1 00:00:00,000 --> 00:00:02,520 The following content is provided under a Creative 2 00:00:02,520 --> 00:00:03,970 Commons license. 3 00:00:03,970 --> 00:00:06,360 Your support will help MIT OpenCourseWare 4 00:00:06,360 --> 00:00:10,660 continue to offer high quality educational resources for free. 5 00:00:10,660 --> 00:00:13,320 To make a donation or view additional materials 6 00:00:13,320 --> 00:00:17,160 from hundreds of MIT courses, visit MIT OpenCourseWare 7 00:00:17,160 --> 00:00:18,370 at ocw.mit.edu. 8 00:00:25,790 --> 00:00:26,660 PROFESSOR: OK. 9 00:00:26,660 --> 00:00:29,450 We've been chatting up here and taking up valuable time. 10 00:00:29,450 --> 00:00:33,170 We have the privilege today to have Donald Lessard-- 11 00:00:33,170 --> 00:00:36,230 Professor Donald Lessard speaking. 12 00:00:36,230 --> 00:00:38,300 Don and I and Professor [INAUDIBLE] 13 00:00:38,300 --> 00:00:41,640 taught this course the previous prior two years. 14 00:00:41,640 --> 00:00:44,180 So he's been in here before. 15 00:00:44,180 --> 00:00:46,070 He's an expert on international business, 16 00:00:46,070 --> 00:00:48,530 international finance, regular finance and, of course, 17 00:00:48,530 --> 00:00:51,430 the Cuban revolution, which he witnessed as a small boy. 18 00:00:51,430 --> 00:00:53,240 Don? 19 00:00:53,240 --> 00:00:54,490 DONALD LESSARD: Perfect start. 20 00:00:54,490 --> 00:00:56,680 OK. 21 00:00:56,680 --> 00:00:59,443 I wish I'd been with you all term, but I'm glad I'm not. 22 00:00:59,443 --> 00:01:00,610 I'm on sabbatical this year. 23 00:01:00,610 --> 00:01:01,550 And I'm enjoying that. 24 00:01:01,550 --> 00:01:04,599 So I'm probably a bit rusty in the classroom today. 25 00:01:04,599 --> 00:01:06,920 But I hope we'll have a good time. 26 00:01:06,920 --> 00:01:09,320 I'm going to talk about innovation and energy business 27 00:01:09,320 --> 00:01:09,820 models. 28 00:01:09,820 --> 00:01:11,050 So that's a big mouthful. 29 00:01:11,050 --> 00:01:13,990 We're trying to get a lot of things done in one session. 30 00:01:13,990 --> 00:01:18,640 But it's-- where I really want to go is to make you 31 00:01:18,640 --> 00:01:22,880 comfortable with, focus on-- these are the big questions. 32 00:01:22,880 --> 00:01:27,520 The first question always is what problem are we solving? 33 00:01:27,520 --> 00:01:29,230 What's the value proposition? 34 00:01:29,230 --> 00:01:30,820 What problem are we solving for whom? 35 00:01:30,820 --> 00:01:32,035 How? 36 00:01:32,035 --> 00:01:33,770 How will we monetize it? 37 00:01:33,770 --> 00:01:36,490 How will we turn it into a business? 38 00:01:36,490 --> 00:01:39,200 What's the best business model to do that-- 39 00:01:39,200 --> 00:01:40,060 second question. 40 00:01:40,060 --> 00:01:41,810 And we're not going to answer all of that. 41 00:01:41,810 --> 00:01:45,760 But I want to give you a little sense of which kinds of energy 42 00:01:45,760 --> 00:01:48,880 innovations lend themselves to startups, 43 00:01:48,880 --> 00:01:51,010 which kinds of energy innovations 44 00:01:51,010 --> 00:01:55,030 have to be undertaken by large incumbent firms, which ones 45 00:01:55,030 --> 00:01:58,900 might be undertaken by new, big pioneering firms, which 46 00:01:58,900 --> 00:02:00,370 ones require consortia-- right? 47 00:02:00,370 --> 00:02:03,280 So how big, what kind of structure 48 00:02:03,280 --> 00:02:05,500 has to carry a particular type of innovation 49 00:02:05,500 --> 00:02:10,539 forward because energy is a very complicated space. 50 00:02:10,539 --> 00:02:12,670 Then this is something we will not completely 51 00:02:12,670 --> 00:02:14,935 deal with in this session, but I'll start on-- 52 00:02:14,935 --> 00:02:16,810 and you've been talking about a lot already-- 53 00:02:16,810 --> 00:02:19,300 under what circumstances will the innovation 54 00:02:19,300 --> 00:02:21,970 you're focusing on be viable? 55 00:02:21,970 --> 00:02:24,730 And who and what has to change for it 56 00:02:24,730 --> 00:02:27,580 to work because that's the primary question. 57 00:02:27,580 --> 00:02:29,500 You've got a better light bulb. 58 00:02:29,500 --> 00:02:32,020 Who is going to have to change for it to work? 59 00:02:32,020 --> 00:02:35,020 What are the various barriers to change going to be? 60 00:02:35,020 --> 00:02:37,528 You looked at Hexion and you look at biofuels. 61 00:02:37,528 --> 00:02:39,070 You've got questions within the firm. 62 00:02:39,070 --> 00:02:40,345 You have questions with the customer. 63 00:02:40,345 --> 00:02:42,030 You have questions within the industry. 64 00:02:42,030 --> 00:02:43,870 You have questions with regulation. 65 00:02:43,870 --> 00:02:46,180 You have questions with societal attitudes. 66 00:02:46,180 --> 00:02:49,030 So which of those things have to change. 67 00:02:49,030 --> 00:02:52,780 And that takes you back to the business model 68 00:02:52,780 --> 00:02:54,550 because the business model very often 69 00:02:54,550 --> 00:02:58,000 will be not only about producing the thing, 70 00:02:58,000 --> 00:03:00,280 but also bringing about the change that's 71 00:03:00,280 --> 00:03:04,820 required so that the thing will be viable in the marketplace. 72 00:03:04,820 --> 00:03:10,040 So that may really complicate the notion of a business model. 73 00:03:10,040 --> 00:03:12,550 And finally, the standard strategy 74 00:03:12,550 --> 00:03:15,550 questions-- what capabilities-- what do you have to be good at? 75 00:03:15,550 --> 00:03:16,270 What scale? 76 00:03:16,270 --> 00:03:17,020 What scope? 77 00:03:17,020 --> 00:03:20,140 What various activities do you have to be involved in? 78 00:03:20,140 --> 00:03:21,640 And where do you have to be? 79 00:03:21,640 --> 00:03:23,530 And that's for another session later. 80 00:03:23,530 --> 00:03:25,580 Where do you have to be to make this work? 81 00:03:25,580 --> 00:03:28,660 And of course, the answer is it all depends. 82 00:03:32,410 --> 00:03:34,540 I'd say it depends on many things, 83 00:03:34,540 --> 00:03:37,330 but I'm going to focus on really the first two. 84 00:03:37,330 --> 00:03:38,890 And they're related. 85 00:03:38,890 --> 00:03:41,410 They're slightly different concepts, but they're related. 86 00:03:41,410 --> 00:03:44,890 It depends upon the maturity of the technology. 87 00:03:44,890 --> 00:03:48,940 And it depends upon whether the innovation is disruptive 88 00:03:48,940 --> 00:03:50,740 or not. 89 00:03:50,740 --> 00:03:53,410 So we need to start doing some classification of the nature 90 00:03:53,410 --> 00:03:56,080 of the technology, the nature of the innovation 91 00:03:56,080 --> 00:03:59,580 to understand what kind of business models might work. 92 00:03:59,580 --> 00:04:00,080 OK? 93 00:04:00,080 --> 00:04:01,810 So far. 94 00:04:01,810 --> 00:04:05,290 And then I'm going to talk a bit about innovation games, which 95 00:04:05,290 --> 00:04:08,080 is a nice way to think about different types of innovation 96 00:04:08,080 --> 00:04:09,100 processes. 97 00:04:09,100 --> 00:04:11,770 It's some new work being done by a friend of mine. 98 00:04:11,770 --> 00:04:15,670 And then we'll end with some innovation business models. 99 00:04:15,670 --> 00:04:16,269 OK. 100 00:04:16,269 --> 00:04:24,290 So technology maturity-- you read the paper. 101 00:04:24,290 --> 00:04:27,290 Here you can do this with a rising S curve 102 00:04:27,290 --> 00:04:29,090 or you can do this with this falling curve 103 00:04:29,090 --> 00:04:31,400 in terms of rate of innovation. 104 00:04:31,400 --> 00:04:34,125 But there is a sense that most technologies 105 00:04:34,125 --> 00:04:35,375 go through these three phases. 106 00:04:41,930 --> 00:04:47,310 What's the statement in Genesis, "without form and void?" 107 00:04:47,310 --> 00:04:48,800 So it's without form and void. 108 00:04:48,800 --> 00:04:52,160 And there may be some sense of an unmet need. 109 00:04:52,160 --> 00:04:56,000 And there are lots of different solutions being brought about. 110 00:04:56,000 --> 00:04:57,950 Nobody's quite sure how to do it. 111 00:04:57,950 --> 00:04:59,930 There are entrants in all kinds of places. 112 00:04:59,930 --> 00:05:01,460 It's a zoo. 113 00:05:01,460 --> 00:05:04,220 It's highly fluid. 114 00:05:04,220 --> 00:05:07,160 There is no clear sense about which the best products 115 00:05:07,160 --> 00:05:10,670 or technologies, or even what categories sometimes 116 00:05:10,670 --> 00:05:12,260 the products or services fit into. 117 00:05:12,260 --> 00:05:14,990 PROFESSOR: Warren Buffett talked about 2,000 automobile 118 00:05:14,990 --> 00:05:16,395 manufacturers circa 1910. 119 00:05:16,395 --> 00:05:17,270 DONALD LESSARD: Yeah. 120 00:05:17,270 --> 00:05:19,760 PROFESSOR: Everybody with a different way to get rich. 121 00:05:19,760 --> 00:05:21,470 DONALD LESSARD: So automobiles took off. 122 00:05:21,470 --> 00:05:21,970 Yeah. 123 00:05:21,970 --> 00:05:24,680 2,000 automobile manufacturers in the US. 124 00:05:24,680 --> 00:05:29,630 By-- what-- 1933, you'd probably slimmed down to 16. 125 00:05:29,630 --> 00:05:31,760 Now we're back to-- what-- 126 00:05:31,760 --> 00:05:35,090 eight maybe, but with three based in the US. 127 00:05:35,090 --> 00:05:37,670 Big consolidation over time. 128 00:05:37,670 --> 00:05:40,850 Fluid phase-- everybody is at it. 129 00:05:40,850 --> 00:05:46,610 Transitional phase-- it's starting to take shape. 130 00:05:46,610 --> 00:05:50,210 And then the mature phase-- it's consolidated. 131 00:05:50,210 --> 00:05:53,600 And it's really blocking, and tackling, and tough competition 132 00:05:53,600 --> 00:05:55,160 on an operational basis. 133 00:05:55,160 --> 00:05:57,080 And it's largely scale-based. 134 00:05:57,080 --> 00:05:58,220 It's Comcast, right? 135 00:05:58,220 --> 00:06:02,480 [LAUGHS] So you think about communications and internet 136 00:06:02,480 --> 00:06:03,950 and all those things. 137 00:06:03,950 --> 00:06:06,260 We've got some mature monopolists over here 138 00:06:06,260 --> 00:06:07,610 with regulatory capture. 139 00:06:07,610 --> 00:06:08,960 And that's mature phase. 140 00:06:08,960 --> 00:06:10,940 But we've got all kinds of new stuff going on 141 00:06:10,940 --> 00:06:13,250 in the same time and a number of transitional things 142 00:06:13,250 --> 00:06:15,030 going on at the same time. 143 00:06:15,030 --> 00:06:19,760 And energy is particularly lively this way. 144 00:06:19,760 --> 00:06:21,960 Again, from the paper-- fluid phase. 145 00:06:21,960 --> 00:06:22,460 Right? 146 00:06:22,460 --> 00:06:26,570 A lot of uncertainty. 147 00:06:26,570 --> 00:06:27,350 This is important. 148 00:06:27,350 --> 00:06:29,780 A high rate of product innovation 149 00:06:29,780 --> 00:06:33,530 and high degree of process flexibility 150 00:06:33,530 --> 00:06:36,420 means people do things lots of different ways. 151 00:06:36,420 --> 00:06:38,420 It's almost craft industry. 152 00:06:38,420 --> 00:06:39,840 One company does it one way. 153 00:06:39,840 --> 00:06:41,420 Another company does it another way. 154 00:06:41,420 --> 00:06:44,060 You really haven't scaled it. 155 00:06:44,060 --> 00:06:47,270 You produce the product or service however you can. 156 00:06:47,270 --> 00:06:51,890 Demand is taking off, but still a slow total volume. 157 00:06:51,890 --> 00:06:53,300 This is important. 158 00:06:53,300 --> 00:06:56,540 Not always the case, but what does that 159 00:06:56,540 --> 00:06:59,838 tell you about who's buying the product in this phase? 160 00:06:59,838 --> 00:07:01,880 Functionality is more important than brand names. 161 00:07:01,880 --> 00:07:05,220 Who's buying the product? 162 00:07:05,220 --> 00:07:07,740 Who would care more about functionality than brand name? 163 00:07:12,270 --> 00:07:15,990 Think about it in terms of computers or internet. 164 00:07:15,990 --> 00:07:17,550 Somebody who really knows the stuff. 165 00:07:17,550 --> 00:07:18,050 Right? 166 00:07:18,050 --> 00:07:21,430 Somebody who knows the functionality, is a lead user, 167 00:07:21,430 --> 00:07:24,090 is really into what it does. 168 00:07:24,090 --> 00:07:25,260 Don't tell me who makes it. 169 00:07:25,260 --> 00:07:26,760 Tell me exactly what it does. 170 00:07:26,760 --> 00:07:27,260 Right? 171 00:07:27,260 --> 00:07:31,690 So you get the techies of that particular product into it. 172 00:07:31,690 --> 00:07:36,390 So the early emergence of an electrical car 173 00:07:36,390 --> 00:07:39,630 or the early emergence of some other new product 174 00:07:39,630 --> 00:07:42,300 may be much more about the intricacies 175 00:07:42,300 --> 00:07:44,910 of that particular product because you've 176 00:07:44,910 --> 00:07:46,800 got a set of people who are fascinated 177 00:07:46,800 --> 00:07:48,200 with the functionality. 178 00:07:48,200 --> 00:07:48,900 Right? 179 00:07:48,900 --> 00:07:51,240 Later it becomes is it accepted? 180 00:07:51,240 --> 00:07:52,140 Is it a brand name? 181 00:07:52,140 --> 00:07:53,040 Is it standard? 182 00:07:53,040 --> 00:07:56,940 So this is saying that the markets are different. 183 00:07:56,940 --> 00:08:01,090 The nature of what's going on in the firm is as we go across. 184 00:08:01,090 --> 00:08:03,940 But also, the customer behavior is different. 