyn/content/article/2009/01/23/AR2009012301591.html []
  8. Not to forget their upcoming battery factory. Supply of these is the only thing limiting production right now. []
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“→ The End of Food”

What if he went straight to the raw chemical components? He took a break from experimenting with software and studied textbooks on nutritional biochemistry and the Web sites of the F.D.A., the U.S.D.A., and the Institute of Medicine. Eventually, Rhinehart compiled a list of thirty-five nutrients required for survival. Then, instead of heading to the grocery store, he ordered them off the Internet—mostly in powder or pill form—and poured everything into a blender, with some water. The result, a slurry of chemicals, looked like gooey lemonade. Then, he told me, “I started living on it.”

Soylent does not only provoke the question, if we could live only from a drink containing the basic chemical combinations a human body needs, but also about the value of food for us in general. Personally, I could never give up eating vegetables and fruits, because the experience of eating and getting together with others gives me so much satisfaction. However, quite often I  - and probably many others – don’t take the time to make something good, instead eat hasty, unconsciously and alone. In this case, a healthy drink could be the better choice.

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→ The Next Facebook

There’s a small population of early Internet users that grew up using services, like Forums, where interacting with relative strangers was the thing to do. Those folks probably snickered when they read this sentence:
…the people we’ve been hanging out with on the Internet all along: our friends.
For good reason, too! Forums, BBS, IRC: The new connections and communities that these tools engender are what makes the World Wide Web (of People) so special. However, interacting with “strangers” online is (resoundingly) not something that “normal” people do often, if ever. Essentially, anyone who went through puberty with Facebook has only known an Internet that is filled with familiar faces. My hunch is that The Next Facebook will change that. In fact, I think that will be its core (though probably implicit) value proposition: interacting with cool people that you don’t know, or don’t know that well.

The author of the text founded potluck – a service that tried to connect people over recommended articles and initiated discussions around them. It was able get attract early adopters, but never became a mainstream thing. Facebook bought them eventually.

Making friends over the internet seemed to be actually happening before Facebook came along.  Right now a lot of startups try to solve dating – a more specific form in the same category – that became more difficult as people don’t meet new people after graduating college. Perhaps the next social platform that gets huge will solve both.

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Warum Startups ihre Nutzer beschenken

In einigen Branchen ist der Wettbewerb unter (amerikanischen) Startups so groß, dass die Nutzer der Dienste von Preisen profitieren, die unter den Betriebskosten liegen. Wie kann das möglich sein? Oft kristallisieren sich in diesen Branchen langfristig dominierende Unternehmen heraus. Zur Zeit investieren VCs sehr gerne in diese Unternehmen, in der Hoffnung, an eben diese zu geraten. Ein paar Beispiele wären:

  • Online Storage (dropbox, box)
  • Messaging (whatsapp)
  • Music Streaming (spotify, deezer, rdio)
  • Transportation (Uber, Lyft)
  • Versand (postmates)

Für die Nutzer hat der harte Wettbewerb einige Vorteile: Fallende Preise, ständig neue Funktionen. Auf der anderen Seite gewöhnt man sich an etwas nicht nachhaltiges, das deshalb plötzlich verschwinden könnte. Sobald nur noch ein Unternehmen übrig bleibt, ist davon auszugehen, dass es mit den Geschenken vorbei ist.

Artikel

“→The Invention of the AeroPress”

The Invention of the AeroPres

“Among coffee aficionados, the AeroPress is a revelation. A small, $30 plastic device that resembles a plunger makes what many consider to be the best cup of coffee in the world. Proponents of the device claim that drinks made with the AeroPress are more delicious than those made with thousand-dollar machines. Perhaps best of all, the AeroPress seems to magically clean itself during the extraction process.

Artikel

“→ Why Amazon’s Fire TV is a guaranteed hit”

David Pierce:

Amazon doesn’t innovate by crafting new product categories, like Apple does. It also doesn’t make much money selling its hardware. Instead, it takes all the data it gathers as the world’s biggest online retailer, breaks down exactly what’s available and what consumers want, then produces a piece of hardware that it can sell cheaply in order to bring consumers into its ecosystem. Just as Netflix created House of Cards to satisfy the particular tastes of its viewers, Amazon made the Fire TV because millions of buyers are already looking for it. To understand the Fire TV is to take one glance at Amazon’s best-selling electronics list: two Roku models, Google’s Chromecast, and the Apple TV are the only non-Amazon devices in the top 10. The world’s largest online retailer just took on all three.

(Via MG Siegler.)

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“→ Freut euch nicht zu früh”

SZ-magazin:

Nach der Finanzkrise vor fünf Jahren versprachen die mächtigsten Politiker der Welt, sie hätten die Lage jetzt im Griff. Doch ein Blick hinter die Kulissen zeigt: Seitdem ist alles schlimmer geworden. [...]

Und so ist der Londoner Gipfel von 2009, der »entscheidendste Gipfel«, gescheitert, weil drei Sätze damals falsch waren:
1) Dass die USA Verantwortung tragen. Sie müssen es nicht.
2) Dass die Briten aufräumen. Sie wollen es nicht.
3) Dass wir das Monster zähmen. Wir Deutschen können es nicht.