INNOBLOG

This article was co-written by Josh Suskewicz.

The conversation at the Copenhagen climate conference is all about policy. But regulation won't stop global warming by itself. Nor will simply spending money on clean technologies. In the US, President Obama has earmarked a half billion dollars of initial funding for a breathtaking array of renewable technologies. This looks like bold action, but it isn't nearly bold enough. We need to be thinking on a far, far grander scale. With its financial and intellectual resources, the U.S. needs to lead this charge. But instead of backing individual technologies, the country should build a whole city of technologies.

What if we were to go into an area of our country that's seriously in need of reinvention — the Midwest — and build a city that would offer a living, breathing opportunity to create an entire clean-tech infrastructure? That's not nearly as utopian as it sounds. Here's why.

Moving from an oil-based economy to one fueled by sustainable, clean power requires more than a technology shift. It requires an infrastructure shift — a concept we explored in a recent Harvard Business Review article. Technologies don't replace technologies — systems replace systems. Fossil-fuel powered transport isn't a technology; it's a system comprising countless interconnected businesses (and business models), markets, government policies, and, yes, technologies. Replacing gas-powered cars with electric ones isn't a matter of simply swapping in new engines. It requires building the entire system that will make electric transport economically viable. Entrepreneur Shai Agassi is, at this very moment, building a comprehensive electric-vehicle infrastructure in Israel that encompasses not just the cars but the charging stations and cutting-edge power management grids and software such an infrastructure requires — a system.

Back to the green city. In the United Arab Emirates, the government of Abu Dhabi is building a clean-tech system of its own: Masdar. It's a city entirely powered by sustainable technologies, and it's their effort to create the Silicon Valley of clean tech. Masdar is being built on government-donated land, bolstered by business-friendly tax incentives and buoyed by $15 billion in government funds. It is slated to complete its first neighborhood by year's end, which will be anchored by a clean tech-focused university that just launched its inaugural class. The first commercial tenants are set to arrive in 2012; General Electric has already signed up.

In the scheme of things, $15 billion isn't an outrageous amount for a government to pony up to launch what figures to be one of the primary industries of the 21st century. Indeed, the Obama administration has pledged more than $100 billion to clean tech efforts; China, which is also making its own forays into eco-cities, is spending $200 billion; and the G20 industrialized nations have pledged upwards of a combined $400 billion.

The U.S. should take a small chunk that $100 billion and apply it to a Masdar-like
effort of its own. Imagine what a focused, coordinated effort among the government, private sector, and academic institutions could do. Rather than build from scratch, the government could use this grand-scale opportunity to revive a declining industrial city. What if the U.S. set up a smaller version of Masdar in the Midwest, say within Detroit, with the aim of creating its own Silicon Valley of clean tech?

Read the rest at the Havard Business Conversation Starters blog.

A friend in the industry sent along word of an interesting business model innovation from electric car pioneer Tesla. The company is now offering to send roving mechanics, or “service rangers,” to its customers on house calls as needed for diagnosis, maintenance, and repair work at the rate of a buck per mile traveled. This "geek squad" for cars makes the experience of owning a (still extremely pricey) Tesla more convenient and more secure, and it keeps Tesla from having to build out a nationwide network of service centers. 

Tesla’s cars are pretty wired – a central computer monitors all systems and produces diagnostic reports – which should make on-the-spot service easier. Furthermore, electric cars are much simpler machines than their gas-powered brethren; the powertrain is much cleaner and more streamlined. There is no need for oil, spark plugs, hoses, pistons, etc, so there is less that can go wrong and less need for a full-on garage for many repairs. Finally, unlike the established automotive companies, Tesla is not encumbered by a pre-existing dealer / servicer network and therefore has the ability to innovate its maintenance model in interesting ways like this one.

Taking a step back, this is another in a series of intriguing moves by Tesla to go beyond simply providing a very cool but very expensive electric car to focusing on the customer’s entire experience of use. In addition to this servicing concept, the company has also started providing charging stations to its customers. We have long touted the comprehensive system of electric mobility that Better Place is constructing (most recently in the Harvard Business Review, here) as a key step towards enabling the electric vehicle revolution, and we have issued warnings about Tesla’s strategy of targeting the high end of the market out of the gate. But if Tesla can continue moving towards a Better Place-lite comprehensive value proposition, and if it can successfully launch lower-priced models as it promises, Tesla may find itself making an awful lot of house calls in the years ahead.

Over on the Harvard Business Review Editors' Blog, Gardiner Morris takes a look at the money that President Obama and US Energy Secretary Stephen Chu have been promising to spend on energy research projects and innovations in the energy sector. Morris argues that while this money is necessary, it's not sufficient to get the clean-tech economy up and moving. He cites the recent HBR article by Innosight's Mark Johnson and Josh Suskewicz, "How to Jump-Start the Clean-Tech Economy" as he discusses the need for the systems that will make this sector take off -- the "infrastructure, business models, and regulatory regimes that clean technologies will need. 

In their article, Johnson and Suskewicz write:

Edison didn't just invent a light bulb. He created a coherent commercial system to support it. He designed a technical platform that included generators, meters, and transmission lines; he piloted the project in an ideal test market (lower Manhattan, teeming with enthusiastic early adopters); and he used his clout to get the regulatory support he needed, fighting off the lamplighters' union, among other things. In short, he imagined the business ecosystem his light bulb would need and set about methodically creating it. 

The HBR article itself is still (as of this posting) free at the link above. We invite you to read it and join the conversation: what do you think it will take to get the clean-tech economy jump-started?

• The Promise (and Perils) of Open Collaboration by Andrea Gabor | Strategy + Business

  Article looks to the quality movement for clues as to how open innovation, particularly open collaboration, can find wider adoption and greater success.

