Why Tesla' s Home Battery is Just the Tip of the Iceberg

Photo credit: flickr/jurvetson

You've probably heard about Tesla's announcement of a new division, Tesla Energy and  the POWERWALL, a sleek and stylish battery for the home.  Not a big deal, right?

Wrong.

This battery, along with electric autos, recharging stations, solar cell modules, residential and commercial solar installations and financing are all part of a carefully orchestrated plan launched years ago by Elon Musk and his colleagues to dramatically accelerate the transition to clean renewable energy.

To understand the plan, you have to look at Tesla and SolarCity as part of a unified strategy

To solve for sustainable energy, the key questions Musk would need to ask are:

1. Where is the opportunity to make the quickest and biggest impact?

2. How does one attract investment in renewable energy to create the technologies, infrastructure, markets, and ecosystems required?

3. What critical parts of the overall value chain are inhibiting opportunities for economic profit?

4. How does one create the sustainable competitive advantage required to provide a source of cash flow needed to fund further investments?

Although some see SolarCity as primarily a solar residential installation company and Tesla as primarily a car company, the reality is that Musk’s companies have operations across much of the energy value chain. This distribution of investments and activities is not random. Musk’s focus has been on elements of the value chain that tend to have the biggest impact on sustainability and present the greatest economic impediment to creating a superior cost alternative to the fossil fuel value chain. It’s also not a coincidence that these components of the value chain also present the largest opportunity for sustained competitive advantage and profits.

What's the biggest obstacle to renewable energy?  Distribution.

For energy to be utilized cost effectively, it has to be distributed to energy consumers in a form they can use. Unfortunately,  over 70% of energy in the US is distributed via liquid, gas, and solid fossil fuels, not electricity.  If we wanted to reduce fossil fuel consumption by half, we would have to more than double electrical distribution capacity, which would require truly massive capital investment given that utilities spent nearly $100 Billion on transmission over the last 10 years in the US alone.

What solves the distribution problem?  Batteries
 
In addition to making electric cars a successful business, the growth of Tesla’s capabilities with respect to electrical storage stands to benefit the development of a distributed energy production model. For example, Walmart already has Tesla batteries installed at 11 locations in California. Once Tesla’s Gigafactory is complete, Musk will be able to use high volume battery production to both accelerate penetration of the automotive market with the mid-market Tesla Model III and help extend SolarCity’s market share leadership by enabling commercial and residential customers to become energy self-sufficient with energy modules containing both solar cells and batteries.

Batteries and distribution are just one part of a complicated energy picture.  I've put together an extensively researched whitepaper that details Elon Musk's motivations and strategy to accelerate the transition to clean renewable energy.

MAKING MONEY WHILE CHANGING THE WORLD:  Elon Musk’s 6 Point Strategy to Solve Global Climate Change by Transforming the Energy and Transportation Sectors

In this whitepaper, you'll see how Musk's strategy follows these 6 key principles:

1. Start with the big picture view
2. Start in a niche small enough to dominate
3. Execute like crazy
4. Only move into mainstream market segments when you can create real competitive differentiation
5. Prioritize investments in the elements of the value chain that “aren’t good enough”
6. Integrate across boundaries within the value chain to create economies of scope

Read the whitepaper, comment on this post or reach out to me directly.  I'd love to hear what you think.

HP's Cloud Strategy Could Play Right into IBM's Hands

Disruption is in the air. While HP and IBM both grapple with what has become a long term downward revenue trend, Amazon, Google and others are enjoying the spoils of disruption.

To combat the threat, both HP and IBM are doubling down hard on cloud computing, but as HP CEO Meg Whitman mentioned in the Q1 investor call last Thursday, the key to managing the disruption will be to manage the decline in revenues:

“The water is now going to stop draining out of the bathtub as fast as it has, so the water that we pour in ought to lead to a rising level in the tub” - HP CEO Meg Whitman

Probably not the way I would have worded it, but I get her point.

Will the growth from HP and IBM investments be enough to stop the revenue declines? Eventually, probably, yes, but it’s difficult to say when growth from the new business will exceed decline from the old. There is no doubt about the scale of investment. During IBM CEO Ginni Romnetti’s analyst meeting last week, she mentioned an additional $4 Billion investment in emerging technologies like social, mobile, analytics and cloud; this is in addition to the $2 Billion acquisition of Softlayer as well an incremental $1.2 Billion in additional cloud capacity. The Eucalyptus acquisition is an example of HP's investments in cloud computing . That said, all appearances are that IBM’s total dollar investment in cloud is far greater than HP's, with HP appearing to rely on a more organic growth strategy that leverages Openstack to quickly gain capabilities.

Will HP’s strategy work?

If co-opted correctly, open source can be an effective defensive weapon against disruption, but the key is to maximize the benefit of your investments; I think IBM is doing a better job on that score than HP.

As this chart indicates, IBM’s relative contribution to the Openstack code base has declined while HP's has increased. Even though Openstack is a key component of IBM's cloud software portfolio, HP is now the leader in contributions to Openstack. So what happened to those developers? Did IBM lose them to HP and others? Unlikely. What’s more likely is that these developers are now working on proprietary enhancements and integrations into IBM’s software portfolio. If true, then the more HP invests in Openstack, the more IBM benefits as IBM continues its aggressive investment and acquisition strategy while continuing to use Openstack as a core technology. That’s not to say that HP won’t see success, it’s just that IBM seems to be taking advantage of a better position, and arguably better understanding of how best to use open source as a competitive weapon.

What do you think? Who will end up on top?

