The huge, established companies that drive and profit from the fossil fuel economy seem to be all-powerful. With their billions in profits, together they are a phalanx of Goliaths against a scattered band of Davids advocating for and developing cleaner sources of energy and cleaner methods of transportation.
Today is the perfect day to remember who won that particular engagement.
The 1997 book The Innovator's Dilemma by Clayton Christensen describes striking examples of big companies, thought to be at the very top of their game, who were institutionally unable to adapt to changing circumstances. The findings of The Innovator's Dilemma may apply to the transformation of world energy and transportation that is happening today and is strongly accelerating.
Let's start back in the day when Big Iron ruled the computing world with their mainframes. Companies like IBM and DEC were unassailable. Christensen writes:
Consider this assessment of Digital Equipment, made in 1986: "Taking on Digital Equipment these days is like standing in front of a freight train. The $7.6 billion computer make has been gathering speed while most rivals are stalled in a slump in the computer industry."
Meanwhile, small fry such as Apple Computer and Compaq offered weak, underpowered offerings that were only perceived as useful for children, students, and enthusiasts.
In just a few years the big boys were felled, undercut from the bottom by Disruptive Innovations - ideas that totally changed the market.
Oddly, these disruptive innovations did not start as clear improvements on what existed.
Across a collection of industries surveyed in the book, from disk drives to excavators, the first version of the disruptive innovation shared a common attribute - the new offering was less capable than the established mainstream products by conventional measures, and could only be adopted either in niche uses or at the very bottom of the market.
This graph adapted from The Innovator's Dilemma shows the basic trajectory of disruptive innovation. The established player spends effort and money achieving improvements at the high end of the market, but the moment the disruptive offering because "good enough" for a given purpose, other advantages of the disruptive offering manifest, such as cost savings or convenience, and the disruptive offering takes over.
In the manner the disruptive offering eats away at the market, layer by layer, until it dominates.
And here's a key point: To achieve strong growth, the disruptive offering doesn't be need to good enough for the entire market - it just needs to be good enough at that moment to peel away the next layer.
Let's look at an example of a clean technology in light of the disruptive technology model: electric vehicles. By themselves, electric vehicles don't solve anything because they still need electricity - but they are an absolutely key component of a clean energy economy.
From a start of effectively zero just four years ago, electric vehicle sales have taken off. On a percentage basis, it's really impressive growth, and it illustrates the point above - even though electric cars are not ready at this moment to take on the entire market, they are good enough to create that growth.
But as a portion of the total market, all-electric vehicle sales are well below the percentage of climate scientists who doubt human-caused global warming. So what will it take to launch EV sales to numbers that would show up on a pie graph?
The theory of disruptive innovation suggests that when electric cars can meet a standard of being "good enough" by conventional measures for a certain customer and type of use, they will be primed for rapid adoption by that sector of the market.
The problem with all-electric cars at this moment is: There is no electric car that costs less than $70,000 that has a range of over 100 miles.
This combination pushes electric car buyers into two camps, both of whom are a small part of the population:
- People who are really confident they will never drive more than a hundred miles without stopping to charge, OR
- People who can drop $70k on a car.
Apparently there are enough people in those populations to create the initial burst, but absent improvement, the growth won't last. Fortunately, everything is going to change in about 24 months.
Tesla, the maker of electric cars that everyone drools over but can't afford, has announced the Model III, which will start sales in 2017 at a price of about $35,000 and will have a range of 200 miles.
GM has announced a direct competitor, the Chevy Bolt, with a similar price and range, also to debut in 2017.
What's immediately interesting from a disruption point of view is that these cars are still not as good as the gasoline competitors based on conventional measures. They will have less range, will cost more, and will offer fewer places to fill up than a gasoline-powered Ford Fiesta. For the majority of the market, these offerings will not be good enough.
But that doesn't matter. These offerings only need to be good enough to appeal to the next segment of the market to power huge growth - the next 5% or so of car buyers, for growth of more than 500% compared to current sales. Electric car manufacturers will be able to use that growth to prepare their next set of improvements for the layer of the market to follow.
And as electric cars become more mainstream, people will discover advantages that didn't show up in conventional measures of performance for cars before, because they weren't considered possible. No stopping to fill up on the way to work, because you charged at home over night. Never having to handle or smell gasoline again. No oil changes. No radiator to overheat. No hazard from exhaust fumes. A backup power supply at home in case of blackouts.
The sweet, sweet quiet.
And yes, understanding that you are doing a little something to help our environment and climate.
A classic part of the narrative of disruption is that the established players can't adapt, because they are focused on existing measures of performance rather than emerging ones, so it's up to new entrants to cause the change. In the case of electric cars that's partly true - new player Tesla Motors is positioned to be a market leader.
But what about GM? In theory, it doesn't get more establishment than General Motors. But in this case - maybe not. Remember that GM has only recently emerged from a near-death experience. It's possible that, when it comes to adaptability to new conditions, GM's bankruptcy did it some good, like new trees growing in the aftermath of a forest fire.
Electric vehicles are just one of the pieces that will need to fit together in a clean energy economy. In this article, the example of electric vehicles is used to illustrate the trajectory that each clean technology is going through, from visionary to mainstream.
And here is a key takeaway that applies to all of these technologies:
Any time you hear about how a technology (say solar) can't meet 100% of the needs of the economy based on what exists now, recognize that it's a red herring. All the technology needs at a given moment is to be good enough to the next growth spurt.
The change to a clean energy economy is as inevitable as the replacement of mainframes by personal computers. Even large entrenched players can't stop the changes that come with disruptive changes in technology. The big question, from the point of view of our climate and environment, is whether the transition will come soon enough.
[See Tip Jar comment for notes.]
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