• Is This the Light Bulb of the Future? by Eric A. Taub | NYTimes.com's Gadgetwise Blog

  Phillips is the first company to enter the U.S. Department of Energy's $10 million contest to create a viable LED-based alternative to a 60-watt light bulb. Article discusses how the DOE plans to use the contest to come up with a technology that will address the faults of the launch of CFL bulbs.

• InnoCentive: A Market for Ideas | The Economist

  Discusses the initial success of Innocentive's partnership with the charitable Rockefeller Foundation to use Innocentive's approach to help solve problems posted by non-profits working in poor countries.

• Netflix Awards $1 Million Prize and Starts a New Contest by Steve Lohr | NYTimes.com's Bits Blog

  Article details the collaborative nature of the Netflix contest whose goal was to identify technology to better predict movie matches among users: "The way teams came together, especially late in the contest, and the improved results that were achieved suggest that this kind of Internet-enabled approach, known as crowdsourcing, can be applied to complex scientific and business challenges."

By Kai Itameri-Kinter

People often try to determine if a technology is disruptive in and of itself, and the short answer is usually: it depends.  On a lot of things. But one of the biggest determinants of disruptive success is the business model with which a product, or technology, is applied.  Some of the most exciting breakthroughs occur when new technologies and new business models come together, like Gillette's Mach 5 "razor and blades" model or the open application platform of iPhones.  That is why I got excited recently when reading a Fast Company article which discussed a technology that looks like it has serious disruptive qualities and the ability to unlock an entirely new business model.  What is this silver bullet? 3-D printing.

3-D printing, sometimes referred to as rapid prototyping or fabbing, boils down to the use of computer controlled machines to "print" 3-D objects.  The technology has mostly been used for various polymers, and printers usually only manipulate one type of material, but better printers are emerging that can mold metal and other feedstocks, as well as combine various materials into a single product.  The price has typically been too high and the quality too low for any significant applications outside of labs and techies' basements, but both of those are changing. The result is a technology with just good enough quality, low enough price, and the requisite stripped-down features to be a real disruptive gem.

However, what makes 3-D printing really exciting is the discussion around the potential of these printers to disrupt many manufactured goods industries.  The general gist is that instead of manufacturing at a central plant and shipping to customers globally, manufacturers would develop digital plans for a product and then manufacture locally at a smaller scale, or license to local sub-contractors, and avoid long-distance shipping altogether.  So instead of getting your desk lamp designed by a Swedish firm, made in China, and shipped to you, you could buy a lamp designed by a Chinese firm, made in your own city and shipped across town. 

Of course, there are plenty of remaining issues concerning quality control, the price of labor, and availability of feedstocks across an industry's various markets.  However, decentralization of manufacturing seems increasingly likely as you look into the future, and for one major reason:  It is generally agreed that carbon will become more costly, and some pessimistic scenarios are predicting that the foreign manufacturing model cannot be sustained due to inevitable increases in fuel prices, forcing a return to local production.  Therefore, a company that can find a foothold in 3-D printing and produce a just good enough product can simultaneously build environmental credibility by burning less fuel in shipping now while moving ahead of the curve to prepare for a huge market shift down the road. 

The potential for 3-D printing to become a real disruptive business in and of itself, as well as being the jumping off point for loads of other industries to develop new disruptive business models makes me want to say that, this time, if you asked me, the short answer is: yes.

• Retailers Cut Back on Variety, Once the Spice of Marketing by Ilan Brat, Ellen Byron and Ann Zimmerman | WSJ.com

  Will this affect the increased pace of incremental innovation in consumer packaged goods? "In the next year or so, these and a few of the other largest retailers are expected to slice the assortment of products in their stores by at least 15%, industry executives and analysts say. This is a challenge for manufacturers, who have grown accustomed to churning out incremental variations on popular products to maintain shelf space and keep their brands fresh in consumers' minds."

• IBM Aims for a Battery Breakthrough by Steve Hamm | BusinessWeek

  Article points out the GE, among others, is also making a play in batteries. "Industry leaders have called for just this kind of concerted effort amid concern that the U.S. will miss out on one of the most important technology shifts in history—the switch from gasoline to electricity as the primary power source for light vehicles. The worry is that the U.S. will trade its current dependency on the Middle East for oil with a new dependency on Asia for vehicle batteries. 'We lost control of battery technology in the 1970s,' laments Andy Grove, former chairman of chip giant Intel. 'Battery technology will define the future, and if we don't act quickly it will go to China and Japan.' "

• The 99-Cent iPhone App That Kills Print Journalism by Ray Richmond | The Wrap

  I have it. And it's good enough that it's hard to imagine how a publication could sell online access if it was also available via this iPhone app. Media disruption continues.

• MediaBugs Rethinks Corrections by Taking a Page from Programmers by Zachary M. Seward | Nieman Journalism Lab

  In a move borrowed from open source programming, startup MediaBugs purports to offer an improved, centralized method for media corrections. "Improved" partly because many media sites have no well-defined path for users to point out corrections, nor prominent place to publish corrections for readers to see.

The modernization of our electricity infrastructure – the so called Smart Grid revolution – is underway, and not a moment too soon. As an interesting overview in a recent Wired made clear, the grid was cobbled together in ad hoc fashion over the last century, and is largely one-way, mechanical, and dumb. That’s why a storm in Ohio can plunge New York City into darkness; why, as energy guru Amory Lovins preaches, every electron saved at the point of use offsets the production of three to four times that many electrons at the source (e.g. a coal fired power plant); and why the Department of Homeland Security is so concerned about terrorists targeting our power infrastructure.  In short, our archaic patchwork of a grid is vulnerable, inefficient and unreliable. It is quite damaging economically and environmentally.

Smart Grid – the application of computing and two way control to the electric infrastructure – is the solution, but it is a massive undertaking (the Obama administration has pledged upwards of $40 billion as part of the stimulus package alone). History has demonstrated that infrastructural shifts of this sort tend to be massively inefficient.  Our research suggests that a great deal of this inefficiency stems from the widespread inability of incumbents and start-ups alike to create the new business models required by new markets.