185 00:08:03,940 --> 00:08:05,190 And what are you trying to do? 186 00:08:05,190 --> 00:08:06,720 You try to develop your technology 187 00:08:06,720 --> 00:08:09,180 and you're trying to hang on to it 188 00:08:09,180 --> 00:08:11,970 because you're inventing new ways to satisfy 189 00:08:11,970 --> 00:08:13,560 some unmet need. 190 00:08:13,560 --> 00:08:15,734 You're going to try to cash in on that. 191 00:08:15,734 --> 00:08:18,480 You know that there's going to be a shakeout. 192 00:08:18,480 --> 00:08:20,940 You know there's going to be a consolidation. 193 00:08:20,940 --> 00:08:24,720 You're trying to hang on either to a market position or some IP 194 00:08:24,720 --> 00:08:25,740 or ideally both. 195 00:08:25,740 --> 00:08:26,280 Right? 196 00:08:26,280 --> 00:08:30,340 Now we get into a transitional phase, dominant design. 197 00:08:30,340 --> 00:08:32,130 So think about bicycles in what? 198 00:08:32,130 --> 00:08:33,630 1880s? 199 00:08:33,630 --> 00:08:35,669 And they had one big front wheel and they 200 00:08:35,669 --> 00:08:36,720 had a little small wheel. 201 00:08:36,720 --> 00:08:37,970 And they had two equal wheels. 202 00:08:37,970 --> 00:08:40,260 And some had chains and some didn't. 203 00:08:40,260 --> 00:08:41,909 If you look in the old books-- 204 00:08:41,909 --> 00:08:44,070 all kinds of designs. 205 00:08:44,070 --> 00:08:49,530 I don't know what year, but probably mid 90s or maybe 1905 206 00:08:49,530 --> 00:08:54,450 or so the standard two wheel bicycle with a seat position. 207 00:08:54,450 --> 00:08:58,060 The chain emerged as the dominant design. 208 00:08:58,060 --> 00:09:00,660 Of course, there were other companies making other designs. 209 00:09:00,660 --> 00:09:03,240 But most bicycle companies were focused on that. 210 00:09:06,210 --> 00:09:08,070 What happens? 211 00:09:08,070 --> 00:09:11,100 It's a much better understanding about what customers need. 212 00:09:11,100 --> 00:09:13,290 Much more process innovation. 213 00:09:13,290 --> 00:09:17,760 So in my global strategy class one of my favorite cases 214 00:09:17,760 --> 00:09:19,625 to teach is Shimano. 215 00:09:19,625 --> 00:09:23,730 And we look at Shimano from 1921 through the present. 216 00:09:23,730 --> 00:09:27,870 And Shimono starts off in a small village outside of Osaka. 217 00:09:27,870 --> 00:09:30,990 It actually is the village where the samurai swords were made. 218 00:09:30,990 --> 00:09:34,073 So it has experience with metal working. 219 00:09:34,073 --> 00:09:35,490 The bicycle is not invented there. 220 00:09:35,490 --> 00:09:37,140 It's invented in France. 221 00:09:37,140 --> 00:09:42,090 2,000 bicycle shops spring up in a year. 222 00:09:42,090 --> 00:09:45,960 Everybody's making bicycles in their own shops. 223 00:09:45,960 --> 00:09:48,340 But as the dominant design emerges 224 00:09:48,340 --> 00:09:50,550 and as you get 2,000 bicycle shops, 225 00:09:50,550 --> 00:09:52,170 Shimono figures out that there are 226 00:09:52,170 --> 00:09:58,870 economies of scale in making rear hubs and crank sets. 227 00:09:58,870 --> 00:10:01,750 Not in welding frames, not in putting on handlebars, 228 00:10:01,750 --> 00:10:06,880 not in making bicycle seats, but in making hubs and crank sets. 229 00:10:06,880 --> 00:10:08,530 And then they get really good at that. 230 00:10:08,530 --> 00:10:10,460 They become codependent. 231 00:10:10,460 --> 00:10:10,960 Right? 232 00:10:10,960 --> 00:10:12,610 They become a supplier of components 233 00:10:12,610 --> 00:10:14,110 to the whole industry. 234 00:10:14,110 --> 00:10:16,480 You still have a couple of thousand bicycle makers, 235 00:10:16,480 --> 00:10:20,860 but you have one company that's making the high scale economy, 236 00:10:20,860 --> 00:10:23,200 more high technology product. 237 00:10:23,200 --> 00:10:28,150 And they really start focusing on process innovation. 238 00:10:28,150 --> 00:10:33,280 They find ways to make things cheaper with the same quality. 239 00:10:33,280 --> 00:10:39,230 So they go from casting to drop forging. 240 00:10:39,230 --> 00:10:41,470 Huge jump in quality. 241 00:10:41,470 --> 00:10:44,530 So process technology starts becoming the differentiator 242 00:10:44,530 --> 00:10:48,700 because it allows me to deliver the same product 243 00:10:48,700 --> 00:10:51,310 either at a lower cost or with greater functionality. 244 00:10:51,310 --> 00:10:56,200 So back to the frontier you were talking about last period. 245 00:10:56,200 --> 00:10:57,940 And so the competition becomes much more 246 00:10:57,940 --> 00:11:01,150 about process and scale and experience 247 00:11:01,150 --> 00:11:02,920 and becoming good at things. 248 00:11:02,920 --> 00:11:03,490 Right? 249 00:11:03,490 --> 00:11:08,620 And quality and availability becomes the competition. 250 00:11:08,620 --> 00:11:10,900 The technological capabilities of the firm 251 00:11:10,900 --> 00:11:13,780 are much less about development, much more about 252 00:11:13,780 --> 00:11:16,450 manufacturability. 253 00:11:16,450 --> 00:11:19,390 Again, we've got a large customer base. 254 00:11:19,390 --> 00:11:22,930 We probably have a fairly strong brand. 255 00:11:22,930 --> 00:11:23,765 Mature phase. 256 00:11:26,590 --> 00:11:29,230 The product starts commoditizing. 257 00:11:29,230 --> 00:11:31,900 There are more than enough manufacturers for it. 258 00:11:31,900 --> 00:11:34,540 There's a more than enough capacity for it. 259 00:11:34,540 --> 00:11:37,240 It's very hard to differentiate your product from someone 260 00:11:37,240 --> 00:11:38,470 else's. 261 00:11:38,470 --> 00:11:40,150 More similarities than differences. 262 00:11:40,150 --> 00:11:42,940 And filed products convergence of project and process 263 00:11:42,940 --> 00:11:43,900 innovation. 264 00:11:43,900 --> 00:11:46,900 Really focused on cost control, lean and efficient 265 00:11:46,900 --> 00:11:49,120 organization. 266 00:11:49,120 --> 00:11:54,040 Lean, tight, not waste a penny, do everything right. 267 00:11:54,040 --> 00:11:55,720 Now just think about the company that 268 00:11:55,720 --> 00:11:58,840 is in the mature phase how ready it is now to engage 269 00:11:58,840 --> 00:12:01,930 in a new round of innovation. 270 00:12:01,930 --> 00:12:04,240 It's just squeezed all of that out. 271 00:12:04,240 --> 00:12:06,550 If it's a single product company, 272 00:12:06,550 --> 00:12:08,860 it's in a phase of its life where 273 00:12:08,860 --> 00:12:11,470 it's really worried about efficiency and production 274 00:12:11,470 --> 00:12:12,610 process. 275 00:12:12,610 --> 00:12:14,710 And it's pretty well forgotten. 276 00:12:14,710 --> 00:12:16,600 It's forgotten about the innovation process. 277 00:12:16,600 --> 00:12:20,060 A classic example was Volkswagen, 278 00:12:20,060 --> 00:12:22,870 which was a single product company for many years. 279 00:12:22,870 --> 00:12:24,490 And the Bug became-- 280 00:12:24,490 --> 00:12:27,207 the Beetle became the dominant design. 281 00:12:27,207 --> 00:12:29,290 And it was out there and it held up and it held up 282 00:12:29,290 --> 00:12:31,457 and it held up and they kept producing and producing 283 00:12:31,457 --> 00:12:32,440 and producing it. 284 00:12:32,440 --> 00:12:34,240 Staying in that market. 285 00:12:34,240 --> 00:12:36,323 They forgot how to design a car. 286 00:12:36,323 --> 00:12:37,990 They forgot how to bring in a new model. 287 00:12:37,990 --> 00:12:40,330 It took them a lot of time to relearn that. 288 00:12:40,330 --> 00:12:40,990 Right? 289 00:12:40,990 --> 00:12:42,340 So you see this kind of cycle. 290 00:12:42,340 --> 00:12:44,590 This is common sense stuff. 291 00:12:44,590 --> 00:12:46,270 But if you look at a technology, it's 292 00:12:46,270 --> 00:12:49,240 important to think about where are you 293 00:12:49,240 --> 00:12:50,620 in the evolutionary period. 294 00:12:50,620 --> 00:12:54,430 Is this pre-fluid? 295 00:12:54,430 --> 00:12:56,140 You don't even know what's going on. 296 00:12:56,140 --> 00:12:59,620 Is this fluid but it's starting to take shape? 297 00:12:59,620 --> 00:13:02,260 Is this transitional where you're 298 00:13:02,260 --> 00:13:04,793 beginning to see the emergence of dominant designs 299 00:13:04,793 --> 00:13:06,460 and you're starting to see the shake out 300 00:13:06,460 --> 00:13:10,690 and you're starting to see a few firms take on strong positions. 301 00:13:10,690 --> 00:13:15,880 Or is this really mature, cost based, quality based, brand 302 00:13:15,880 --> 00:13:20,440 based computation where the big players win typically 303 00:13:20,440 --> 00:13:22,270 or the very focused players win? 304 00:13:24,850 --> 00:13:26,320 OK. 305 00:13:26,320 --> 00:13:29,620 So you've got it? 306 00:13:29,620 --> 00:13:32,800 Spend two or three minutes-- five minutes-- 307 00:13:32,800 --> 00:13:35,320 three minutes with the three or four people around you. 308 00:13:35,320 --> 00:13:40,030 What I want is an example of an energy technology 309 00:13:40,030 --> 00:13:42,160 at each stage of evolution. 310 00:13:42,160 --> 00:13:46,720 So again, something that is just emerging, turmoil, 311 00:13:46,720 --> 00:13:48,970 something that is kind of in a transitional stage 312 00:13:48,970 --> 00:13:51,640 where you can start seeing that it's going to look this way 313 00:13:51,640 --> 00:13:54,130 but it's not quite settled, and something 314 00:13:54,130 --> 00:13:56,050 where it's highly mature. 315 00:13:56,050 --> 00:13:58,840 It's head to head competition. 316 00:13:58,840 --> 00:14:03,310 So think about clean tech products of a wide variety. 317 00:14:03,310 --> 00:14:10,570 And again, very importantly, I'd say anywhere 318 00:14:10,570 --> 00:14:13,840 in the energy supply chain. 319 00:14:13,840 --> 00:14:20,200 So I tend to think of primary energy, conversion, 320 00:14:20,200 --> 00:14:24,400 transmission, distribution, end use. 321 00:14:24,400 --> 00:14:28,570 But now we have end use in industry, 322 00:14:28,570 --> 00:14:32,770 residential, transport. 323 00:14:32,770 --> 00:14:34,700 And then, I guess, we have Dick's area, 324 00:14:34,700 --> 00:14:39,070 which is how do we balance that stuff? 325 00:14:39,070 --> 00:14:42,070 Or how do we balance the whole thing if we 326 00:14:42,070 --> 00:14:44,590 include demand management? 327 00:14:44,590 --> 00:14:46,610 So that would be the space we're looking at. 328 00:14:46,610 --> 00:14:49,930 So anything in that space-- 329 00:14:49,930 --> 00:14:54,713 new technologies, innovative technologies for-- 330 00:14:54,713 --> 00:14:55,630 new is the wrong word. 331 00:14:55,630 --> 00:15:00,020 But technologies that are coming into the marketplace 332 00:15:00,020 --> 00:15:02,720 or are in the marketplace for primary energy, energy 333 00:15:02,720 --> 00:15:05,720 conversion, energy transmission, storage, et cetera 334 00:15:05,720 --> 00:15:07,670 or for all kinds of end use. 335 00:15:07,670 --> 00:15:09,320 What stage would you put them at? 336 00:15:09,320 --> 00:15:14,210 And within your group give me one for each area. 337 00:15:14,210 --> 00:15:16,625 Give me fluid, transitional, mature. 338 00:15:19,856 --> 00:15:24,080 AUDIENCE: So for the [INAUDIBLE] different energy 339 00:15:24,080 --> 00:15:26,940 storage [INAUDIBLE] in the grid, so for power [INAUDIBLE].. 340 00:15:26,940 --> 00:15:32,265 So, like, using compressed air [INAUDIBLE] 341 00:15:32,265 --> 00:15:33,390 GUEST SPEAKER: So we have-- 342 00:15:33,390 --> 00:15:35,753 not only do we have batteries and very different kinds 343 00:15:35,753 --> 00:15:37,920 of battery technologies, and we have compressed air, 344 00:15:37,920 --> 00:15:39,930 and we have flywheels, and we actually 345 00:15:39,930 --> 00:15:42,450 have quite a few substitutes, because we have fast start 346 00:15:42,450 --> 00:15:45,600 generators, and demand management is actually 347 00:15:45,600 --> 00:15:51,000 a substitute if you think of the balance, but it's a zoo. 348 00:15:51,000 --> 00:15:54,940 I've been trying to follow A123 with its grid level storage. 349 00:15:54,940 --> 00:15:59,250 And no one knows what the dominant design is there. 350 00:15:59,250 --> 00:16:01,650 And is this to be used for grid stabilization? 351 00:16:01,650 --> 00:16:04,320 Do you want to stick it out on the end next to a wind farm? 352 00:16:04,320 --> 00:16:06,780 It's not known. 353 00:16:06,780 --> 00:16:09,400 It's all going on over in the Department of Material Science. 354 00:16:09,400 --> 00:16:11,483 There are what, about six different-- six or seven 355 00:16:11,483 --> 00:16:15,875 different competing companies, or more, out of DMSE. 356 00:16:15,875 --> 00:16:17,460 AUDIENCE: [INAUDIBLE] 357 00:16:17,460 --> 00:16:19,680 GUEST SPEAKER: Right, like Sadoway's swimming pools. 358 00:16:19,680 --> 00:16:23,154 OK a transitional? 359 00:16:23,154 --> 00:16:25,390 AUDIENCE: [INAUDIBLE] as opposed to wind. 360 00:16:25,390 --> 00:16:25,890 Because-- 361 00:16:25,890 --> 00:16:27,320 GUEST SPEAKER: Which kind of wind? 362 00:16:27,320 --> 00:16:28,540 OK, let's put wind. 363 00:16:28,540 --> 00:16:29,040 Good. 364 00:16:32,850 --> 00:16:34,530 Why is it transitional? 365 00:16:34,530 --> 00:16:35,490 AUDIENCE: [INAUDIBLE] 366 00:16:35,490 --> 00:16:36,570 GUEST SPEAKER: Pardon? 