David L. Levy
Boston-based
Zipcar (ZIP)
raised $174 million from its Initial Public Offering in April
2011. It already has operates in 14 big cities and 230 college campuses
around the United States, Canada and the UK, and is planning to use the
new capital for market expansion. Zipcar is not a high tech business,
and its success is not due to sophisticated technological innovation;
rather, it’s an example of business model innovation. Zipcar
reinvented the traditional car rental business by simplifying and
reducing the costs for short-term rentals, and rebranding the service
as green car sharing. They developed a distributed model of rental
locations, an annual membership system, an all inclusive by-the-hour
pricing structure, and online booking. Together these greatly reduce
the cost and time needed to rent a car, while maximizing convenience.
Indeed, most of the people I know who use Zipcar’s service are not
ardent environmentalists, but enjoy the hassle-free approach and the
easy parking.
While public policy and the media tend to focus on technological
innovation as the key to addressing climate change and boosting clean
energy, business model innovation (BMI) offers a path to rapid
deployment of existing technologies. The concept was popularized and
given its current acronym by Mark Johnson, Clayton Christensen, and
Henning Kagermann in their Dec. 2008 Harvard Business Review
article “
Your
Business
Model.”
They point out that “Low-cost U.S. airlines grew from a blip on the
radar screen to 55% of the market value of all carriers. Fully 11 of
the 27 companies born in the last quarter century that grew their way
into the Fortune 500 in the past 10 years did so through
business model innovation.”
The potential for BMI in the development of the cleantech sector is
only just beginning to be appreciated. Rob Day, a partner with Black
Coral Capital in Boston,
wrote
about
a new wave of startups that run lean and require less
capital to scale up, so are less likely to founder in the infamous
of
Death:
“Some of this next wave of startups will be hardware, but many will be
software and/or services… Business model innovation will often be
stressed over technological innovation. They will sometimes marry
energy-related market opportunities with Web2.0 and social media
business models and platforms.”
A closer look reveals that BMI holds particular promise for
unlocking the potential of clean energy and promoting economic
competitiveness, investment and employment in high-cost regions. In
addition to helping keep startups lean and capital efficient, BMI can
develop systemic solutions that overcome some of the many
failures and
barriers to
efficiency
and clean energy. McKinsey’s famous Marginal Abatement Curve heralds
the good news that about one-third of needed emissions reductions
appear to have positive ROI with current technologies. The bad news is
that about one-third of needed emissions reductions appear to have
positive ROI – yet the necessary investments are not happening, due to
these many hurdles. As with Zipcar, BMI provides ways to monetize the
ancillary benefits of cutting emissions, and create business models
that focus on features that people are willing to pay for.
BMI-based cleantech businesses are also more likely to keep jobs in
high wage regions such as the US Northeast and California. Clean energy
manufacturing jobs have been
astonishingly
quickly
to China, even while there is still rapid
technological evolution.
Solar
and
Systems (AONE),
both
based
here
in Massachusetts, are cases in point. Business model
innovation often focuses on software and services, developing strong
relationships with customers and building on existing capabilities in
the region, so jobs are more likely to stay local. These factors also
help to create barriers to entry, protecting the business model.
Zipcar’s network of parking spots, for example, negotiated over several
years with hundreds of companies and local authorities, would not be
easy to replicate.
Better Place is a powerful
example of how BMI can overcome systemic barriers to technology
deployment. The company is developing a national replaceable battery
infrastructure for pure electric vehicles in Israel, Denmark, and
elsewhere that transforms the business model for car ownership and fuel
supply. Consumers buy a car without the expensive batteries, then
contract with Better Place for battery replacement as a service, which
is done in just a few minutes at a network of service stations. This
model overcomes the physical limitations of batteries, in terms of
range and charging time, and dramatically reduces the cost of new cars
for consumers. As with Zipcar, governments are willing to subsidize the
operation because it contributes toward reducing congestion and
greenhouse gas emissions – again, monetizing ancillary benefits.
Energy efficiency and smart grid provide many opportunities for BMI.
EnerNOC’s
core business model, for example, is demand response and energy
management, using sophisticated software and remote monitoring and
control. Enernoc links the utilities, who are willing to pay for energy
efficiency and for peak-period demand reduction, to a network of
customers. Energy service companies like
are increasingly offering
projects
and
performance contracts that reduce risks, capital
requirements, and uncertainty for customers. Similarly, companies like
offer renewable power purchase agreements based on DBOOM services – a
complete package where the company designs, builds, owns, operates and
manages the renewable energy installation, while the customer only pays
for power.
Not surprisingly, then, these BMI-based companies are among the
fastest growing businesses in the cleantech sector. Kevin Doyle, a
Principal of Green Economy and Co-Chair of the
Council’s Workforce Development Group, has
to
the
large number employment opportunities
at a range of cleantech companies, a number of which are in energy
services and software. As a result, they are not just looking for
engineers, but also for a
of
business
and professional skills and expertise – which
highlights the purpose of our new
clean energy programs at the University of Massachusetts, Boston!
David L. Levy
and Marketing at the University
of
Massachusetts, Boston, where he teaches courses in international
business, strategy, and business and climate change. He recently
founded and is now Director of the
Enterprise and Regional Competitiveness, which engages in research,
education and outreach to promote a transition to a clean, sustainable,
and prosperous economy. David’s research examines corporate strategic
responses to climate change, the growth of the clean energy business
sector, and the emergence of carbon disclosure as a form of governance.
He was recently PI on a grant from the Massachusetts Clean Energy
Center to develop sustainability education programs. He edits the blog