In short, grid modernization will yield immediate gains in control, efficiency, and security – at a considerable cost. We’d like to see that cost offset by the advent of new business models that open up new avenues of growth.

Indeed, Smart Grid promises to enable a number of new business model opportunities. It is widely considered the missing link that will make renewable energy work: the promise of decentralized renewables is blunted by our current grid, as it does little good to have solar panels on your roof if you can’t sell excess energy back to the system. Someone has to design a scalable system that enables widespread deployment.

Another Smart Grid development we’ve been monitoring is demand response. Companies like EnerNOC optimize energy use throughout an opt-in network of office parks and industrial plants. It turns out that as much as 10 percent of the overall cost of electricity – and a similarly outsize proportion of the pollution – comes from just 1 percent of electricity generation. This is because our grid functions in an incremental, as-needed fashion; we operate at just enough capacity at all times. The grid strains and sometimes breaks on hot summer days when everyone turns on their air conditioners at the same time. To meet the excess demand, power companies have to rev up old, dirty, and expensive backup generators. EnerNOC and its peers practice “peak shaving”; they reduce systemic load at critical times by coordinating lower energy usage across their network, which in turn enables power companies to avoid using their most expensive generators.  Everyone shares the savings that result.

We’ve been excited about demand response for some time because it uses an innovative business model to solve a pressing problem. Rather than simply extending the old and expensive model by building a new power plant, we can now manage the grid in a more intelligent and much more cost-effective way.

The utilities analyst at a leading green mutual fund recently pointed me towards an innovation that makes demand response even more exciting. A company called Ice Energy is adding a relatively low-tech piece of capital equipment to the equation (pictured above); they attach a chiller to conventional air conditioning systems in the buildings they manage that freezes water at night when electricity is cheap (and relatively clean). They then use the ice to moderate temperatures during the day, when electricity is expensive. The company claims that air conditioning accounts for 40 to 50 percent of a building’s peak energy use, and that their system can cut air conditioning electricity requirements by 95 percent.

We like this approach because it wraps an innovative business model around existing technology to get a job done. This is akin to Netflix making DVD-by-mail work, rather than focusing on Blu-Ray or digital delivery, or, in another cleantech example, Better Place building a recharging and battery swapping infrastructure that enables electric mobility with today’s limited batteries. Innovative business models that make proven technologies work better are not at the whim of unpredictable technology development and uptake. They are, in other words, the most predictably efficient way to achieve transformation.

Last week First Solar, one of the world’s leading solar power companies, announced that it was buying start-up OptiSolar’s portfolio of impending projects for $400 million. OptiSolar had appeared out of nowhere last year to ink massive contracts with utilities, including a record $550 million deal with PG&E, and seemed poised to become a major player in the industry. I and others wrote admiringly about their differentiated, fully integrated business model – whereas most solar power companies simply make solar modules that they sell to contractors and developers, OptiSolar planned to control their full value chain – they would actually build and operate power plants using their panels.  

• Council on Competitiveness President to Senate Energy Committee: "America Leads in Innovation, but Is Bleeding Opportunities" - MSNBC Wire Services - msnbc.com

  Deborah L. Wince-Smith, president of the Council on Competitiveness, called for "focus" on turning energy research and development into real economic value.

• Firepower of the Lowly Caulk Gun - WSJ.com

  More effective in conserving energy than any green solutions on the market now is measuring where air is leaking into and out of a house and caulking those spots.

• The Music Industry's New Internet Problem - BusinessWeek

  Turns out that a large group of consumers would rather listen to streaming services than buy even mp3s, let alone CDs.

• TaylorMade's Innovation Test - BusinessWeek

  "The only way you are going to innovate," TaylorMade CEO Mark King says, "is if you build chaos into the system."

Amidst our recent national panic attack over the nauseating roller coaster gas prices are riding, a couple of emirates on the Persian Gulf are innovating furiously. Dubai and Abu Dhabi are receiving a great deal of attention for their efforts to use the money they pull out of the ground to radically transform themselves to prepare for the day when the pumps finally stop.

Dubai is by now well-known for its ability to make Las Vegas look like a Podunk, with its unbelievably scaled-up buildings and indoor ski slope; Abu Dhabi has been making fewer waves in the press, but arguably pursuing a more audacious innovation, with the construction of Masdar, a city being built from the ground up to epitomize clean energy and sustainability. Innovative technologies, from solar and geothermal power to recycled waste water, will minimize Masdar’s environmental footprint. Careful urban design will make Masdar livable without cars – with the help of a system called Personal Rapid Transit.

PRT is essentially a marriage of the privacy and convenience of point-to-point transportation in cars with the efficiency of public transit. The idea has been around for decades and a system has been in place in West Virginia since the 1970s, but it has never really taken off due to the expense of constructing the system and lengthy rights-of-way (usually grade-separated rails or roadways) and the complexity of orchestrating vehicles moving autonomously on intersecting tracks. Now, however, with growing interest from some cities and projects moving forward both in Masdar and at Heathrow airport, the potential of this system might begin to be tapped.

Of course, Masdar is able to avoid many of the problems typically associated with the implementation of new transit systems because it doesn’t exist yet; as one planner put it, “[S]omething like a conference center, which attracts a lot of people all at once, could become a local generator of congestion. So we said: let’s move it slightly to the side.”  The city is designed with the explicit goal of being functional without cars, and along those lines the PRT system will run on an extensive network of dedicated roadways at ground level (which will be beneath the city’s “street” level), thus avoiding the expense of a network of tracks.