367 00:16:36,570 --> 00:16:37,560 AUDIENCE: It wouldn't be drive-by? 368 00:16:37,560 --> 00:16:38,520 GUEST SPEAKER: Yeah. 369 00:16:38,520 --> 00:16:41,070 No, so grid level wind-- 370 00:16:43,950 --> 00:16:46,530 and again, if we were drilling down a little bit, 371 00:16:46,530 --> 00:16:52,970 we'd find, I think, that on-shore wind looks like it's 372 00:16:52,970 --> 00:16:55,200 starting to standardize. 373 00:16:55,200 --> 00:16:59,460 Off-shore wind is still very much in the air in terms 374 00:16:59,460 --> 00:17:01,140 of the standard design. 375 00:17:01,140 --> 00:17:05,369 So you're somewhere in between. 376 00:17:05,369 --> 00:17:07,770 Although I guess there's still some big transitions 377 00:17:07,770 --> 00:17:09,510 in the size of the blades. 378 00:17:09,510 --> 00:17:12,480 I look out my window in Vermont, and I have 180 footers now. 379 00:17:12,480 --> 00:17:16,427 And they're going to build 480 footers, with strobe lights. 380 00:17:16,427 --> 00:17:18,510 AUDIENCE: So on-shore Is beginning to standardize. 381 00:17:18,510 --> 00:17:20,302 GUEST SPEAKER: Right, but that's the point. 382 00:17:20,302 --> 00:17:23,609 So the water is starting to freeze. 383 00:17:23,609 --> 00:17:24,900 It's starting to congeal. 384 00:17:24,900 --> 00:17:27,450 It's starting to standardize. 385 00:17:27,450 --> 00:17:28,500 There's a real shift. 386 00:17:28,500 --> 00:17:32,310 Partly, the demand has shrunk a little bit 387 00:17:32,310 --> 00:17:35,430 with European financial difficulties, 388 00:17:35,430 --> 00:17:38,070 with uncertainties about the US credits. 389 00:17:38,070 --> 00:17:42,060 And the Chinese have run through a very quick ramp up, partly. 390 00:17:42,060 --> 00:17:45,880 But it's also starting to consolidate. 391 00:17:45,880 --> 00:17:47,280 So it's OK-- mature-- 392 00:17:47,280 --> 00:17:49,296 or mature? 393 00:17:49,296 --> 00:17:52,030 AUDIENCE: [INAUDIBLE] 394 00:17:52,030 --> 00:17:52,870 GUEST SPEAKER: Big-- 395 00:17:52,870 --> 00:17:54,900 AUDIENCE: That's a very interesting question. 396 00:17:54,900 --> 00:17:57,400 GUEST SPEAKER: You think today's boiling water reactors will 397 00:17:57,400 --> 00:18:00,460 be the design used in 20 years? 398 00:18:00,460 --> 00:18:03,397 Right, so that's-- right. 399 00:18:03,397 --> 00:18:04,480 That's your question mark. 400 00:18:04,480 --> 00:18:06,580 So it's mature and almost dead now. 401 00:18:06,580 --> 00:18:08,050 But if it comes back to life, it's 402 00:18:08,050 --> 00:18:10,240 probably going to become fluid for a little while. 403 00:18:10,240 --> 00:18:13,120 I hope not too fluid, but anyway, OK. 404 00:18:13,120 --> 00:18:18,190 OK, team in the middle, whoever you are? 405 00:18:18,190 --> 00:18:21,838 AUDIENCE: So for fluid, you had-- 406 00:18:24,616 --> 00:18:25,835 we'll say fuel cells. 407 00:18:25,835 --> 00:18:26,710 GUEST SPEAKER: Which? 408 00:18:26,710 --> 00:18:27,610 AUDIENCE: Fuel cells. 409 00:18:27,610 --> 00:18:28,693 GUEST SPEAKER: Fuel cells. 410 00:18:28,693 --> 00:18:34,270 Yeah, that may-- yeah, that's pretty fluid. 411 00:18:34,270 --> 00:18:37,480 Maybe pre, but that's good. 412 00:18:37,480 --> 00:18:39,635 It's still largely in the labs. 413 00:18:39,635 --> 00:18:41,760 AUDIENCE: You gotta find some way that doesn't need 414 00:18:41,760 --> 00:18:44,038 [INAUDIBLE]. 415 00:18:44,038 --> 00:18:45,205 GUEST SPEAKER: Transitional? 416 00:18:45,205 --> 00:18:47,932 AUDIENCE: [INAUDIBLE] solar [INAUDIBLE]?? 417 00:18:47,932 --> 00:18:49,015 GUEST SPEAKER: Grid solar. 418 00:18:52,320 --> 00:18:54,120 Again, we start drilling down, right? 419 00:18:54,120 --> 00:18:56,680 So the crystalline stuff looks fairly mature. 420 00:18:56,680 --> 00:19:02,700 The thin film stuff is probably fluid. 421 00:19:02,700 --> 00:19:07,620 The concentrated solar is still probably fluid. 422 00:19:07,620 --> 00:19:08,980 So that's a good catch all. 423 00:19:08,980 --> 00:19:10,925 So let's just say grid. 424 00:19:10,925 --> 00:19:12,300 AUDIENCE: What's nice about it is 425 00:19:12,300 --> 00:19:14,820 while you have a pretty mature crystalline silicon 426 00:19:14,820 --> 00:19:20,550 technology in solar, you've got all these other designs being 427 00:19:20,550 --> 00:19:21,960 worked on-- 428 00:19:21,960 --> 00:19:24,660 Solyndra, et cetera, and people are 429 00:19:24,660 --> 00:19:26,160 looking to increase efficiency. 430 00:19:26,160 --> 00:19:29,190 And if somebody hits it, crystalline silicon 431 00:19:29,190 --> 00:19:30,000 gets displaced. 432 00:19:30,000 --> 00:19:32,125 GUEST SPEAKER: Well, and you have everybody looking 433 00:19:32,125 --> 00:19:35,160 at the efficiency of the chip. 434 00:19:35,160 --> 00:19:39,145 And all that matters is the installation cost. 435 00:19:39,145 --> 00:19:41,020 AUDIENCE: If you get the chip more efficient, 436 00:19:41,020 --> 00:19:42,090 you don't have to have as much installation, 437 00:19:42,090 --> 00:19:43,120 because you don't take as much space. 438 00:19:43,120 --> 00:19:44,203 GUEST SPEAKER: It's still. 439 00:19:44,203 --> 00:19:45,570 Still. 440 00:19:45,570 --> 00:19:47,480 OK, I'll take a group over here. 441 00:19:47,480 --> 00:19:49,980 I don't know exactly where the boundaries of the groups are, 442 00:19:49,980 --> 00:19:51,090 but I'll just take one. 443 00:19:51,090 --> 00:19:54,090 In the back on this side? 444 00:19:54,090 --> 00:19:55,632 AUDIENCE: You want a mature one, or-- 445 00:19:55,632 --> 00:19:57,340 GUEST SPEAKER: Well, if you say the same, 446 00:19:57,340 --> 00:19:58,460 you just say the same. 447 00:19:58,460 --> 00:20:00,890 AUDIENCE: So for fluid, we talked about, like, 448 00:20:00,890 --> 00:20:04,430 wave energy within the ocean-- ocean wave energy. 449 00:20:04,430 --> 00:20:06,980 GUEST SPEAKER: And that may be pre also, 450 00:20:06,980 --> 00:20:10,910 but it's starting to merge, so ocean or wave. 451 00:20:10,910 --> 00:20:13,458 It's very early. 452 00:20:13,458 --> 00:20:15,750 AUDIENCE: We actually talked about wind and solar, so-- 453 00:20:15,750 --> 00:20:17,040 GUEST SPEAKER: Yep, OK. 454 00:20:17,040 --> 00:20:19,290 AUDIENCE: And mature, we talked about, like, turbines, 455 00:20:19,290 --> 00:20:24,050 like a gas turbine, or like a coal-fired plant, 456 00:20:24,050 --> 00:20:27,440 stuff like that. 457 00:20:27,440 --> 00:20:29,820 GUEST SPEAKER: Why is it, with-- why is it 458 00:20:29,820 --> 00:20:33,960 that you're all focused here? 459 00:20:33,960 --> 00:20:35,490 If we're going to solve-- 460 00:20:35,490 --> 00:20:38,310 if we're going to solve the energy problem, 461 00:20:38,310 --> 00:20:41,700 we've got to knock a third off the carbon footprint here, 462 00:20:41,700 --> 00:20:45,960 we've got to cut a third of the inefficiency here, 463 00:20:45,960 --> 00:20:47,970 and we've got to cut use here by a third. 464 00:20:47,970 --> 00:20:52,170 Why is it you're only focusing on one of the three? 465 00:20:52,170 --> 00:20:54,978 OK, let's have something over here. 466 00:20:54,978 --> 00:20:57,810 AUDIENCE: For fluid technology, most of ours have been-- 467 00:20:57,810 --> 00:20:59,740 we talked about WiTricity. 468 00:20:59,740 --> 00:21:01,300 And transitional-- 469 00:21:01,300 --> 00:21:03,430 GUEST SPEAKER: Again, fluid was? 470 00:21:03,430 --> 00:21:05,535 AUDIENCE: WiTricity. 471 00:21:05,535 --> 00:21:06,670 It's a company-- 472 00:21:06,670 --> 00:21:07,510 GUEST SPEAKER: OK, what do they do? 473 00:21:07,510 --> 00:21:08,490 AUDIENCE: It's kind of a start up. 474 00:21:08,490 --> 00:21:09,470 They developed the technology-- 475 00:21:09,470 --> 00:21:11,840 [INAUDIBLE] develop the technology [INAUDIBLE] that 476 00:21:11,840 --> 00:21:14,230 wirelessly transmits electricity-- 477 00:21:14,230 --> 00:21:14,990 GUEST SPEAKER: Ah! 478 00:21:14,990 --> 00:21:17,240 AUDIENCE: [INAUDIBLE] 479 00:21:17,240 --> 00:21:20,180 GUEST SPEAKER: OK, so wireless-- 480 00:21:22,940 --> 00:21:24,080 yeah. 481 00:21:24,080 --> 00:21:26,660 Yeah, Tesla comes back to life, right? 482 00:21:26,660 --> 00:21:28,017 OK, good. 483 00:21:28,017 --> 00:21:29,850 AUDIENCE: Transitional, we talked about LEDs 484 00:21:29,850 --> 00:21:32,268 and solid state batteries. 485 00:21:32,268 --> 00:21:33,950 And we wanted to separate batteries 486 00:21:33,950 --> 00:21:35,600 into several categories, and argue 487 00:21:35,600 --> 00:21:38,030 that lead acid, lithium ion and [INAUDIBLE] 488 00:21:38,030 --> 00:21:40,310 were more mature [INAUDIBLE]. 489 00:21:40,310 --> 00:21:42,800 GUEST SPEAKER: Right, so again, which kind of batteries 490 00:21:42,800 --> 00:21:43,894 do I have here? 491 00:21:43,894 --> 00:21:45,510 AUDIENCE: Solid state batteries. 492 00:21:45,510 --> 00:21:47,052 GUEST SPEAKER: Solid state batteries, 493 00:21:47,052 --> 00:21:49,550 and here I have lead acid batteries, right? 494 00:21:49,550 --> 00:21:54,957 So this is interest, and now you're moving into the middle 495 00:21:54,957 --> 00:21:56,790 and at least towards the end with those two. 496 00:22:00,320 --> 00:22:04,490 But it's interesting, because the categories-- 497 00:22:04,490 --> 00:22:10,040 you say, within an existing broad category of technology 498 00:22:10,040 --> 00:22:12,470 you probably have some of all of those-- 499 00:22:12,470 --> 00:22:15,890 within wind, within solar, within storage, 500 00:22:15,890 --> 00:22:17,300 within lighting. 501 00:22:17,300 --> 00:22:19,370 So you've got these life cycles going on 502 00:22:19,370 --> 00:22:24,620 within classes of technology as well as across. 503 00:22:24,620 --> 00:22:26,210 Anybody-- OK, let's go over here. 504 00:22:26,210 --> 00:22:29,760 Anything radically different? 505 00:22:29,760 --> 00:22:30,260 No? 506 00:22:30,260 --> 00:22:35,440 OK, anybody who's got some downstream examples-- something 507 00:22:35,440 --> 00:22:37,705 here, like what we use? 508 00:22:41,300 --> 00:22:42,652 Yeah? 509 00:22:42,652 --> 00:22:44,140 AUDIENCE: Converters? 510 00:22:44,140 --> 00:22:45,057 GUEST SPEAKER: Pardon? 511 00:22:45,057 --> 00:22:48,170 AUDIENCE: Switching [INAUDIBLE] converters as transitional? 512 00:22:48,170 --> 00:22:51,200 GUEST SPEAKER: OK, tell me a little bit more. 513 00:22:51,200 --> 00:22:53,708 For what kind of use? 514 00:22:53,708 --> 00:22:55,920 AUDIENCE: OK, so take a look at your [INAUDIBLE] 515 00:22:55,920 --> 00:23:00,130 and whatever is in there. 516 00:23:00,130 --> 00:23:02,260 Often times, like, old ones generally 517 00:23:02,260 --> 00:23:05,920 had transformers inside, and then they're [INAUDIBLE].. 518 00:23:05,920 --> 00:23:08,230 But newer ones, which are more efficient, 519 00:23:08,230 --> 00:23:15,292 tend to have that type of electrical converter. 520 00:23:15,292 --> 00:23:17,500 GUEST SPEAKER: So power supplies and power converters 521 00:23:17,500 --> 00:23:19,460 for all kinds of stuff? 522 00:23:19,460 --> 00:23:19,960 OK. 523 00:23:24,040 --> 00:23:25,300 Some of them-- 524 00:23:25,300 --> 00:23:27,550 I mean, there clearly is-- there's a mature category 525 00:23:27,550 --> 00:23:29,140 of those, right? 526 00:23:29,140 --> 00:23:37,030 And then-- so power converters, but there's also emerging 527 00:23:37,030 --> 00:23:39,980 better ways of doing this. 528 00:23:39,980 --> 00:23:41,890 I spent about a day running around 529 00:23:41,890 --> 00:23:44,860 Delta Electronics in Taiwan, and they're all over this. 530 00:23:44,860 --> 00:23:46,870 They are the power converter guys. 531 00:23:46,870 --> 00:23:48,818 Yeah? 532 00:23:48,818 --> 00:23:51,160 AUDIENCE: Mature could be a fluorescent light. 533 00:23:51,160 --> 00:23:52,150 GUEST SPEAKER: A what? 534 00:23:52,150 --> 00:23:54,820 Oh, fluorescent light, yeah. 535 00:23:54,820 --> 00:23:58,390 So now we have fluorescent, right? 536 00:23:58,390 --> 00:24:00,610 It's not dead yet. 537 00:24:00,610 --> 00:24:03,088 It still has several waves of innovation in it. 538 00:24:03,088 --> 00:24:04,630 It's still competitive for some uses. 539 00:24:04,630 --> 00:24:06,910 But it's a mature technology. 540 00:24:06,910 --> 00:24:11,230 Although, I guess the drivers-- 541 00:24:11,230 --> 00:24:12,820 the drivers for the fluorescent light, 542 00:24:12,820 --> 00:24:17,360 there's some big changes putting the drivers on a chip. 543 00:24:17,360 --> 00:24:19,440 Lowers the cost, raises the efficiency. 544 00:24:19,440 --> 00:24:21,890 So if you get inside the fluorescent light, 545 00:24:21,890 --> 00:24:26,090 there's some MIT professors who have the new chips 546 00:24:26,090 --> 00:24:27,370 to drive them. 547 00:24:27,370 --> 00:24:28,160 Yeah? 548 00:24:28,160 --> 00:24:30,410 AUDIENCE: There's a different way of approaching this. 549 00:24:30,410 --> 00:24:33,830 You wanted to discuss the final third as well, so put habits 550 00:24:33,830 --> 00:24:37,160 in mature, because I don't see much innovation in thinking 551 00:24:37,160 --> 00:24:39,397 about how you can [INAUDIBLE]. 552 00:24:39,397 --> 00:24:41,730 GUEST SPEAKER: That is a very interesting different way. 553 00:24:41,730 --> 00:24:43,340 So you'd say, what is it? 554 00:24:43,340 --> 00:24:45,090 And when we talk about disruption, 555 00:24:45,090 --> 00:24:46,340 we'll talk about the customer. 556 00:24:46,340 --> 00:24:47,810 It was a nice thing, saying here, 557 00:24:47,810 --> 00:24:50,840 we're talking about hard stuff-- technology. 