Or do you think it doesn't matter since the Amazons and Googles of the world will crush the IT incumbents?

Cloud Wars: Who's Winning and why it doesn't Matter

Nine years of cloud computing and counting...

The year was 2006. While Andy Jassy and Jeff Bezos were inventing a whole new way of delivering technology over the Internet at Amazon, I was busy at HP trying to convince customers to move their applications from legacy IBM mainframe systems to UNIX systems. As you might guess, that didn’t go too well; I was stunningly unsuccessful convincing folks to move off mainframes. (Fortunately, I could consistently beat quota by helping customers deploy standard UNIX workloads like Oracle and SAP.) The re-platforming cost and risk was just too great and an IBM sales rep would always come in at the 11th hour with a low-ball offer and a reminder of the risk and lack of experience with the new platform - and the deal died. I learned an extremely important lesson from that experience:

Don’t underestimate the power of those leveraging resistance to change

Fast forward to 2015 and the IT technology world is radically different, but some things haven’t changed. Although declining gradually, IBM’s mainframe ecosystem is still generating billions in revenue. Corporate IT is now largely virtualized but most application architectures are unchanged from when they ran on physical servers. Companies like Uber, Airbnb, and Netflix that were “born in the cloud” are disrupting their respective industries with technology from Amazon, Google and others, but over 90% of the Gartner estimated $3.8 trillion in 2015 worldwide IT spend will still be on legacy systems and services to support those systems. Why?

The answer is that most technology decisions are rational and those decisions depend on both the value and cost of changing technology. More on the value part of the cloud equation and why many companies are missing the point in a future post.

What is the industry response to the AWS advance?

Meanwhile, IBM, HP, Microsoft, the EMC/VMware federation and other incumbents have taken notice and are investing heavily in new technology to help customers simultaneously achieve the business benefits of cloud computing, minimize migration risk and maintain platform stickiness. Case in point is IBM's acquisition of and further investments in Softlayer while rumors swirl about reducing overall headcount. Many of us recognized the same pattern in the early 2000’s when leading telecommunications providers maintained their status as incumbents by turning a potentially disruptive new cellular technology into a way to combat new entrants, an approach described in Clayton Christensen's book, Innovator's Solution.

The idea is that current leaders can minimize disruption if they recognize the threat early enough and invest aggressively in new technologies and business methods to protect their industry position, even though new players are deploying new technologies in a way that disrupts the industry's predominant business model. Oftentimes, this requires carefully staged self-cannibalization. HP, for example, addressed this by keeping its cloud services organization separate from its enterprise services business unit (the old EDS business).

How is cloud computing disrupting the IT sector?

The pattern we are seeing in cloud computing at the moment doesn’t fit the classic industry disruption model. Unlike their colleagues in the retail and media sectors, IT industry leaders are fighting back by evolving their business models, making new investments and rapidly co-opting new technologies.

By some, this could be seen as a provocative statement

Is the growth of cloud computing disruptive? Absolutely, but it depends on your perspective of who is being disrupted. We can expect to see continued turbulence where a number of IT companies will not navigate the transition to the as-a-service cloud business model, but most of the biggest players will be able to maintain their position as industry leaders (although the order will likely change in the shakeout)

Traditional IT leaders are starting to see the results of their cloud efforts

As we see IT industry incumbents invest heavily in new capabilities and technologies and co-opt cloud innovation concepts, we are also seeing them aggressively work to maintain and extend their platform ecosystems. Those efforts are starting to generate results. By some measures, Microsoft is growing its cloud revenue almost twice as fast as Amazon, and IBM is only 2 percentage points behind.

Case in point: Even though Amazon AWS is the clear market leader with up to 75% share of cloud platforms according to Forrester, Microsoft has grown its cloud business from low single digit market share 3 years ago to as high as 25% at the end of 2014.

This is because of the mature Microsoft ecosystem combined with the gradual maturation of Microsoft cloud technologies. The key word here is ECOSYSTEM. Microsoft has 10,000’s of partners, a large mature enterprise sales force and a .NET platform that is nearly ubiquitous with Fortune 1000 IT departments. Because of this, they can leverage the high ground to gain cloud market share from AWS, Google and other new entrants and protect their base. Other leaders like EMC and IBM are employing a similar strategy. Does this mean that IBM and the other incumbents are out of the woods? No, but they're fighting back hard and aren't going anywhere anytime soon.

The Cloud Biome: A set of ecosystems emerge

While the new players led by Amazon and Google are growing their cloud ecosystems organically, established players are re-purposing their existing ecosystems of developer communities, resellers, technology providers, integrators, and service providers. This takes work: There are new winners and losers and capabilities have to be evolved but the results are unmistakable. Taking a closer look, we see a key subset of cloud platform ecosystems emerge:

• Amazon AWS
• Openstack – IBM, HP, Red Hat, Rackspace
• Microsoft Azure
• VMware/EMC
  
• Google

Other platforms may achieve critical mass in the future, but it’s clear these platforms are here to stay. One way of looking at this is to look at the number of jobs posted requiring competence with a particular platform. If you look at trends on the Indeed.com website, you will see skills related to all of these platforms in high demand. (Be careful how you read the results though, the high growth of jobs in the transportation sector skews the results.)

Do enterprises care who’s the biggest? No.

Every platform mentioned here has and will continue to attract its share of customers for the foreseeable future. Many enterprises will also standardize on multiple platforms depending on their current state, future state plans, and to spread out risk. Do we care which platform provides the best fit for any given situation?

Absolutely yes, but.....

I’d love to hear your thoughts; let me know what you think by leaving a comment below.