Needless to say, PRT may not be ready for implementation in pre-existing cities with complex infrastructures (here in Boston we know all too well how hard it is just to maintain the transit systems we already have), but clearly such systems have potential. PRT systems may even be disruptive to cars if they offer low fares and “green”-ness while requiring only small sacrifices in convenience and privacy. As the technology improves and pressure to replace cars with a more efficient form of transportation mounts, PRT may move closer to the spotlight. 

Is it possible that the electric vehicle story isn't actually about the vehicles themselves, but about battery suppliers and business model innovators?

For generations, manufacturers like Toyota and General Motors earned most of the profits in the automotive industry. While manufacturers are struggling today, suppliers and distributors are in just as bad, if not worse, shape.

A recent Wall Street Journal article described how assembling electric vehicles is relatively simple. "Electric cars use only basic motors and gearboxes, and have relatively few parts," the article notes. "Aside from perfecting the battery itself, they're far easier and cheaper to build -- and that makes for a level playing field."

What impact would a simpler-to-produce product with a key performance-defining component have?

Read the rest at Scott's Harvard Management blog.

The latest issue of Strategy & Innovation just went out to subscribers. (To subscribe, sign up here — it’s free.)

The issue leads off with an excerpt from the much-anticipated January 2009 book The Innovator’s Prescription by Clayton M. Christensen, Jason Hwang, M.D., and Jerome H. Grossman, M.D., which looks at our health care system through the lenses of disruptive innovation. Our excerpt, Disrupting the Hospital Business Model, argues that hospitals are burdened with multiple business models and jobs-to-be-done. Hospitals can heal — if they focus on one business model and stop trying to be all things to all patients. Specifically, according to the authors, “Hospitals providing much of today’s health care cannot and therefore ought not to be relied upon to transform the cost and accessibility of health care. Instead, hospitals need to be disrupted. We need them to cede market share to disruptive business models, patient by patient, disease by disease starting at the simplest end of the spectrum of disorders that they now serve.”

This issue’s Innovators’ Insight, by Scott D. Anthony and Tim Huse, asks How Do Disruptors Perform in Recessionary Times? Conventional wisdom would be that up-and-coming disruptive companies that have had some early success but haven’t broken through to the mainstream would certainly become casualties of today’s tough economic climate. Not so — Scott and Tim went back to look at how up-and-coming disruptors did in the face of the last three economic downturns in the U.S. In 1979 and found that 11 such companies, including Intel, Home Depot, Nucor, and Southwest, fit our criteria. Their compound annual growth over the recession between 1979 and 1982 was 22 percent. Between 1989 and 1991, the sample of 11 up-and-coming disruptors, which included Best Buy, Cisco, and Charles Schwab, grew revenues by 33 percent.

This issue wraps up with Voices of Disruption, featuring an interview with Ron Gonen, Co-Founder and CEO of RecycleBank, an interesting start-up that rewards households for recycling. Former Innosight Senior Associate Lillian Zhao did the interview, after exploring RecycleBank in this blog post.

Shai Aggasi, founder and chief executive of Better Place, spent a couple of hours last night telling his story before a crowd of several hundred at the Boston Museum of Science. I was lucky enough to attend and left admiring his vision and the work Better Place is doing, but also feeling skeptical about Better Place’s approach to answering the electric car question.

Better Place is a venture-backed company that plans to eliminate obstacles to electric car adoption through the use of swappable batteries that extend the range of electric vehicles. It plans to own and operate a network of battery-charging spots and battery exchange stations that would give “subscribers” the feeling of infinite range; all, Better Place claims, for less than the cost of driving an internal combustion engine car.

I’ll say upfront that I’m a believer in the electrification of the automobile, so my skepticism of Better Place doesn’t come from any lack of faith in the electric car’s eventual prospects. Rather, Better Place gives me pause because I disagree with a premise that lies at the core of its approach.

Better Place’s strategy is founded on a premise that electric vehicles can’t succeed today because the technology available (namely, the electric range afforded by batteries) isn’t good enough. Consumers, Better Place would say, won’t buy a vehicle with a short range, especially when it takes hours to recharge.

I have two problems with this premise:

1. It has a limited shelf-life that depends on technological stagnation. Millions, if not billions, of dollars worth of research is being conducted to improve battery capacity, safety, charging time and longevity. Better Place is betting against it. (Perhaps they should ask Iomega, Earthlink, Digital Equipment Corporation, or any other of a thousand dead or dying companies how similar bets worked out…)
2. It ignores the tens of thousands of consumers for whom today’s electric vehicles are already “good enough.” Th!nk, GEM, ZENN and as many as two dozen other companies are building business that sell electric vehicles to consumers in circumstances for which today’s technology works, like retirement communities and urban / commuter environments. They are sewing the seeds of disruption, much like Sony did once upon a time with the first transistors (used them for portable radios that were, by most measures, pretty cruddy — unless you were a teenager who didn’t have any other option or you needed something small and portable).

So, while it is true that today’s technology — heavy batteries that provide limited range and take hours to charge — isn’t good enough for the mainstream, tomorrow’s technology might be. In fact, plenty of people are betting that it will be. And when it is, those medium-ranged, quick charging EVs made by a growing automotive manufacturer will make Better Place’s network of $500,000 battery swapping stations obsolete.

And that, I think, is a better way.

PS. During Q&A I asked Shai to give his assessment of the risks that improving technology might present to Better Place. I wasn’t too satisfied with his answer. His explanation that a “magic battery,” which goes 400 miles on a 3-minute charge, is not physically possible, is a long way off, and won’t work with the grid infrastructure anyway, seems like a straw-man argument that dodges the question. He didn’t acknowledge the middle ground between the “magic battery” and today’s technology, which is where I think the risk to Better Place lies.

But you can listen to his complete response to my question here. 

Yesterday I posted an excerpt from the Oct. 29 Strategy & Innovation feature, The Innovator's Survival Guide. The Oct. 29 newsletter's two shorter articles (both by Josh Suskewicz) cover green issues.