558 00:24:50,840 --> 00:24:54,060 But in fact, human behavior-- 559 00:24:54,060 --> 00:24:56,030 human behavior could be categorized, 560 00:24:56,030 --> 00:25:00,080 and institutional behavior could be categorized in the same way. 561 00:25:00,080 --> 00:25:04,860 And our habits for commuting and driving, 562 00:25:04,860 --> 00:25:06,840 and where we choose to live, those things 563 00:25:06,840 --> 00:25:08,340 are pretty hard wired. 564 00:25:08,340 --> 00:25:12,570 Our habits regarding the use of electricity, mental attitudes, 565 00:25:12,570 --> 00:25:13,680 probably pretty mature. 566 00:25:13,680 --> 00:25:19,980 We've been doing that now for 100, 130 years-- 567 00:25:19,980 --> 00:25:22,500 pretty mature habit. 568 00:25:22,500 --> 00:25:24,882 We've got some things that are transitional. 569 00:25:24,882 --> 00:25:27,090 There may be some things that are quite fluid, right? 570 00:25:27,090 --> 00:25:29,820 So this is-- so you could apply a similar thinking 571 00:25:29,820 --> 00:25:32,220 structure to behaviors. 572 00:25:32,220 --> 00:25:33,720 This is focused on technology, but I 573 00:25:33,720 --> 00:25:36,570 think you've all got the point on any time you're 574 00:25:36,570 --> 00:25:41,160 looking at a technology, you want to know where it's at. 575 00:25:41,160 --> 00:25:43,860 Because that's going to tell you a lot about what's 576 00:25:43,860 --> 00:25:46,020 going to be required to have a successful business 577 00:25:46,020 --> 00:25:48,590 model in that phase. 578 00:25:48,590 --> 00:25:50,330 OK, now we'll go on to the next piece 579 00:25:50,330 --> 00:25:53,607 of this, which is discontinuities or disruptive. 580 00:25:53,607 --> 00:25:54,440 And they're similar. 581 00:25:54,440 --> 00:25:56,090 And Hiram, maybe you can straighten me out 582 00:25:56,090 --> 00:25:58,298 in terms of the difference between these literatures. 583 00:25:58,298 --> 00:26:00,380 I view them as almost the same. 584 00:26:00,380 --> 00:26:04,100 But the point of kind of discontinuities or disruptive 585 00:26:04,100 --> 00:26:04,920 change-- 586 00:26:04,920 --> 00:26:07,190 so we've got some incumbent technology, right? 587 00:26:07,190 --> 00:26:09,560 And it's gone through an S curve of unit sales, 588 00:26:09,560 --> 00:26:12,170 and it's matured, and it's leveling off. 589 00:26:12,170 --> 00:26:15,870 And a challenger comes in. 590 00:26:15,870 --> 00:26:18,620 Out of the fluid phase, it starts really emerging-- 591 00:26:18,620 --> 00:26:21,380 let's say, in the transitional phase in here-- 592 00:26:21,380 --> 00:26:23,300 it starts garnering some sales. 593 00:26:23,300 --> 00:26:26,270 It's probably not direct competition at first. 594 00:26:26,270 --> 00:26:28,760 It may even be dismissed as irrelevant, right? 595 00:26:31,560 --> 00:26:35,220 And over time, if it's appropriate, 596 00:26:35,220 --> 00:26:37,750 it will supplant the existing technology. 597 00:26:37,750 --> 00:26:42,000 So I gave you a reading about Kodak, 598 00:26:42,000 --> 00:26:44,130 and a reading about some of the difficulties 599 00:26:44,130 --> 00:26:46,110 that Kodak had in dealing with-- 600 00:26:46,110 --> 00:26:50,560 this is film-based based photography. 601 00:26:50,560 --> 00:26:53,110 Kodak wrote it from the initial chemistry 602 00:26:53,110 --> 00:26:54,942 to pretty much dominating the market. 603 00:26:54,942 --> 00:26:56,650 Although they did have a little challenge 604 00:26:56,650 --> 00:26:58,067 from the Japanese and the Germans. 605 00:26:58,067 --> 00:27:01,070 But they rode that market very nicely. 606 00:27:01,070 --> 00:27:03,820 Now, we're in a totally different world. 607 00:27:03,820 --> 00:27:07,890 Nobody uses film-- totally different product. 608 00:27:07,890 --> 00:27:10,100 And so you see these cycles over and over again. 609 00:27:13,070 --> 00:27:15,425 I may be getting out of line a little bit, 610 00:27:15,425 --> 00:27:17,300 but one of the things you want to think about 611 00:27:17,300 --> 00:27:21,270 in these discontinuities is who is having to change? 612 00:27:21,270 --> 00:27:22,520 This becomes a critical thing. 613 00:27:22,520 --> 00:27:25,310 So the question I'll pose in two slides 614 00:27:25,310 --> 00:27:28,190 after I do this next one is, discontinuous 615 00:27:28,190 --> 00:27:31,730 at what level, disruptive at what level? 616 00:27:31,730 --> 00:27:33,900 Because you really have to sort that out. 617 00:27:33,900 --> 00:27:36,920 But in order for your opportunity 618 00:27:36,920 --> 00:27:38,980 to materialize, what changes do you need? 619 00:27:38,980 --> 00:27:43,170 Do you need changes in end user behavior/habits? 620 00:27:43,170 --> 00:27:44,660 Do you need changes in prices? 621 00:27:44,660 --> 00:27:50,420 Do I now need peak load pricing, or do I need carbon pricing? 622 00:27:50,420 --> 00:27:54,440 Do I need a change in policies, building codes, right? 623 00:27:54,440 --> 00:27:56,960 So a whole series of things that may 624 00:27:56,960 --> 00:27:58,970 need to change, not just my technology. 625 00:27:58,970 --> 00:28:02,360 My technology may be maturing, but I may need behavior, 626 00:28:02,360 --> 00:28:05,270 I may need prices, I may need regulation. 627 00:28:05,270 --> 00:28:07,160 And of course, we'll come back to these. 628 00:28:07,160 --> 00:28:11,510 But you'll think about which point you can lever. 629 00:28:11,510 --> 00:28:13,160 Let's look at this point now, though. 630 00:28:13,160 --> 00:28:14,490 Disruptive to what? 631 00:28:14,490 --> 00:28:18,350 So we're trying to classify a technology-- 632 00:28:18,350 --> 00:28:22,700 an innovation-- as to whether it will be disruptive or not, just 633 00:28:22,700 --> 00:28:25,910 because it's fun, but because it gives us some notion of how 634 00:28:25,910 --> 00:28:28,700 we need to address it, and what it will take to get it 635 00:28:28,700 --> 00:28:29,990 implemented. 636 00:28:29,990 --> 00:28:32,780 Is it disruptive to the customer, 637 00:28:32,780 --> 00:28:35,480 to the firm, to the incumbent firm, 638 00:28:35,480 --> 00:28:39,080 to the platform or system, to the industry, 639 00:28:39,080 --> 00:28:41,840 to the regulatory context, to the social acceptance 640 00:28:41,840 --> 00:28:42,620 and mindset? 641 00:28:42,620 --> 00:28:45,540 We're kind of going down in levels of difficulty. 642 00:28:45,540 --> 00:28:51,140 So-- oh, that slide turned out beautifully. 643 00:28:51,140 --> 00:28:52,970 But customer-- and we could-- you've 644 00:28:52,970 --> 00:28:56,840 talked a bit about customers taking on new products? 645 00:28:56,840 --> 00:28:59,170 AUDIENCE: [INAUDIBLE] 646 00:28:59,170 --> 00:29:01,750 GUEST SPEAKER: We tend we tend to focus 647 00:29:01,750 --> 00:29:07,320 on the price and the economics of a new energy use. 648 00:29:07,320 --> 00:29:09,070 And then, of course, we get in an argument 649 00:29:09,070 --> 00:29:11,320 about whether people really look at the current cost 650 00:29:11,320 --> 00:29:15,100 or whether they look at the life cycle cost. 651 00:29:15,100 --> 00:29:17,980 But there are two other issues, at least, 652 00:29:17,980 --> 00:29:21,610 that go along with that price and that price calculation-- 653 00:29:21,610 --> 00:29:23,380 new behaviors or competencies. 654 00:29:23,380 --> 00:29:25,450 Do I have to start acting in a different way? 655 00:29:25,450 --> 00:29:28,660 Does this require that I undo some habits 656 00:29:28,660 --> 00:29:30,980 to use this new product? 657 00:29:30,980 --> 00:29:34,340 If it does, I've got a much harder sell, right? 658 00:29:34,340 --> 00:29:37,817 And I have to think, this is not marketing my product. 659 00:29:37,817 --> 00:29:39,650 This is getting you to change your behavior. 660 00:29:39,650 --> 00:29:40,970 That's one issue. 661 00:29:40,970 --> 00:29:44,330 Or the other, of course, is does it 662 00:29:44,330 --> 00:29:47,180 require new system complements? 663 00:29:47,180 --> 00:29:50,820 Do I have to have other goodies to go along with it? 664 00:29:50,820 --> 00:29:53,840 So you give me some device for-- 665 00:29:53,840 --> 00:29:57,110 I don't know-- controlling the heat-- 666 00:29:57,110 --> 00:29:59,330 the air conditioning in my unit. 667 00:29:59,330 --> 00:30:02,212 I also need, obviously, the controls on the pieces. 668 00:30:02,212 --> 00:30:04,670 And I probably need that to be hooked in with my cell phone 669 00:30:04,670 --> 00:30:06,980 so I can do it from a distance. 670 00:30:06,980 --> 00:30:11,280 I need an infrastructure that intercommunicates. 671 00:30:11,280 --> 00:30:13,410 So think about the customer. 672 00:30:13,410 --> 00:30:15,870 You've got a product for them. 673 00:30:15,870 --> 00:30:17,820 You say, this is a new and improved product. 674 00:30:17,820 --> 00:30:21,980 It's going to save you energy, and/or 675 00:30:21,980 --> 00:30:23,730 it's going to reduce the carbon footprint. 676 00:30:23,730 --> 00:30:26,320 Hopefully, it's going to do both of those. 677 00:30:26,320 --> 00:30:28,030 And so you should buy this product. 678 00:30:28,030 --> 00:30:30,960 And if you do a careful lifecycle calculation, which 679 00:30:30,960 --> 00:30:34,080 you probably won't do, you may find that this product 680 00:30:34,080 --> 00:30:35,670 is attractive. 681 00:30:35,670 --> 00:30:38,060 You still have to think about, am I going to use it? 682 00:30:38,060 --> 00:30:41,340 What do I have to do differently? 683 00:30:41,340 --> 00:30:45,513 And am I going to have to change out a bunch of other stuff? 684 00:30:45,513 --> 00:30:47,680 Because the critical point about energy-- and you've 685 00:30:47,680 --> 00:30:49,720 seen this over and over again-- is 686 00:30:49,720 --> 00:30:52,990 this is the installed-base industry to kill for, right? 687 00:30:52,990 --> 00:30:58,250 It's got huge installed base of complementary stuff. 688 00:30:58,250 --> 00:31:00,400 So you're wiring, your appliances, 689 00:31:00,400 --> 00:31:03,910 everything in your house are all built in a particular way. 690 00:31:03,910 --> 00:31:06,720 To change that is a big job-- 691 00:31:06,720 --> 00:31:08,820 kind of scary job. 692 00:31:08,820 --> 00:31:11,160 OK, so I'm not going to go too deeply on the customer 693 00:31:11,160 --> 00:31:13,690 today, because I didn't give you any readings on that. 694 00:31:13,690 --> 00:31:15,410 But I think that's the primary one. 695 00:31:15,410 --> 00:31:15,910 Yeah? 696 00:31:15,910 --> 00:31:19,470 AUDIENCE: [INAUDIBLE] when you think 697 00:31:19,470 --> 00:31:22,080 of disruptive innovation, actually, in some ways, 698 00:31:22,080 --> 00:31:23,768 [INAUDIBLE]. 699 00:31:23,768 --> 00:31:25,310 innovation, it comes from the bottom. 700 00:31:25,310 --> 00:31:27,820 So the transistor radio is a classic example. 701 00:31:27,820 --> 00:31:31,110 So when [INAUDIBLE] patent transistor radios. 702 00:31:31,110 --> 00:31:33,207 But the point was transistor radios 703 00:31:33,207 --> 00:31:35,540 were something that teenagers could take in their rooms, 704 00:31:35,540 --> 00:31:38,233 listen to radio stations, so they don't have to sit around 705 00:31:38,233 --> 00:31:39,650 the living room with their parents 706 00:31:39,650 --> 00:31:41,750 and put on the big tube radio. 707 00:31:41,750 --> 00:31:44,120 The point is is that it was [INAUDIBLE] disruptive 708 00:31:44,120 --> 00:31:44,860 to the teenagers. 709 00:31:44,860 --> 00:31:46,145 As a matter of fact, they got privacy. 710 00:31:46,145 --> 00:31:48,245 [INAUDIBLE] the quality of the reception was pretty poor, 711 00:31:48,245 --> 00:31:49,610 and the quality of the sound was pretty poor. 712 00:31:49,610 --> 00:31:51,630 But this was a very expensive technology. 713 00:31:51,630 --> 00:31:55,580 You know, the same way that all of you adopted social media, 714 00:31:55,580 --> 00:31:57,470 it's a very simple method. 715 00:31:57,470 --> 00:32:00,650 To a lot of people that are used to not doing that, much more 716 00:32:00,650 --> 00:32:01,360 disruptive. 717 00:32:01,360 --> 00:32:04,065 So in many ways, when you think of a project 718 00:32:04,065 --> 00:32:05,690 that you're working on for your papers, 719 00:32:05,690 --> 00:32:08,750 for example, you can think of disruptive innovation in ways 720 00:32:08,750 --> 00:32:12,005 that you can of find a customer that is actually, 721 00:32:12,005 --> 00:32:15,500 in many ways is a very simple way-- almost too simple a way 722 00:32:15,500 --> 00:32:18,317 to get there, and then it disrupts from the bottom. 723 00:32:18,317 --> 00:32:20,150 So it disrupts the marketplace, but it's not 724 00:32:20,150 --> 00:32:22,108 necessarily disruptive for the individual who's 725 00:32:22,108 --> 00:32:23,720 going to take it up. 726 00:32:23,720 --> 00:32:25,760 GUEST SPEAKER: Well, in fact, the-- 727 00:32:25,760 --> 00:32:30,120 if you like, the disruption may be desired by your customer. 728 00:32:30,120 --> 00:32:32,990 So "disruptive" sounds like this is negative. 729 00:32:32,990 --> 00:32:36,620 So all of the family had to sit around the single TV 730 00:32:36,620 --> 00:32:40,520 set or the single radio set, and the parents may have liked that 731 00:32:40,520 --> 00:32:43,100 or may not have liked that, depending upon their style. 732 00:32:43,100 --> 00:32:46,040 But certainly, there were customers 733 00:32:46,040 --> 00:32:48,590 who wanted to get away from that, who wanted privacy, 734 00:32:48,590 --> 00:32:49,820 wanted to go their own rooms. 735 00:32:49,820 --> 00:32:53,980 So you say, this is disruptive for the existing family habits. 736 00:32:53,980 --> 00:32:56,000 But the question is, is there a segment 737 00:32:56,000 --> 00:32:58,610 that finds this disruption attractive? 738 00:32:58,610 --> 00:33:01,460 I'm just trying to open up this concept of disruption 739 00:33:01,460 --> 00:33:03,248 at all of these different levels, 740 00:33:03,248 --> 00:33:04,790 because we tend to think of it, is it 741 00:33:04,790 --> 00:33:07,250 disruptive to the incumbent firm? 742 00:33:07,250 --> 00:33:11,030 But that's only one of the many considerations, 743 00:33:11,030 --> 00:33:15,860 and should not be a negatively or positively loaded term. 744 00:33:15,860 --> 00:33:17,690 It's a descriptive term. 745 00:33:17,690 --> 00:33:18,890 Is it disruptive? 746 00:33:18,890 --> 00:33:21,980 Does it require certain types of changes? 747 00:33:21,980 --> 00:33:24,170 And very often, does it require changes 748 00:33:24,170 --> 00:33:26,660 in a complementary set of activities? 749 00:33:26,660 --> 00:33:28,940 And then, what are those changes required? 750 00:33:28,940 --> 00:33:32,120 So not how do we make it, but what changes will be 751 00:33:32,120 --> 00:33:34,430 required so that it is adopted? 752 00:33:34,430 --> 00:33:36,860 And that will often be a more central part of the business 753 00:33:36,860 --> 00:33:38,540 model than how do we make it. 754 00:33:38,540 --> 00:33:39,392 That's-- 755 00:33:39,392 --> 00:33:41,000 AUDIENCE: Wind and solar are interesting from that point 756 00:33:41,000 --> 00:33:41,500 of view. 757 00:33:41,500 --> 00:33:43,860 And we'll come back to them week after next. 758 00:33:43,860 --> 00:33:47,630 But putting a lot of wind in an electric power system 759 00:33:47,630 --> 00:33:50,520 requires a lot of changes in other parts of the system. 760 00:33:50,520 --> 00:33:54,770 I mean, it's not disruptive to people who get electricity. 761 00:33:54,770 --> 00:33:57,920 It's not disruptive to people who are buying. 762 00:33:57,920 --> 00:33:59,720 It's disruptive to, how you run the grid? 763 00:33:59,720 --> 00:34:01,310 GUEST SPEAKER: Right, So if we push 764 00:34:01,310 --> 00:34:06,560 past, what, 6%, 8% in a deep grid, in wind or solar, then 765 00:34:06,560 --> 00:34:08,510 it's disruptive to the grid. 766 00:34:08,510 --> 00:34:13,130 And it may be disruptive-- it's probably going to be disruptive 767 00:34:13,130 --> 00:34:15,110 the economic model of the grid. 768 00:34:15,110 --> 00:34:17,090 Because how do you recover the additional costs 769 00:34:17,090 --> 00:34:24,257 associated with having the depth to deal with the intermittency? 770 00:34:24,257 --> 00:34:29,620 Or you could say, wind has to have storage at source 771 00:34:29,620 --> 00:34:33,409 so that its interaction with the grid is smooth, right? 772 00:34:33,409 --> 00:34:34,850 That's happening in some places. 773 00:34:34,850 --> 00:34:36,820 AUDIENCE: Then you're not going to have much wind. 774 00:34:36,820 --> 00:34:38,862 GUEST SPEAKER: No, no, A123 is actually in Chile, 775 00:34:38,862 --> 00:34:39,650 they've got this. 776 00:34:39,650 --> 00:34:42,020 So you've got wind farms way the hell away, right? 777 00:34:42,020 --> 00:34:44,630 If you've got a wind form a long way away from a population 778 00:34:44,630 --> 00:34:47,239 center, then your problem is you're 779 00:34:47,239 --> 00:34:49,847 going to have to build a very high capacity line 780 00:34:49,847 --> 00:34:51,139 to deal with the intermittency. 781 00:34:51,139 --> 00:34:54,350 It becomes economic to put grid level storage at the wind farm 782 00:34:54,350 --> 00:34:57,200 tuned to the wind farm so that it can then 783 00:34:57,200 --> 00:34:59,150 feed through the line on a steady basis. 784 00:34:59,150 --> 00:35:00,020 And now, it's not-- 785 00:35:00,020 --> 00:35:03,470 but now, it's disruptive in that wind farm has 786 00:35:03,470 --> 00:35:06,170 to combine storage, right? 787 00:35:06,170 --> 00:35:08,150 So it's a more complex business model 788 00:35:08,150 --> 00:35:11,740 to avoid the disruption to the grid. 789 00:35:11,740 --> 00:35:14,860 So general point-- any technology 790 00:35:14,860 --> 00:35:18,220 you think about, you need to think of the various points 791 00:35:18,220 --> 00:35:20,710 at which it may be disruptive. 792 00:35:20,710 --> 00:35:22,570 And not saying disruptive is bad, 793 00:35:22,570 --> 00:35:26,140 but rather to focus on who is going to have to change how, 794 00:35:26,140 --> 00:35:28,180 and will they have the incentives to do so, 795 00:35:28,180 --> 00:35:32,120 and how could you work on those incentives for them to do so? 796 00:35:32,120 --> 00:35:35,990 It's just a way of thinking about the process. 797 00:35:35,990 --> 00:35:40,440 OK, incumbent firm's capacity to change. 798 00:35:40,440 --> 00:35:42,900 This is the Christiansen article. 799 00:35:42,900 --> 00:35:45,890 Would one of you like to tell me-- 800 00:35:45,890 --> 00:35:50,350 tell us all the Kodak story in terms of those four quadrants? 801 00:35:50,350 --> 00:35:52,420 I just happened to pick up the FT yesterday 802 00:35:52,420 --> 00:35:55,900 and had this beautiful story ready for today's class, right? 803 00:35:55,900 --> 00:35:59,410 So we all know that Kodak lost it, right? 804 00:35:59,410 --> 00:36:02,600 It dominated the film business. 805 00:36:02,600 --> 00:36:06,910 It was an early participant in digital technology. 806 00:36:06,910 --> 00:36:08,410 It certainly had the money to do it. 807 00:36:08,410 --> 00:36:10,118 It certainly had the technology to do it. 808 00:36:10,118 --> 00:36:11,320 And it's nowhere, right? 809 00:36:11,320 --> 00:36:14,110 So it totally lost the score. 810 00:36:14,110 --> 00:36:16,000 And it had a fantastic brand name. 811 00:36:16,000 --> 00:36:18,910 It had everything going for it-- 812 00:36:18,910 --> 00:36:19,520 lost it. 813 00:36:19,520 --> 00:36:25,960 So what was it in that story that-- 814 00:36:25,960 --> 00:36:36,790 I guess the question would be, does this framework even help, 815 00:36:36,790 --> 00:36:38,650 and how would we kind of shoehorn that case 816 00:36:38,650 --> 00:36:41,698 into this framework? 817 00:36:41,698 --> 00:36:47,510 So did it fit with their processes, capabilities-- 818 00:36:47,510 --> 00:36:50,030 the one thing I'd add-- processes, capabilities, 819 00:36:50,030 --> 00:36:53,410 and relationships? 820 00:36:53,410 --> 00:36:56,320 Did digital fit with Kodak's-- 821 00:36:56,320 --> 00:36:57,100 why not? 822 00:36:57,100 --> 00:36:57,860 How not? 823 00:36:57,860 --> 00:36:59,860 AUDIENCE: I mean, I guess, for the longest time, 824 00:36:59,860 --> 00:37:02,830 they invested in film technologies. 825 00:37:02,830 --> 00:37:04,690 And so-- 826 00:37:04,690 --> 00:37:07,240 GUEST SPEAKER: We're chemists. 827 00:37:07,240 --> 00:37:10,390 You start off kind of at the habit or people level, right? 828 00:37:10,390 --> 00:37:12,460 The high prestige people in this firm 829 00:37:12,460 --> 00:37:16,060 are optics people and chemists. 830 00:37:16,060 --> 00:37:20,630 There are some really pretty hairy stuff going on there. 831 00:37:20,630 --> 00:37:23,260 And those are-- so first of all, the prestigious people, 832 00:37:23,260 --> 00:37:24,580 this is not prestigious. 833 00:37:24,580 --> 00:37:26,262 So that's a little bit of an issue. 834 00:37:26,262 --> 00:37:28,720 And so it doesn't draw in the chemical capabilities at all, 835 00:37:28,720 --> 00:37:31,180 or the filmmaking capabilities. 836 00:37:31,180 --> 00:37:36,250 Kodak was also a very advanced manufacturing company. 837 00:37:36,250 --> 00:37:39,010 If you go on the Kodak plant, it was what, a mile long-- 838 00:37:39,010 --> 00:37:41,980 a continuous-- one single, continuous machine 839 00:37:41,980 --> 00:37:46,600 to make all this film-- just a technical marvel. 840 00:37:46,600 --> 00:37:49,220 Again, digital cameras have nothing like that. 841 00:37:49,220 --> 00:37:51,680 So there's not a deep manufacturing capability. 842 00:37:54,750 --> 00:37:56,640 Selling capabilities-- putting them in stores 843 00:37:56,640 --> 00:37:58,400 ought to be about the same. 844 00:37:58,400 --> 00:38:00,180 Anything different about the model 845 00:38:00,180 --> 00:38:02,430 between putting cameras and film in stores 846 00:38:02,430 --> 00:38:05,490 versus digital cameras in stores? 847 00:38:05,490 --> 00:38:05,990 What? 848 00:38:05,990 --> 00:38:08,570 AUDIENCE: Well, film is a complement for a film camera. 849 00:38:08,570 --> 00:38:10,070 GUEST SPEAKER: Film is a complement. 850 00:38:12,230 --> 00:38:15,650 You probably basically subsidize or sell the camera 851 00:38:15,650 --> 00:38:19,040 at a very low cost, especially the cheap cameras, right? 852 00:38:19,040 --> 00:38:22,160 There were disposable cameras that basically cost nothing, 853 00:38:22,160 --> 00:38:24,740 because you're selling film. 854 00:38:24,740 --> 00:38:30,124 What's the complement that you sell with digital photography? 855 00:38:30,124 --> 00:38:32,957 AUDIENCE: [INAUDIBLE] 856 00:38:32,957 --> 00:38:34,790 GUEST SPEAKER: You may sell some complements 857 00:38:34,790 --> 00:38:36,580 in the internet in terms of storage 858 00:38:36,580 --> 00:38:38,330 and in terms of social media, but it's not 859 00:38:38,330 --> 00:38:40,070 within your same category. 860 00:38:40,070 --> 00:38:43,010 It's not even people you know. 861 00:38:43,010 --> 00:38:45,500 So I would very quickly start saying, 862 00:38:45,500 --> 00:38:48,227 yeah, this would require Kodak to be a very different place. 863 00:38:48,227 --> 00:38:50,060 On the other hand, they do have a brand name 864 00:38:50,060 --> 00:38:53,240 that is associated with images, right? 865 00:38:53,240 --> 00:38:55,220 They do have the optics that are still 866 00:38:55,220 --> 00:38:57,330 very important in digital photography. 867 00:38:57,330 --> 00:38:59,390 So they have some relevant capabilities. 868 00:38:59,390 --> 00:39:01,250 They're not out of the game. 869 00:39:01,250 --> 00:39:03,250 But they don't have them all. 870 00:39:03,250 --> 00:39:07,280 How about the values and time horizon? 871 00:39:07,280 --> 00:39:10,160 Did you pick up anything from the story about values and time 872 00:39:10,160 --> 00:39:12,890 horizon? 873 00:39:12,890 --> 00:39:13,492 Yeah? 874 00:39:13,492 --> 00:39:15,200 AUDIENCE: I didn't fit with their values, 875 00:39:15,200 --> 00:39:18,650 because the way that Kodak had been, like, 876 00:39:18,650 --> 00:39:23,770 started by the founder was just with film, right? 877 00:39:23,770 --> 00:39:26,090 They never talked about digital. 878 00:39:26,090 --> 00:39:28,533 I think that was the problem when 879 00:39:28,533 --> 00:39:30,950 they were deciding whether or not to go into [INAUDIBLE].. 880 00:39:30,950 --> 00:39:33,117 GUEST SPEAKER: It's almost-- that's identity, right? 881 00:39:33,117 --> 00:39:36,615 So is our identity images, or is our identity photography? 882 00:39:36,615 --> 00:39:37,990 AUDIENCE: Yeah, and they probably 883 00:39:37,990 --> 00:39:40,575 felt that if they want to digital, 884 00:39:40,575 --> 00:39:42,575 they would lose, like, a lot of their customers. 885 00:39:42,575 --> 00:39:46,665 Because they had always been film, and then that's it. 886 00:39:46,665 --> 00:39:48,540 GUEST SPEAKER: Or that they would cannibalize 887 00:39:48,540 --> 00:39:51,360 their customers thinking that they alone 888 00:39:51,360 --> 00:39:53,340 owned the transition. 889 00:39:53,340 --> 00:39:54,900 It's a little bit of hubris, right? 890 00:39:54,900 --> 00:39:56,442 Just because they were a leading firm 891 00:39:56,442 --> 00:39:58,920 didn't mean that they alone owned the transition. 892 00:39:58,920 --> 00:40:02,110 But let's get down to the nitty gritty-- value and time 893 00:40:02,110 --> 00:40:02,610 horizons. 894 00:40:02,610 --> 00:40:04,890 How did Kodak measure investments 895 00:40:04,890 --> 00:40:07,200 and the desirability of investments? 896 00:40:07,200 --> 00:40:09,190 What did they-- it was in the story. 897 00:40:09,190 --> 00:40:13,910 What did they judge investments on, or businesses on-- 898 00:40:13,910 --> 00:40:17,660 good business versus bad business? 899 00:40:17,660 --> 00:40:18,160 Who's there. 900 00:40:18,160 --> 00:40:19,800 If you if you read the story carefully 901 00:40:19,800 --> 00:40:21,925 from kind of a financial or accounting perspective, 902 00:40:21,925 --> 00:40:23,320 it would have jumped out at you. 903 00:40:27,090 --> 00:40:33,650 Profit margin-- the difference between sales price and cost. 904 00:40:33,650 --> 00:40:36,680 They were in a near monopolist position with a mature product. 905 00:40:36,680 --> 00:40:40,010 They had very high profit margins. 906 00:40:40,010 --> 00:40:41,450 Anything that they're looking at, 907 00:40:41,450 --> 00:40:43,940 they're judging in terms of profit margins. 908 00:40:43,940 --> 00:40:46,340 This new product, even if eventually it's 909 00:40:46,340 --> 00:40:48,050 going to have a high profit margin, 910 00:40:48,050 --> 00:40:50,120 will not have a high profit margin. 