Innovator's Insight: The Red Hot Solar Power Industry offers a disruptive-innovation take on the current solar industry. An excerpt: 

Evolving energy industry dynamics continue to propel solar power up a truly compelling disruptive trajectory. As the signals become increasingly clear that solar will indeed be a significant energy technology, billions of dollars of investment have poured into solar technologies and the pace and scale of innovation has exploded. The money flowing into solar is funding the development of distinct — and soon-to-be competitive — technology classes. All the while, the value chain is maturing as businesses targeted at unique links in the solar power ecosystem spring up and established players integrate backwards and forwards. The industry is still young, and has not yet settled on a dominant technology or business model. That leaves it particularly vulnerable to the current financial crisis. We still believe in solar’s potential, but recognize that the crunch will hinder the industry’s aggressive, capital-intensive expansion plans and could also lead to a reduction in the government subsidies that have supported the industry as it has grown. A shakeout looks inevitable. So, given this convergence of massive opportunity and impending challenge, how can we begin to sort out the legitimately promising businesses from the also-rans? At Innosight, we’d look for two differentiators: disruptive technologies, and innovation efforts focused on the business model.

Innovator's Update: Cleantech Hits A Speed Bump discusses how the current economic downturn might affect cleantech companies and finds that a sound commercialization model is the key to survival amidst tighter capital markets and distracted consumers. Excerpt:

Within the last year we’ve written a couple of Innovators’ Insights on companies participating in various aspects of the clean technology and alternative energy sectors. Given the continued attention paid to all things green, the rapid expansion of the industry, and the deteriorating economic climate, it’s worth a look to see how these companies are faring. First, a March 2007 Insight singled out electric car companies like Tesla Motors for “cramming” new technology into old models, and suggested that Neighborhood Electric Vehicles (NEVs) like Chrysler’s GEM had a better chance of success. Indeed, in the last few weeks Tesla announced yet another production delay, major layoffs, and the ouster of its CEO. Tesla has yet to find firm footing in the face of the age-old challenge of getting new-to-the-world technologies to perform seamlessly at the high end of an established market. All the while, NEVs have been expanding their presence in much less demanding settings like enclosed communities and small towns, and received a good deal of press coverage over the summer as gas prices spiked. Next, in “Going Green Disruptively” from November 2007, we took a look at the rapidly expanding cleantech market as a whole and urged caution because billions of investment dollars seemed to be chasing new technologies rather than new business models. That kind of scenario has played out in too many situations that later came to be seen as bubbles — the Internet gold rush, for example — and given that context, the odds of success for technology investments seemed frighteningly low. The article outlined three potentially winning strategies amidst the general tendency to focus on cramming new technologies into old paradigms. How are the companies cited holding up?

To read these articles, just follow the links above (free registration required). To see links to all of the Oct. 29 Strategy & Innovation articles, go here.

MIT chemistry professor Daniel Nocera (pictured at lower right) and post-doc Matthew Kanan recently unveiled a discovery that may represent a major energy breakthrough: a new compound that promises to enable large-scale adoption of truly decentralized, at-home solar power. The researchers focused on harnessing solar energy, since it enables clean, carbon-free power generation and is abundantly available. In this video clip on the discovery, Nocera puts the promise of solar in context: “In around one hour, the amount of sun that hits the face of the earth is what we use in an entire year globally for our energy.” (See the MIT Technology Review cover story on Nocera's research here.)

Until now, however, solar has been constrained by its inherent intermittency; power is only generated when the sun is shining, and storing any excess power produced during the day has been prohibitively expensive for at-home use. Batteries are costly, and solutions such as compressed air storage do not represent feasible options in small-scale applications. In places where the energy infrastructure allows it, excess power can be sold back to the grid, but this stop-gap solution is still reliant on the relative inefficiencies of our 20th-century energy system.

In contrast, the catalyst Nocera and Kanan discovered represents the crucial new component of a simple, inexpensive, and reportedly highly efficient water electrolysis system with negligible maintenance and replacement costs.

How does it work? Excess solar energy is used to split water molecules into hydrogen and oxygen for separate storage and subsequent re-combination in fuel cells when energy is needed.  As Nocera points out in the video linked above, the researchers are hoping that their discovery will lead to homes that capture solar energy themselves by using their efficient process to convert sunlight into chemical energy for use when the sun is not shining.

While the electrolysis of water is a well-known process, it has traditionally been expensive due to reliance on noble metals and the inefficiencies of oxygen extraction in non-benign environments. The new catalyst that extracts oxygen consists of cobalt and phosphate covering a conducting material such as glass or graphite. These materials are widely available and thus cheap. Placed in water, cobalt and phosphate ions form a thin film on the electrode when a positive potential is applied and produce oxygen gas.

The new catalyst works well in neutral water at room temperature and under normal atmospheric pressure – in contrast to the traditional industrial water electrolysis process. The solution looks to create precisely the benign, inexpensive, and easy-to-set-up environment preferable for at-home use.

Scientists have been able to extract hydrogen from water easily for a long time, but only the simultaneous extraction of oxygen avoids the production of undesired hydroxide. Hydrogen is typically produced using platinum-based electrodes, but Nocera also announced plans for a full system design that includes a replacement for the noble metal, which would decrease the price of the energy storage system further.

Two additional aspects make the technology even more elegant. First, the cobalt and phosphate ions on the cathode exhibit a “self-repair” interaction that allows for repeated use. Second, the inputs – energy and water – ultimately yield energy and water again. Since this water can then be reused, an entire closed-loop system might be within reach.

The impact of Nocera and Kanan’s discovery can only be forecasted at this point. James Barber, professor of biochemistry at Imperial College London, gushes: “This is a major discovery with enormous implications for the future prosperity of humankind. The importance of their discovery cannot be overstated since it opens up the door for developing new technologies for energy production thus reducing our dependence for fossil fuels and addressing the global climate change problem.”

Notwithstanding, as with any emerging technology, this energy storage enabler needs to be vetted in further research and prove its economic potential for scalability. Also, the storage of hydrogen and oxygen and their recombination in fuel cells needs to become safer for reliable at-home use.

Nocera, though, is convinced: “This is the nirvana of what we've been talking about for years. Solar power has always been a limited, far-off solution. Now we can seriously think about solar power as unlimited and soon.”

Indeed, this technology could be the final link in an emerging energy system that includes distributed photovoltaics and fuel cells, electric cars, and new regulation that favors at-home energy generation.  Commercializing this system will be a challenge (though we have theories on the best way to do this – see this article and chapter 5 of The Innovator’s Solution), but true clean energy decentralization, which promises enormous efficiency and environmental benefits, could be closer than commonly assumed.

I feel guilty that I don’t recycle as much as I would like. The truth is, I’m lazy about sorting, and I don’t have room in my kitchen to have separate bins for cans, paper, glass, etc. And, I always wonder, does the stuff in the bins really get recycled? I know that at my office, rumor has it, only the cans and bottles really get recycled because the staff is paid for recycling cans. However, the paper in the paper bins gets thrown in with the regular trash because the staff isn’t incentivized to recycle that.  I know I’m being lazy, but really, why does recycling need to feel like work? Why can’t we get incentivized for recycling all things recyclable?

I think I just found the company that solves all those jobs: RecycleBank. It is one of the coolest green companies I’ve come across. RecycleBank introduces financial incentives and convenience (no sorting needed, curbside drop off) to the recycling process, offering new dimensions of performance that motivates everyone to recycle more.

RecycleBank has a winning customer value proposition to every participant in the value chain: 

• RecycleBank provides financial incentives to households to recycle, which reduces the total tonnage of landfill-bound material
• Municipal officials save disposal fees
• Recycling companies make more money from processing
• Retailers gain positive association with an environmentally beneficial activity
• Partnering waste haulers can differentiate themselves in the competitive hauler market

How does this process work?

Households put unsorted recyclable materials into recycle bins for curbside pickup. The recyclables are weighed on the back of disposal trucks when they are picked up by the sanitation crew. Information is scanned and recorded through a computer chip embedded in the garbage bins and then is channeled from an on-board computer in the garbage trucks into a databank. Households collect points, which can used at more than 400 national retailers such as Starbucks, HomeDepot, neighborhood grocery stores, etc.

RecycleBank has formed partnership with diverse players in order to make its innovation process work. It has partnered with over 35 cities and municipalities, over 400 business sponsors, with technology providers, and with waste haulers.

How does RecycleBank make money?

RecycleBank has developed three diverse revenue streams. This first is from municipalities (or private haulers, depending on the agreement), who pay a fee per household involved. The second is from recycling plants, with the amount determined by how much it increases the amount of materials that are processed (see NYT's article).  The third, and potentially the biggest, is advertising revenues from online website used by households to manage their “RecycleBank point” accounts. (Fortune, Sept 20, 2007)

What is RecycleBank’s disruptive impact…so far?

In the 3.5 years since RecycleBank was founded, it expanded its services to more than 35 municipalities the Northeast and is planning a national US rollout and an expansion to the UK. In its first 3 years of operation, RecycleBank has diverted more than 36 million tons of recyclables from landfills (see Press Release and Green VC article) 

We’ve written a number of times [here and here and here] about the emerging industry dynamics that are propelling solar energy up a truly compelling disruptive trajectory. As the signals become increasingly clear that solar will indeed be a significant energy technology, billions of dollars of investment have poured into the industry and the pace and scale of innovation has exploded.  

A terrific recent post on Treehugger.com, a leading cataloguer of emerging sustainability innovations of all kinds, recaps 15 exciting advances in photovoltaics over the last year. The majority of the advances relate to the ongoing conversion efficiency race, as companies and labs working with different base technologies seek to design cells that convert sunlight into power in ever more effective, and therefore cost-effective, ways. Conventional silicon-based solar cells are getting closer and closer to their target of grid parity, at which point they figure to displace conventional sources of electricity without relying on government subsidies and incentives. 

Meanwhile, disruptive thin film-based solar panels are nearing “good enough” efficiency – performance rates at which they become economically viable. Some, led by industry pioneer First Solar, have already reached that point, and have grown astronomically as a result. 

Beyond the efficiency race, the Treehugger post recounts exciting adjacent developments like radically new approaches to mounting solar cells and breakthrough printing processes to mass manufacture them.  

With all these exciting developments, how can we begin to sort killer businesses from the fascinating technologies that will never make it out of the lab? We’d start with a couple of core disruptive innovation principles.

First, we’d like to see innovation efforts directed at the business model as well as the technology. Historically, business model innovations that make the consumption of a new technology easier, cheaper, more accessible or more convenient have been the best predictor of success in an emerging industry. Think of the way that Apple created iTunes to definitively separate the iPod from all the other MP3 players.

Some technologies are different enough from the herd to really lend themselves to new business model approaches.  One can imagine all sorts of avenues for CoolEarth’s solar balloons, for example.  By freeing solar collectors from their rigid mounts, CoolEarth can take the capability to produce clean and renewable power to new contexts, such as the developing world.  

Second, we’d look to ride disruptive waves.  Industry leading silicon-based cells have plenty of headroom to grow, and many of the companies that make them will likely enjoy lots of success in the years to come, but thin film manufacturers are nipping at incumbents’ heels. There are signals that the disruptive wave is picking up steam: SunPower, one of the foremost silicon-based incumbents, received a huge new order a few weeks back from California utility PG&E; significantly, though, they only got a fraction of the contract – the lion’s share went to new thin film player OptiSolar. 