911 00:40:50,120 --> 00:40:52,340 You've got to be forward-looking, right? 912 00:40:52,340 --> 00:40:55,100 The company is looking at, let's say, quarter-by-quarter 913 00:40:55,100 --> 00:40:58,040 at the current profitability of the existing business. 914 00:40:58,040 --> 00:41:00,590 If you use that optic on businesses 915 00:41:00,590 --> 00:41:03,380 which now fits the existing business, no way in hell 916 00:41:03,380 --> 00:41:05,780 you're going to choose this new business that's 917 00:41:05,780 --> 00:41:08,690 going to take five seven, eight years to launch. 918 00:41:08,690 --> 00:41:11,540 And it's actually going to take quite a long time to figure out 919 00:41:11,540 --> 00:41:14,390 what the complements are that you reach into 920 00:41:14,390 --> 00:41:17,390 to get the extra profit, right? 921 00:41:17,390 --> 00:41:19,460 So if you look at digital photography, 922 00:41:19,460 --> 00:41:21,650 I'm sure that a lot of money is being made by people 923 00:41:21,650 --> 00:41:23,422 other than camera makers. 924 00:41:23,422 --> 00:41:25,880 There's a lot of value out-- there's a lot more photography 925 00:41:25,880 --> 00:41:26,380 being done. 926 00:41:26,380 --> 00:41:28,220 There's a lot more being swapped. 927 00:41:28,220 --> 00:41:30,350 Granted, it's swapped at lower costs. 928 00:41:30,350 --> 00:41:32,720 But I suspect it would be interesting to go out and add 929 00:41:32,720 --> 00:41:37,310 up who all makes money on Facebook, right? 930 00:41:37,310 --> 00:41:40,040 Facebook makes money. 931 00:41:40,040 --> 00:41:41,750 YouTube makes money. 932 00:41:41,750 --> 00:41:44,390 You have a whole series of places that make money out 933 00:41:44,390 --> 00:41:48,420 of storing and swapping images. 934 00:41:48,420 --> 00:41:51,300 Some of that space might have been Kodak's, right? 935 00:41:51,300 --> 00:41:53,295 They were in the image business. 936 00:41:53,295 --> 00:41:54,420 AUDIENCE: Well, they tried. 937 00:41:54,420 --> 00:41:55,860 They had an online-- 938 00:41:55,860 --> 00:41:57,193 GUEST SPEAKER: Well, they tried. 939 00:41:57,193 --> 00:41:58,660 AUDIENCE: --processing service. 940 00:41:58,660 --> 00:42:02,430 GUEST SPEAKER: Point is, companies evolve. 941 00:42:02,430 --> 00:42:06,720 Companies change with the conditions they are in, 942 00:42:06,720 --> 00:42:08,580 with the pressures they're in. 943 00:42:08,580 --> 00:42:11,070 This was a company with a very mature technology 944 00:42:11,070 --> 00:42:12,960 that it was driving. 945 00:42:12,960 --> 00:42:15,180 It had a couple of tough competitors, 946 00:42:15,180 --> 00:42:16,680 so it worked quite a bit about cost. 947 00:42:16,680 --> 00:42:18,420 But it still had nice margins. 948 00:42:18,420 --> 00:42:23,760 It had this fantastic scale and quality-oriented manufacturing. 949 00:42:23,760 --> 00:42:26,130 It had brand name-based distribution. 950 00:42:26,130 --> 00:42:27,960 It made most of its money off the film, 951 00:42:27,960 --> 00:42:31,530 not off the cameras, well-tuned business model, 952 00:42:31,530 --> 00:42:34,290 and you could judge each different sector 953 00:42:34,290 --> 00:42:36,210 by profit margin. 954 00:42:36,210 --> 00:42:38,130 And along comes this new business 955 00:42:38,130 --> 00:42:40,230 that is going to take 10 years to build. 956 00:42:40,230 --> 00:42:41,820 Come on, guys, right? 957 00:42:41,820 --> 00:42:43,210 We're not in the VC business. 958 00:42:43,210 --> 00:42:46,540 We're in the current profitability business. 959 00:42:46,540 --> 00:42:49,830 So I think that puts a little life into this figure. 960 00:42:49,830 --> 00:42:50,820 It's hard. 961 00:42:50,820 --> 00:42:54,340 It's very hard for incumbent companies to change, 962 00:42:54,340 --> 00:42:55,710 especially-- 963 00:42:55,710 --> 00:42:57,930 and we often talk about the disadvantages 964 00:42:57,930 --> 00:43:01,780 of a company being diversified, because it gets very confusing, 965 00:43:01,780 --> 00:43:03,360 it's not focused, et cetera. 966 00:43:03,360 --> 00:43:05,520 One of the advantages may be that it 967 00:43:05,520 --> 00:43:08,190 may, in fact, house technologies at all three 968 00:43:08,190 --> 00:43:09,870 stages of maturity. 969 00:43:09,870 --> 00:43:11,730 Because if the company is predominantly 970 00:43:11,730 --> 00:43:14,250 at a mature stage, it's going to have 971 00:43:14,250 --> 00:43:16,320 a very hard time dealing with things 972 00:43:16,320 --> 00:43:17,940 at the transitional stage. 973 00:43:17,940 --> 00:43:19,740 Because everything it's going to do 974 00:43:19,740 --> 00:43:22,230 is going to be tuned to cranking it out, 975 00:43:22,230 --> 00:43:27,600 low cost, lean, manufacturing, operations focus. 976 00:43:27,600 --> 00:43:29,880 The best parking lots will belong to the sales 977 00:43:29,880 --> 00:43:31,740 managers and the manufacturing managers, 978 00:43:31,740 --> 00:43:34,890 not the scientists and the innovation folks, 979 00:43:34,890 --> 00:43:36,580 not even the engineers. 980 00:43:36,580 --> 00:43:38,460 So it's going to shift who gets the parking 981 00:43:38,460 --> 00:43:39,538 lot-- who has the power. 982 00:43:39,538 --> 00:43:40,080 AUDIENCE: OK. 983 00:43:40,080 --> 00:43:41,226 Or you could do it the other way. 984 00:43:41,226 --> 00:43:42,270 [INAUDIBLE] was very finely-tuned 985 00:43:42,270 --> 00:43:44,062 tuned in a very-- in a different direction, 986 00:43:44,062 --> 00:43:46,440 in that cost-oriented, technology-oriented, focused 987 00:43:46,440 --> 00:43:49,860 on a segment, all built to do-- to deliver top quality 988 00:43:49,860 --> 00:43:51,880 to a set of customers. 989 00:43:51,880 --> 00:43:53,990 Tough to turn that ship. 990 00:43:53,990 --> 00:43:55,890 Tough to turn that ship. 991 00:43:55,890 --> 00:43:58,560 GUEST SPEAKER: It's very hard to be good without being 992 00:43:58,560 --> 00:44:00,330 finely-tuned. 993 00:44:00,330 --> 00:44:02,760 And if you're finely-tuned, it's very hard to change. 994 00:44:02,760 --> 00:44:03,880 That's the whole story. 995 00:44:03,880 --> 00:44:06,220 There's nothing more to it than that. 996 00:44:06,220 --> 00:44:08,220 Then, you can think about the different elements 997 00:44:08,220 --> 00:44:09,010 of that change-- 998 00:44:09,010 --> 00:44:11,640 and I think this is a useful categorization-- 999 00:44:11,640 --> 00:44:14,692 to make an assessment of whether it's even worth trying. 1000 00:44:14,692 --> 00:44:16,650 You can make an assessment, is it worth trying. 1001 00:44:16,650 --> 00:44:19,350 And then, what things would you have to work on 1002 00:44:19,350 --> 00:44:20,610 in order to make the change? 1003 00:44:20,610 --> 00:44:22,770 Or do you totally give up? 1004 00:44:22,770 --> 00:44:24,840 Christiansen's claim to fame, he basically 1005 00:44:24,840 --> 00:44:28,320 says nothing innovative can come out of a big company. 1006 00:44:28,320 --> 00:44:31,440 It always has to be a start up. 1007 00:44:31,440 --> 00:44:35,400 That creates a major conundrum for us in the energy sector, 1008 00:44:35,400 --> 00:44:38,250 because almost anything you need to do in the energy sector 1009 00:44:38,250 --> 00:44:41,010 is large-scale and highly interdependent, and therefore 1010 00:44:41,010 --> 00:44:43,310 requires scale. 1011 00:44:43,310 --> 00:44:46,060 But it needs a start up-- 1012 00:44:46,060 --> 00:44:48,160 catch-22. 1013 00:44:48,160 --> 00:44:50,000 Any other questions about this? 1014 00:44:50,000 --> 00:44:51,092 Yeah? 1015 00:44:51,092 --> 00:44:53,260 AUDIENCE: So I would assume that we're talking 1016 00:44:53,260 --> 00:44:55,600 about organic growth, right? 1017 00:44:55,600 --> 00:44:57,850 But a lot of times, you'll see companies, especially 1018 00:44:57,850 --> 00:44:59,410 in tech business, where you might not 1019 00:44:59,410 --> 00:45:02,992 have that much capital intensive investment. 1020 00:45:02,992 --> 00:45:05,200 So a lot of things are really just based on software. 1021 00:45:05,200 --> 00:45:08,420 For example, Google, I think they're very finely-tuned. 1022 00:45:08,420 --> 00:45:11,070 But at the same time, they're innovating very quickly. 1023 00:45:11,070 --> 00:45:12,070 They're changing things. 1024 00:45:12,070 --> 00:45:14,195 They require a lot of different types of companies. 1025 00:45:14,195 --> 00:45:17,620 And I think it's because if they see a technology that's 1026 00:45:17,620 --> 00:45:21,130 promising, they're able to sort of grow inorganically 1027 00:45:21,130 --> 00:45:23,800 by that company, and see-- 1028 00:45:23,800 --> 00:45:26,290 let the company almost operate independently for a while, 1029 00:45:26,290 --> 00:45:28,157 and see how earnest that technology is. 1030 00:45:28,157 --> 00:45:29,990 GUEST SPEAKER: Very, very interesting point. 1031 00:45:29,990 --> 00:45:31,490 So if we were to complicate it, we'd 1032 00:45:31,490 --> 00:45:33,490 say that you could say that this is 1033 00:45:33,490 --> 00:45:36,490 a story about organic growth-- kind of just investing 1034 00:45:36,490 --> 00:45:37,390 yourself. 1035 00:45:37,390 --> 00:45:40,360 And you might say that we could avoid some of these issues 1036 00:45:40,360 --> 00:45:43,130 by acquiring. 1037 00:45:43,130 --> 00:45:46,480 And we can let things operate by themselves for a while, 1038 00:45:46,480 --> 00:45:48,160 and then we can bring them in. 1039 00:45:48,160 --> 00:45:50,210 Now, we get a new set of challenges. 1040 00:45:50,210 --> 00:45:52,630 The set of challenges is, is the company 1041 00:45:52,630 --> 00:45:56,980 going to be successful at integrating the acquired firm? 1042 00:45:56,980 --> 00:46:00,880 Or is it going to leave it alone and basically become 1043 00:46:00,880 --> 00:46:01,970 a portfolio owner? 1044 00:46:01,970 --> 00:46:03,880 Therefore, it really didn't bring it in. 1045 00:46:03,880 --> 00:46:07,090 Or is it going to bring it in and crush it? 1046 00:46:07,090 --> 00:46:12,310 It's very hard for large companies to do this well. 1047 00:46:12,310 --> 00:46:14,320 One of my major case studies over the years 1048 00:46:14,320 --> 00:46:16,750 has been CEMEX, the Mexican cement company. 1049 00:46:16,750 --> 00:46:20,800 And they have grown entirely by acquisition. 1050 00:46:20,800 --> 00:46:22,935 And they are very-- until 2007, when 1051 00:46:22,935 --> 00:46:25,060 they bought the wrong company and almost bankrupted 1052 00:46:25,060 --> 00:46:29,290 themselves, they were very successful acquirers. 1053 00:46:29,290 --> 00:46:31,450 But there were a lot of tricks associated with it. 1054 00:46:31,450 --> 00:46:34,840 They have a post-merger integration process. 1055 00:46:34,840 --> 00:46:37,067 One of the key tricks they developed-- not a trick, 1056 00:46:37,067 --> 00:46:37,900 it's very important. 1057 00:46:37,900 --> 00:46:39,520 They developed the 80-20 principle 1058 00:46:39,520 --> 00:46:41,320 in the post-merger integration. 1059 00:46:41,320 --> 00:46:43,555 So after 18 months, the company we acquire-- 1060 00:46:43,555 --> 00:46:45,100 it's a cement company-- 1061 00:46:45,100 --> 00:46:49,430 is going to be operating exactly like the rest CEMEX. 1062 00:46:49,430 --> 00:46:50,895 Hey guys, this is an acquisition. 1063 00:46:50,895 --> 00:46:51,770 This is not a merger. 1064 00:46:51,770 --> 00:46:53,510 You will operate exactly like CEMEX. 1065 00:46:53,510 --> 00:46:56,330 But if the post merger integration 1066 00:46:56,330 --> 00:46:58,640 team, which consists of people from CEMEX 1067 00:46:58,640 --> 00:47:01,190 and the newly-bought company, don't come back 1068 00:47:01,190 --> 00:47:03,950 with roughly 20% of the practices 1069 00:47:03,950 --> 00:47:08,130 that they could change in CEMEX, they failed. 1070 00:47:08,130 --> 00:47:11,030 So we're willing to learn from the company we acquire. 1071 00:47:11,030 --> 00:47:14,750 That's a way of creating dynamism in a large parent 1072 00:47:14,750 --> 00:47:16,100 company, right? 1073 00:47:16,100 --> 00:47:18,880 Very few companies have that kind of dynamism. 1074 00:47:18,880 --> 00:47:20,630 I've done a lot of work with BP. 1075 00:47:20,630 --> 00:47:24,140 BP bought Standard of Ohio. 1076 00:47:24,140 --> 00:47:25,400 BP bought Amoco. 1077 00:47:25,400 --> 00:47:26,990 BP bought Arco. 1078 00:47:26,990 --> 00:47:30,020 They changed the label, they didn't change the systems. 1079 00:47:30,020 --> 00:47:32,280 And you see what we got. 1080 00:47:32,280 --> 00:47:35,820 So acquisition doesn't solve the problem. 1081 00:47:35,820 --> 00:47:38,790 It may give you-- it may give you a way 1082 00:47:38,790 --> 00:47:41,050 to have multiple cultures. 1083 00:47:41,050 --> 00:47:43,780 It may give you a way to have two pieces of the company that 1084 00:47:43,780 --> 00:47:47,020 operate on a different clock speed. 1085 00:47:47,020 --> 00:47:49,060 But if you're going to gain the advantage, 1086 00:47:49,060 --> 00:47:51,102 ultimately, you're going to have to integrate it. 1087 00:47:51,102 --> 00:47:52,990 And that's very, very, very hard. 1088 00:47:52,990 --> 00:47:54,257 So good point, but-- 1089 00:47:54,257 --> 00:47:56,590 AUDIENCE: One of the things that also happens, from time 1090 00:47:56,590 --> 00:47:58,840 to time, is you typically made-- 1091 00:47:58,840 --> 00:48:01,770 the start up-- you've made the founders of that company rich. 1092 00:48:01,770 --> 00:48:02,860 GUEST SPEAKER: Yeah. 1093 00:48:02,860 --> 00:48:04,810 AUDIENCE: And you know I can stay and work 1094 00:48:04,810 --> 00:48:06,310 in a larger organization, although I 1095 00:48:06,310 --> 00:48:07,990 preferred a small company. 1096 00:48:07,990 --> 00:48:13,720 Or I can go buy a yacht, start another company, or-- 1097 00:48:13,720 --> 00:48:16,150 GUEST SPEAKER: And it's my baby. 1098 00:48:16,150 --> 00:48:18,940 So if you bring in the acquisition side-- 1099 00:48:18,940 --> 00:48:22,360 and especially, then you have to also deal 1100 00:48:22,360 --> 00:48:25,330 with kind of family and founder life cycles, 1101 00:48:25,330 --> 00:48:26,890 which is much more Hiram's area. 1102 00:48:26,890 --> 00:48:29,140 So you're going to have to lay that in as well, right? 1103 00:48:29,140 --> 00:48:32,260 So you've got to be at the right life cycle. 1104 00:48:32,260 --> 00:48:36,340 But, so the acquired firm has to be willing to be acquired, 1105 00:48:36,340 --> 00:48:39,310 and has to actually want to transfer what it's good at. 1106 00:48:39,310 --> 00:48:42,700 And the key middle employees of that acquired firm 1107 00:48:42,700 --> 00:48:43,940 have to want to stay there. 1108 00:48:43,940 --> 00:48:45,550 And the top management either wants 1109 00:48:45,550 --> 00:48:47,830 to integrate itself into the company's bought, 1110 00:48:47,830 --> 00:48:48,610 or just vanish. 1111 00:48:51,320 --> 00:48:54,243 So now we have this dynamic within the incumbent firm. 1112 00:48:54,243 --> 00:48:55,910 We also have the dynamic within the firm 1113 00:48:55,910 --> 00:48:56,868 we're going to acquire. 1114 00:48:56,868 --> 00:48:58,910 So it may solve our problem. 1115 00:48:58,910 --> 00:49:00,390 But it's difficult. 1116 00:49:00,390 --> 00:49:02,810 So bottom line, change is hard. 1117 00:49:02,810 --> 00:49:05,630 Change is particularly hard for large, bureaucratic 1118 00:49:05,630 --> 00:49:07,010 organizations. 1119 00:49:07,010 --> 00:49:10,850 If a company has really dominated a product market 1120 00:49:10,850 --> 00:49:13,370 segment in something like energy, by definition, 1121 00:49:13,370 --> 00:49:15,110 it's huge. 1122 00:49:15,110 --> 00:49:16,600 It's very bureaucratic. 1123 00:49:16,600 --> 00:49:20,480 It's probably very cost-oriented. 1124 00:49:20,480 --> 00:49:22,430 If it's a public utility, it's even worse, 1125 00:49:22,430 --> 00:49:26,810 because it's regulated, and again, it's very large. 1126 00:49:26,810 --> 00:49:30,530 And it's focused on cost and a very particular definition 1127 00:49:30,530 --> 00:49:32,060 of service. 1128 00:49:32,060 --> 00:49:34,370 And it has a set of people and capabilities 1129 00:49:34,370 --> 00:49:36,515 for delivering the current products and service, 1130 00:49:36,515 --> 00:49:39,275 not for developing new ones. 1131 00:49:39,275 --> 00:49:41,150 So it's going to be the extreme of this case. 1132 00:49:41,150 --> 00:49:42,690 OK, let's go to the next level. 1133 00:49:42,690 --> 00:49:44,490 So the system context changed. 1134 00:49:44,490 --> 00:49:47,510 This is the Michelin article, right? 1135 00:49:47,510 --> 00:49:53,260 So Michelin brings you this new, no-flat tire. 1136 00:49:53,260 --> 00:49:55,280 Why did it fail in the marketplace? 1137 00:49:55,280 --> 00:49:58,030 Was it a lousy design? 1138 00:49:58,030 --> 00:50:00,290 Great design, right? 1139 00:50:00,290 --> 00:50:03,760 Then why did it fail? 1140 00:50:03,760 --> 00:50:05,350 Yeah? 1141 00:50:05,350 --> 00:50:08,050 AUDIENCE: The repair [INAUDIBLE] didn't 1142 00:50:08,050 --> 00:50:11,920 want to take the time to put in a new, expensive [INAUDIBLE] 1143 00:50:11,920 --> 00:50:15,068 help change the tires properly. 1144 00:50:15,068 --> 00:50:16,360 GUEST SPEAKER: OK, so this is-- 1145 00:50:19,390 --> 00:50:22,360 a tire-- an automobile tire, unless it's 1146 00:50:22,360 --> 00:50:24,010 absolutely perfect-- and of course, 1147 00:50:24,010 --> 00:50:26,800 why would you have a run flat tire if it was perfect? 1148 00:50:26,800 --> 00:50:29,590 The fact that it's a run flat tire already admits to the fact 1149 00:50:29,590 --> 00:50:32,930 that it's going to have damage and need repair. 1150 00:50:32,930 --> 00:50:37,030 So that the inherent nature of the product says, 1151 00:50:37,030 --> 00:50:39,940 this is a product that you buy and then a product that you 1152 00:50:39,940 --> 00:50:42,230 service. 1153 00:50:42,230 --> 00:50:45,065 And the whole appeal is you want to be able to drive 1154 00:50:45,065 --> 00:50:46,190 to the service shop, right? 1155 00:50:46,190 --> 00:50:48,660 You want to go 45 miles on your flat tire at night. 1156 00:50:48,660 --> 00:50:51,770 You don't have to stop on the freeway, et cetera. 1157 00:50:51,770 --> 00:50:54,140 So it's embedded in a system. 1158 00:50:54,140 --> 00:50:57,610 Is it just the tire repair shop that we need, 1159 00:50:57,610 --> 00:51:00,150 or do we need any-- do we have any other complements that we 1160 00:51:00,150 --> 00:51:01,290 need to make this work? 1161 00:51:03,890 --> 00:51:04,457 Yeah? 1162 00:51:04,457 --> 00:51:06,040 AUDIENCE: You need new rims, because-- 1163 00:51:06,040 --> 00:51:07,623 GUEST SPEAKER: You need to have a rim. 1164 00:51:07,623 --> 00:51:08,650 It needs a clincher rim. 1165 00:51:08,650 --> 00:51:10,580 If you ride really old motorcycles, 1166 00:51:10,580 --> 00:51:12,627 you have clincher rims. 1167 00:51:12,627 --> 00:51:14,710 Now we have rims that are just with tire pressure. 1168 00:51:14,710 --> 00:51:16,010 This needs a clincher rim again. 1169 00:51:16,010 --> 00:51:17,080 So you've got to go and talk to Hayes, 1170 00:51:17,080 --> 00:51:18,460 or whoever it is that makes the wheels. 1171 00:51:18,460 --> 00:51:20,380 And you've got to get the auto manufacturer 1172 00:51:20,380 --> 00:51:23,245 to specify those more expensive rims that 1173 00:51:23,245 --> 00:51:24,370 have the clinchers on them. 1174 00:51:24,370 --> 00:51:26,245 AUDIENCE: And also pressure management system 1175 00:51:26,245 --> 00:51:28,292 that was integrated into the vehicle itself. 1176 00:51:28,292 --> 00:51:30,500 GUEST SPEAKER: So now, I have to buy the valve stems, 1177 00:51:30,500 --> 00:51:34,340 but it also has to be part of the car's computer system, 1178 00:51:34,340 --> 00:51:36,210 in terms of the pressure management system. 1179 00:51:36,210 --> 00:51:37,110 So who do I-- 1180 00:51:37,110 --> 00:51:41,390 let's just think about how many parties we have to coordinate. 1181 00:51:41,390 --> 00:51:44,600 And how many parties have to pre-invest 1182 00:51:44,600 --> 00:51:46,400 before they know that this technology is 1183 00:51:46,400 --> 00:51:47,692 going to work so they can work. 1184 00:51:47,692 --> 00:51:51,980 So Michelin invests years in this technology. 1185 00:51:51,980 --> 00:51:53,635 And they test lots of different kinds, 1186 00:51:53,635 --> 00:51:55,010 and they find out this one works. 1187 00:51:55,010 --> 00:51:58,220 And they're a very good engineering company. 1188 00:51:58,220 --> 00:51:59,930 They obviously, in that testing, had 1189 00:51:59,930 --> 00:52:02,000 to work with some wheel manufacturers. 1190 00:52:02,000 --> 00:52:04,040 But they've got to get some wheel manufacturers 1191 00:52:04,040 --> 00:52:07,010 to pre-invest in that capacity. 1192 00:52:07,010 --> 00:52:11,060 They've got to convince Honda, or Toyota, or General Motors, 1193 00:52:11,060 --> 00:52:15,890 or somebody to specify that tire and wheel, 1194 00:52:15,890 --> 00:52:17,780 probably on a premium model, probably 1195 00:52:17,780 --> 00:52:20,360 at much too low a scale to make money on, 1196 00:52:20,360 --> 00:52:23,000 to get it out in the marketplace and get it tried. 1197 00:52:23,000 --> 00:52:25,940 And now, I'm going to tell you that 5,000 vehicles this year 1198 00:52:25,940 --> 00:52:27,460 are going to have that wheel, and it 1199 00:52:27,460 --> 00:52:29,600 has to be able to be serviced at, 1200 00:52:29,600 --> 00:52:33,080 what, 50,000 points in the United States? 1201 00:52:33,080 --> 00:52:35,630 Because I've got 45-mile range, so I've 1202 00:52:35,630 --> 00:52:40,250 got to be able to get to a authorized Michelin repair shop 1203 00:52:40,250 --> 00:52:42,770 within that range, otherwise that product 1204 00:52:42,770 --> 00:52:43,810 doesn't do me any good. 1205 00:52:43,810 --> 00:52:45,890 And now, I'm really pissed off. 1206 00:52:45,890 --> 00:52:48,470 I paid extra money for a product that's 1207 00:52:48,470 --> 00:52:49,970 going to solve this problem for me. 1208 00:52:49,970 --> 00:52:52,610 And suddenly, I find out it's worse than the standard product 1209 00:52:52,610 --> 00:52:57,450 which I could have gotten fixed at any old service station. 1210 00:52:57,450 --> 00:52:58,380 You got it? 1211 00:52:58,380 --> 00:53:00,690 So we have a product. 1212 00:53:00,690 --> 00:53:02,080 And this is fairly simple. 1213 00:53:02,080 --> 00:53:05,070 So I only have three, four, maybe 1214 00:53:05,070 --> 00:53:07,440 five different complementers to deal with? 1215 00:53:10,210 --> 00:53:12,410 AUDIENCE: This is not an uncommon kind of problem. 1216 00:53:12,410 --> 00:53:14,350 If you think about video games, who 1217 00:53:14,350 --> 00:53:18,190 develops the game for a console that doesn't sell? 1218 00:53:18,190 --> 00:53:21,340 Who wants to buy a console for which there are no games? 1219 00:53:21,340 --> 00:53:25,000 You've got to get the consoles out and the games developed. 1220 00:53:25,000 --> 00:53:26,770 When they invented credit cards, you 1221 00:53:26,770 --> 00:53:29,230 had to get the merchants to put it in the terminals 1222 00:53:29,230 --> 00:53:31,030 to accept the cards. 1223 00:53:31,030 --> 00:53:33,400 And you had to get the consumers to carry them. 1224 00:53:33,400 --> 00:53:35,200 But if no consumers carry the card, 1225 00:53:35,200 --> 00:53:36,320 what good is the terminal? 1226 00:53:36,320 --> 00:53:40,990 And if no merchants accept the card, what good is carrying it? 1227 00:53:40,990 --> 00:53:44,110 This chicken/egg problem of finding complementers 1228 00:53:44,110 --> 00:53:44,810 is not uncommon. 1229 00:53:44,810 --> 00:53:46,310 GUEST SPEAKER: It's the chicken/egg. 1230 00:53:46,310 --> 00:53:50,490 And if you're going to drive the development of this platform-- 1231 00:53:50,490 --> 00:53:51,340 which is what it is. 1232 00:53:51,340 --> 00:53:53,470 It's now the Michelin Run Flat platform 1233 00:53:53,470 --> 00:53:56,260 that includes the Michelin tire, the inner ring that 1234 00:53:56,260 --> 00:54:00,100 is manufactured by someone else, the rim that is manufactured 1235 00:54:00,100 --> 00:54:02,650 by someone else, the tire monitoring system that 1236 00:54:02,650 --> 00:54:06,010 is manufactured by someone else, and the distributed repair 1237 00:54:06,010 --> 00:54:09,730 stations, then you're probably going 1238 00:54:09,730 --> 00:54:12,820 to have to have a brand and reputation that make people 1239 00:54:12,820 --> 00:54:15,640 think that you will succeed. 1240 00:54:15,640 --> 00:54:18,400 You have to have a deep enough pocket that convinces people 1241 00:54:18,400 --> 00:54:19,780 that you will succeed. 1242 00:54:19,780 --> 00:54:21,700 And you have to have a deep enough pocket 1243 00:54:21,700 --> 00:54:24,890 to prefund some of these other activities. 1244 00:54:24,890 --> 00:54:28,650 So this is not an activity for a start up. 1245 00:54:28,650 --> 00:54:31,010 Start up might well come in on the platform. 1246 00:54:31,010 --> 00:54:33,180 In fact, it may be the best time to come in, 1247 00:54:33,180 --> 00:54:36,210 because the platform sponsor has to prefund 1248 00:54:36,210 --> 00:54:38,910 the complements anyway. 1249 00:54:38,910 --> 00:54:40,530 Start up may be available for cheap 1250 00:54:40,530 --> 00:54:42,840 to come into one of those places. 1251 00:54:42,840 --> 00:54:44,530 But they can't push it. 1252 00:54:44,530 --> 00:54:47,080 So this is just a perfect example of the complements. 1253 00:54:47,080 --> 00:54:47,580 What-- 1254 00:54:47,580 --> 00:54:49,622 AUDIENCE: --design and then sell it [INAUDIBLE].. 1255 00:54:49,622 --> 00:54:53,040 GUEST SPEAKER: Right, so if you came up with this design, 1256 00:54:53,040 --> 00:54:56,750 you'd say, who could make best use of this design? 1257 00:54:56,750 --> 00:54:58,500 And the first question you're going to ask 1258 00:54:58,500 --> 00:55:01,980 is not what technology is involved, 1259 00:55:01,980 --> 00:55:03,720 and who knows how to use this technology, 1260 00:55:03,720 --> 00:55:06,660 but what changes will be required for this product 1261 00:55:06,660 --> 00:55:08,430 to make it in the marketplace? 1262 00:55:08,430 --> 00:55:10,800 And who has the standing, and the power, 1263 00:55:10,800 --> 00:55:14,711 and the prestige to bring about those changes? 1264 00:55:14,711 --> 00:55:16,960 You're looking at your technology, but you say, 1265 00:55:16,960 --> 00:55:20,080 what needs to happen? 1266 00:55:20,080 --> 00:55:23,320 If you're making an app for an iPhone, 1267 00:55:23,320 --> 00:55:26,050 that problem's been solved for you, right? 1268 00:55:26,050 --> 00:55:28,420 Apple has created the platform. 