The advantages inherent in the thin film paradigm (flexibility, lower cost manufacturing via reel-to-reel “printing” rather than semiconductor fabrication) will assert themselves as technologies approach economic viability. Thin film will exert more and more cost pressure on conventional solar, and could also open up new markets that silicon-based cells just can’t reach.  

Meanwhile, the next disruptive wave after thin film is beginning to gather, as so called organic solar cells being developed by companies like Konarka make their way into initial foothold applications. 

So, how should one monitor an explosively dynamic, fast moving, ascendant yet bubble-prone field like solar? Try to spot developing waves, watch carefully for signals that disruption is underway, and all the while pay special attention to companies that innovate with their business models, not just their technologies. 

Stuttgart is “going green.” The German city recently signed a letter of intent with Ultra Motor to implement an infrastructure to support eco-friendly scooter-bikes. Launch is expected in 10 months and the idea is catching on; according to BusinessWeek, Ultra Motor is currently in negotiations with 12 other major European cities.

Driving this effort is Ultra Motor’s new A2B Light Electric Vehicle (LEV) — a scooter-bike with a conscience. The tagline even has an anthropomorphic ring to it: “The heart of a bicycle. The soul of a scooter.”

Experience LEV technology: Hop on a comfortable seat surrounded by a lightweight, aluminum frame. Enjoy as much exercise as you choose by pedaling or cruising at 20 mph. Want to ride further? The standard range of 20 miles can be extended to 40 with the addition of a lithium ion battery pack. New technology provides one-third more force than electric motors; helpful when ascending hills or darting through traffic. A dashboard indicator signals energy remaining. Dwindling charge? Simply plug in.

Current customers of the A2B vehicle include commuters, students, employers, fleets, and local authorities. However, through our lenses, jobs define the marketing strategy and are linked to attributes:

Social job: “Have a positive impact on the environment”
The A2B is a zero emissions mode of transportation, powered by a lithium ion battery. The vehicle efficiently functions at approximately one-tenth the running cost of a gas-powered scooter.

Emotional job: “Allow me to enjoy my commute”
The rider is able to enjoy the outdoors and a quiet ride. The extended driving range provides freedom and the vehicle is easier to handle than a gas-powered scooter. Modular storage options are also available.

Functional job: “Provide a way for me to reduce transportation costs”
Savings are self-evident — no gas required. The A2B model is currently available in 20 states across the U.S. for about $2,200. In Stuttgart, a monthly subscription will cost $23; a mass transit pass costs $84.

In the spirit of business model innovation, Ultra Motor is exploring new networks of transportation, one of which will be utilized in Stuttgart. The “LEV City Initiative” outlines this potentially disruptive system featuring charging stations; purchase a subscription, locate a station, swipe your card and enjoy the ride.

We applaud Ultra Motor for encouraging consumers to “go green” in new ways. Learn more from the source at www.ultramotor.com. You’ll notice as the website loads, the screen cleverly notes: “Charging up.”

A front-page article in yesterday’s Wall Street Journal illustrated how important it is to periodically revisit the assumptions behind an idea.

The article described how several years ago, the head of Sacramento’s regional planning agency started to push developers to concentrate growth in defined areas rather than furthering suburban sprawl. The argument hinged on lowering pollution and fostering economic development.

Of course, with the price of oil shooting up, today the idea looks remarkably prescient.

I wonder, however, how many planners rejected similar ideas because they couldn’t imagine people making living decisions based on the cost of commuting, and how many now wish they started dusting off those rejected plans when signals emerged suggesting that circumstances had changed.

On the other hand, sometimes circumstances change in ways that undermine ideas that once seemed credible. Consider Motorola’s daring, and ultimately doomed, venture to provide satellite-driven mobile telephony.

Read the rest on Scott's Harvard Business blog, Innovation Insights.

The GM Volt blog posted an interview yesterday with Chevrolet brand manager Ed Peper in which he discussed work Innosight is doing with GM for the Volt launch. When asked, Do you have a plan on how to educate the public to understand the car since its so unique in order to make it more readily salable? he answered:

"We're actually doing a lot of work right now to understand in general who the consumer is for this product. We're working with a group that’s based out of Harvard and there a company called Innosight. What their working with us on is developing a jobs-based positioning for Volt. Which means what are the jobs that Volt really needs to handle for the consumers that buy them. On an emotional level, on a social level, on a functional level, what are the jobs that this vehicle must perform and must do well. Were in the process right now. We’ve done a couple of focus groups. We have a lot of data that you and others have provided us. And its going to help us from a marketing standpoint, what things should we talk about, what things shouldn’t we talk about. And how to we best present the category buster. How do we present this in such a way that consumers who are interested will know this is the first of its kind and this will be the best of its kind and it will be the only one of its kind when it hits the market place in 2010."

Statements like “the Dell, Wal-Mart, or Southwest of new industry x” always get us excited because they indicate that an entrant has shifted the focus of innovation efforts from the product to the business model.

Not that there’s anything wrong with technology-based product innovation – it is, of course, essential. But it is also a gamble; pursuing product-driven innovation alone means that you’ll be entrenched in a fierce competitive battle because it is relatively easy to frame a challenge in technological terms. Changing the basis of competition by innovating the business model – as Dell did with PCs, Wal-Mart with retail, and Southwest with air travel – has historically increased the odds for breakthrough success.

That’s why it caught our attention when Fortune’s Green Wombat blog labeled Berkeley-based solar start-up Sungevity the “Dell of solar energy.” Solar power has been red hot, aflame with technological advances and billions of dollars in investment. Getting business model innovation right in this context promises enormous success.

Has Sungevity gotten it right? For starters, their tagline, “faster, easier, affordable solar,” is as close to Disruptive Innovation 101 as you can get. As loyal readers of this blog know, disruption is fueled by companies delivering on speed and convenience, ease of use and de-specialization, cost and accessibility. Doing so removes barriers to consumption, enabling large swaths of consumers who were otherwise locked out of a market to participate – non-consumers, in disruptive innovation terms. And there are certainly a lot of nonconsumers of solar power…just think of all the unused rooftop real estate out there.

Sungevity is looking to put solar panels on those barren roofs. The company is a solar installer; they take the panels produced by giants like SunPower, Evergreen Solar, and BP Solar, affix them to rooftops, and connect them to the grid. This final step in the value chain has, predictably, been beset by inefficiency and variability up until now, because it depends on all too human factors like the availability of good installers who know what they’re doing.

The flock of solar installers that have emerged in recent years are seeking to centralize and simplify this complex and potentially frustrating process. Economies of scale give any company a natural advantage over the independent contractors they compete with, but Sungevity’s clever web-based interface is what really sets the company apart.  The company asks visitors to their site to enter their home address, and then uses software and satellite imagery to come up with customized quotes that outline what a solar power system would cost and what it would produce. This estimate makes the system planning process quick and easy by obviating initial site visits from a contractor.

Crucially, moving the quotation process to the web figures to lower the bar for potential customers who are not yet intent on installing systems. Instead of taking time out of the day to accommodate a sales visit, people can simply plug in a few numbers online. There’s no commitment, no investment, no contractors marching around on your roof who’ll be disappointed when you tell them that you’re not yet ready to commit to laying down $10,000 for the panels.

In addition to mapping out a custom-designed system for your rooftop, the nifty Sungevity site also projects install costs and lifetime energy and cost savings. The site produces images of your house decked out with solar panels and then allows you to enter a credit card number to make the purchase on the spot. In the words of CNET’s Greentech blog, the customer-friendly web interface “reduc[es] a complex sale into a quick online exchange.”  As easy as customizing and purchasing a PC, right?

Innovative service-oriented business models like Sungevity’s that are just now emerging will spur the development of the solar power industry, enabling it to maintain its blistering pace of growth while reaching more and more of mainstream America. When you factor in other clever business model innovations such as solar financing and the cost reductions and efficiency improvements that will emerge from the technological arms race underway in the industry, the picture starts to look very sunny indeed.

The ongoing "greening" of the corporate world is a wonderful thing. As our industrial titans shift towards sustainability our environmental footprint decreases, consumption of finite resources becomes more rational, and we all get exposed to fewer toxins and chemicals.

The move towards sustainability also provides an instructive live case study of market evolution and innovation; as "green quickly becomes an essential performance characteristic in all sorts of products and businesses, companies are scrambling to innovate in order to take advantage and differentiate themselves from their traditional competitors, or if someone else has already done so, hop on before getting left in the dust.

The underlying phenomenon driving the emerging importance of sustainability is growing consumer awareness of the problems posed by unsustainable practices and products. This renders sustainability increasingly valuable to more people in more contexts (and, it should be noted, environmental regulations like fuel efficiency standards and carbon taxes cement such perceptions in law, forcing the economic calculus to account for externalities the market might otherwise ignore).

Taking a step back, all products and services can be thought of as aggregates of performance attributes I like coffee, for example, that is hot, strong, fresh, affordable, fairly traded, and sustainably harvested. When any performance characteristic becomes increasingly valuable others necessarily become relatively less valuable, be they price (e.g., people are willing to swallow the premium for organic food), convenience (theyll go to the one Whole Foods in town rather than the market down the street), reliability (they ditch the brand theyve trusted for ages in exchange for a new green product from a company theyve never heard of), or even quality (theyll settle for scratchy but 100% post-consumer recycled tissues). Understanding the impact of the increasing importance of sustainability in any given context is critical to projecting the nature and extent of the "green revolution and the best ways to innovate in response.

Disruptive innovation often takes place in these sorts of situations, when the dimensions of performance shift, when, for a variety of reasons, the market reassesses the value of specific characteristics in a product set. Those that figure out how to deliver the right set of performance characteristics succeed, while those that fail to do things differently just fail.

Consider consumer products giant Cloroxs recent behavior: last fall they purchased leading natural products company Burts Bees for $925 million, then perhaps more interestingly in this context, earlier this year they unveiled Green Works, a new set of eco-friendly and Sierra Club-endorsed products touted as "the first line of natural cleaners developed by a major consumer products company.

Clorox recognized that the market landscape had shifted, that more and more consumers were valuing green product attributes, and they adapted accordingly. That recognition enabled it to apply its corporate muscle and know-how to the challenge. It can reach into its pockets and swoop up an emerging competitor Burts Bees but it can also marshal its scientists to create compelling green chemical formulas for new products, its sourcing and manufacturing capabilities to harness economies of scale and bring down prices, its channel relationships to place sustainable products in Wal-Marts and supermarkets everywhere, and its market researchers and marketers to understand and reach mainstream consumers.

In short, Clorox can deliver products that meet the sustainable performance threshold (they are all natural, biodegradable, recyclable, not tested on animals, and so on) but that also adequately satisfy more traditional performance metrics like efficacy, affordability, reliability, and accessibility. As long as it understands the true market need and tailors its business model and product set accordingly, Clorox has the chance to outpace many of the startups and pure plays that make up the green products market today.

So what are the lessons for big companies looking to navigate market shifts such as the emerging importance of sustainability? Early adopters are the canaries in the coal mine watch them closely in order to understand the new dimensions of performance they prize and the tradeoffs they are willing to make. A close reading of their evolving performance tradeoff profiles will clue you into the nature and extent of underlying shifts in the relative valuation of distinct performance attributes. Then, look at the thresholds for mainstream consumers how acutely do they feel the shifts that are motivating early adopters? What are the barriers that stand in their way today from consuming in the same way as the evangelists? You just might find that big company resources and capabilities, applied intelligently, can innovate around those barriers by, say, getting affordable and effective all-natural and sustainable cleaning products into Wal-Mart.