1269 00:55:28,420 --> 00:55:31,010 They even have the cash collection system for you. 1270 00:55:31,010 --> 00:55:32,722 They even have their standards. 1271 00:55:32,722 --> 00:55:34,180 All you have to do is make your app 1272 00:55:34,180 --> 00:55:36,597 and stick it on the platform, because the platform exists. 1273 00:55:36,597 --> 00:55:39,550 And in fact, a good platform is a good entry point 1274 00:55:39,550 --> 00:55:41,360 for smaller firms. 1275 00:55:41,360 --> 00:55:45,230 But if you've got an idea that is going to change a system, 1276 00:55:45,230 --> 00:55:47,900 you're going to have to find a system driver. 1277 00:55:47,900 --> 00:55:51,340 OK, any ideas about what Michelin might 1278 00:55:51,340 --> 00:55:54,310 have done with all of those tire people? 1279 00:55:54,310 --> 00:55:55,030 Yeah? 1280 00:55:55,030 --> 00:55:57,530 AUDIENCE: I was just thinking, as you were talking about it. 1281 00:55:57,530 --> 00:55:58,988 Wouldn't it maybe have been better, 1282 00:55:58,988 --> 00:56:01,880 since they have this-- they need the network of places that 1283 00:56:01,880 --> 00:56:04,280 can repair the tire to maybe approach the market from, 1284 00:56:04,280 --> 00:56:08,867 like, maybe a really luxury sports car type manufacturers? 1285 00:56:08,867 --> 00:56:10,450 Because they kind of-- like, if you're 1286 00:56:10,450 --> 00:56:12,040 going to buy a really expensive car, 1287 00:56:12,040 --> 00:56:15,130 usually you only trust a couple of people to service that car. 1288 00:56:15,130 --> 00:56:18,380 Then you only need that tire system and that special service 1289 00:56:18,380 --> 00:56:18,940 shop. 1290 00:56:18,940 --> 00:56:20,620 And people who own those expensive cars 1291 00:56:20,620 --> 00:56:23,633 are willing to pay more, and take their car 1292 00:56:23,633 --> 00:56:25,100 to the special service shop. 1293 00:56:25,100 --> 00:56:27,790 GUEST SPEAKER: Key lesson-- you pick segment. 1294 00:56:27,790 --> 00:56:33,130 You pick a segment that will place a very high willingness 1295 00:56:33,130 --> 00:56:35,180 to pay for your innovation. 1296 00:56:35,180 --> 00:56:37,270 Remember last session. 1297 00:56:37,270 --> 00:56:40,935 You pick a segment that is manageable. 1298 00:56:40,935 --> 00:56:42,560 And in fact, initially, you're probably 1299 00:56:42,560 --> 00:56:45,400 going to pick a segment that is not profitable, 1300 00:56:45,400 --> 00:56:48,460 because your goal is to get out and show that it works. 1301 00:56:48,460 --> 00:56:50,560 And if you go for the big segment, 1302 00:56:50,560 --> 00:56:52,750 then you've taken on a big change problem. 1303 00:56:52,750 --> 00:56:55,210 If you go for the small segment, you've 1304 00:56:55,210 --> 00:56:57,370 taken on a manageable problem. 1305 00:56:57,370 --> 00:57:00,610 Now, I've got this set of specialized tire repair places. 1306 00:57:00,610 --> 00:57:02,920 And I probably already have agreements with them 1307 00:57:02,920 --> 00:57:05,840 that they will favor Michelin, right? 1308 00:57:05,840 --> 00:57:06,790 What do I do? 1309 00:57:06,790 --> 00:57:10,828 I rent them the machines, and I charge them on a per use basis. 1310 00:57:10,828 --> 00:57:12,370 Because I say, I don't know if you're 1311 00:57:12,370 --> 00:57:14,578 going to have many customers for this machine or not? 1312 00:57:14,578 --> 00:57:16,390 That's my risk. 1313 00:57:16,390 --> 00:57:19,390 Your risk is learning how to use it, right? 1314 00:57:19,390 --> 00:57:21,335 And if we succeed in selling this thing, 1315 00:57:21,335 --> 00:57:22,960 then you're going to get some business. 1316 00:57:22,960 --> 00:57:25,377 And then you can pay me back piecemeal. 1317 00:57:25,377 --> 00:57:27,460 So you could think about business models that took 1318 00:57:27,460 --> 00:57:29,170 the complementers into account. 1319 00:57:29,170 --> 00:57:31,870 My sense is Michelin did not do that. 1320 00:57:31,870 --> 00:57:34,660 Because they had a better product. 1321 00:57:34,660 --> 00:57:37,090 They had a clearly superior technology. 1322 00:57:37,090 --> 00:57:40,490 There was no question this was better. 1323 00:57:40,490 --> 00:57:43,880 But to get people to adopt it-- change, change, change. 1324 00:57:43,880 --> 00:57:46,310 And I have to think about it differently 1325 00:57:46,310 --> 00:57:48,290 as the customer a little bit. 1326 00:57:48,290 --> 00:57:51,030 But it's mainly my complementers that I have to bring along. 1327 00:57:51,030 --> 00:57:53,600 And I have to get it specified on the car, 1328 00:57:53,600 --> 00:57:55,460 and then I have to service it afterwards. 1329 00:57:55,460 --> 00:57:57,860 OK. 1330 00:57:57,860 --> 00:58:00,530 Difficulty of change-- and this, I 1331 00:58:00,530 --> 00:58:03,320 guess you've had Dick channeling Susan as opposed 1332 00:58:03,320 --> 00:58:07,610 to Susan teaching you, on kind of the cultural-- the cultural, 1333 00:58:07,610 --> 00:58:08,960 sociological side. 1334 00:58:08,960 --> 00:58:11,330 But this is a little bit like culture. 1335 00:58:11,330 --> 00:58:14,240 If you think of how hard it is the change on the customer's 1336 00:58:14,240 --> 00:58:16,700 part or on the firm's part, I would argue 1337 00:58:16,700 --> 00:58:18,070 that it goes in this order. 1338 00:58:18,070 --> 00:58:21,440 So I've got to learn how to do new things in a different way. 1339 00:58:21,440 --> 00:58:23,180 That's pretty hard. 1340 00:58:23,180 --> 00:58:27,650 But it's harder if I have to use new complements, 1341 00:58:27,650 --> 00:58:29,880 or change the form in which I use things. 1342 00:58:29,880 --> 00:58:35,382 So use form-- shared cars versus owned cars, that's 1343 00:58:35,382 --> 00:58:36,590 a totally different use form. 1344 00:58:36,590 --> 00:58:38,690 It's a very different style, right? 1345 00:58:38,690 --> 00:58:42,110 Or clustered housing versus distributed housing-- 1346 00:58:42,110 --> 00:58:43,530 whole series are like that. 1347 00:58:43,530 --> 00:58:49,640 And then finally, a different way of thinking about it, we-- 1348 00:58:49,640 --> 00:58:51,770 we, collectively in this country-- 1349 00:58:51,770 --> 00:58:55,410 a car is immediately available. 1350 00:58:55,410 --> 00:58:58,880 So we can go someplace on a whim. 1351 00:58:58,880 --> 00:59:00,980 And that's one of the advantages of having a car. 1352 00:59:00,980 --> 00:59:03,650 It's that freedom of being untied from schedules, 1353 00:59:03,650 --> 00:59:06,260 or being untied from this, and that, and the other thing. 1354 00:59:06,260 --> 00:59:09,170 If we go to shared cars, or public transportation, 1355 00:59:09,170 --> 00:59:13,127 or something else, we would have to change the rhythms. 1356 00:59:13,127 --> 00:59:15,710 Suddenly, you'd have to become synchronized with everyone else 1357 00:59:15,710 --> 00:59:16,300 again. 1358 00:59:16,300 --> 00:59:17,540 You'd have to become Swiss. 1359 00:59:20,100 --> 00:59:22,470 Swiss society is built on railroads. 1360 00:59:22,470 --> 00:59:25,620 American society is built on cars. 1361 00:59:25,620 --> 00:59:26,760 That's deep. 1362 00:59:26,760 --> 00:59:29,220 That's really deep for a society that 1363 00:59:29,220 --> 00:59:32,550 has not developed that way, and where people really 1364 00:59:32,550 --> 00:59:33,720 value that autonomy. 1365 00:59:33,720 --> 00:59:35,650 So just think of kind of levels of change. 1366 00:59:35,650 --> 00:59:39,402 OK, discontinuity will happen on the level of industry 1367 00:59:39,402 --> 00:59:40,860 as well as technology, and there'll 1368 00:59:40,860 --> 00:59:43,500 be an area of substitution, area of design competition, 1369 00:59:43,500 --> 00:59:44,730 area of incremental change. 1370 00:59:44,730 --> 00:59:48,360 This is, again, in the Munir and Philips article. 1371 00:59:48,360 --> 00:59:51,660 Industry dynamics-- this is kind of a repetition-- 1372 00:59:51,660 --> 00:59:55,800 dominant design, similar competencies. 1373 00:59:55,800 --> 00:59:57,640 The interesting point, in this article 1374 00:59:57,640 --> 01:00:00,060 they talk about the activity network versus the industry. 1375 01:00:00,060 --> 01:00:02,370 Because you think of, there is a field 1376 01:00:02,370 --> 01:00:06,900 of firms that are both competitors and complementers. 1377 01:00:06,900 --> 01:00:08,610 And in a well-established industry, 1378 01:00:08,610 --> 01:00:11,050 there will be four or five other firms that look like you. 1379 01:00:11,050 --> 01:00:12,300 And that will be the industry. 1380 01:00:12,300 --> 01:00:14,790 And that's pretty much who you look at. 1381 01:00:14,790 --> 01:00:16,710 In a transitional phase, there are 1382 01:00:16,710 --> 01:00:19,128 all kinds of players that might be involved. 1383 01:00:19,128 --> 01:00:21,420 And you've got to think outside your normal boundaries. 1384 01:00:21,420 --> 01:00:22,440 That's their key point. 1385 01:00:22,440 --> 01:00:24,330 I want to get you to the next slide. 1386 01:00:24,330 --> 01:00:26,610 This is where I want to end. 1387 01:00:26,610 --> 01:00:30,990 So this is a way of bringing together 1388 01:00:30,990 --> 01:00:37,435 technology maturity versus the product architecture. 1389 01:00:37,435 --> 01:00:38,810 Roger Miller is a friend of mine. 1390 01:00:38,810 --> 01:00:40,400 I did a book with him about 10 years ago. 1391 01:00:40,400 --> 01:00:41,400 This is his latest book. 1392 01:00:41,400 --> 01:00:42,880 It's about to come out. 1393 01:00:42,880 --> 01:00:46,150 And he says, think of innovation as a game. 1394 01:00:46,150 --> 01:00:47,530 Every innovation is a game. 1395 01:00:47,530 --> 01:00:49,660 It has many, many different players. 1396 01:00:49,660 --> 01:00:52,870 And product architecture-- is the product standalone, 1397 01:00:52,870 --> 01:00:56,920 is the product platform-based, is the product a closed system? 1398 01:00:56,920 --> 01:00:58,600 Market maturity-- is it emerging, 1399 01:00:58,600 --> 01:01:02,980 is it in a transitional phase, or is it mature? 1400 01:01:02,980 --> 01:01:04,858 Eureka! 1401 01:01:04,858 --> 01:01:05,650 What does that say? 1402 01:01:05,650 --> 01:01:11,470 Single inventor, start up, neat idea, Eureka, it's standalone, 1403 01:01:11,470 --> 01:01:15,430 it's transitional, you do it, right? 1404 01:01:15,430 --> 01:01:19,060 Mature markets, stand alone-- 1405 01:01:19,060 --> 01:01:22,180 new and improved tide. 1406 01:01:22,180 --> 01:01:26,530 It's the new version, or five star energy rating 1407 01:01:26,530 --> 01:01:27,460 as opposed to-- 1408 01:01:27,460 --> 01:01:30,880 Energy Star rating as opposed to 4 star Energy Star 1409 01:01:30,880 --> 01:01:34,870 rating, or the next version of LEDs, 1410 01:01:34,870 --> 01:01:36,850 a little more warmth in the light 1411 01:01:36,850 --> 01:01:38,920 compared to the last warmth. 1412 01:01:38,920 --> 01:01:40,810 The lighting part is already satisfied, 1413 01:01:40,810 --> 01:01:44,820 we're now in incremental improvement. 1414 01:01:44,820 --> 01:01:46,680 Is it platform-based? 1415 01:01:49,480 --> 01:01:54,310 So Apple-- iPhone versus the other guys, 1416 01:01:54,310 --> 01:01:56,470 Microslop and whatever they sell-- 1417 01:01:56,470 --> 01:02:00,670 Android-- so Apple versus-- 1418 01:02:00,670 --> 01:02:05,620 iPhone versus Android, those are platform wars. 1419 01:02:05,620 --> 01:02:07,660 And you've got heavy, heavy investment 1420 01:02:07,660 --> 01:02:10,840 by sponsors of those platforms fighting with each other. 1421 01:02:10,840 --> 01:02:13,083 And you have a lot of app producers 1422 01:02:13,083 --> 01:02:15,250 who are actually playing across both of them, right? 1423 01:02:15,250 --> 01:02:18,520 They're In both ecosystems. 1424 01:02:18,520 --> 01:02:21,370 Or if it's mature, it's mass customization. 1425 01:02:21,370 --> 01:02:22,030 It's just apps. 1426 01:02:22,030 --> 01:02:23,410 It's no longer the platform wars, 1427 01:02:23,410 --> 01:02:25,480 because there is the established platform. 1428 01:02:25,480 --> 01:02:27,460 System breakthrough, pushing the envelope, 1429 01:02:27,460 --> 01:02:29,380 I'm not quite so sure about his terms 1430 01:02:29,380 --> 01:02:31,700 there, but interesting classification. 1431 01:02:31,700 --> 01:02:36,280 So let me change this question. 1432 01:02:36,280 --> 01:02:39,280 Let me change the question to think about the technology 1433 01:02:39,280 --> 01:02:41,680 that you were working on in your team, 1434 01:02:41,680 --> 01:02:44,980 and decide where it fits there. 1435 01:02:44,980 --> 01:02:48,190 Take a couple of minutes to think about-- 1436 01:02:48,190 --> 01:02:50,870 kind of position it, and tell us why. 1437 01:02:50,870 --> 01:02:54,010 Because it'll tell you a lot about the business model 1438 01:02:54,010 --> 01:02:57,360 that's going to go along with your technology. 1439 01:02:57,360 --> 01:02:59,000 Let me be countercultural in Cambridge. 1440 01:02:59,000 --> 01:03:02,460 So let me start on my right, and just go around this way. 1441 01:03:02,460 --> 01:03:03,710 I don't have to get everybody. 1442 01:03:03,710 --> 01:03:07,283 But you know, each team kind of tell me what your technology is 1443 01:03:07,283 --> 01:03:08,450 and where you think it fits. 1444 01:03:11,712 --> 01:03:18,160 AUDIENCE: So our [INAUDIBLE] 1445 01:03:18,160 --> 01:03:22,650 GUEST SPEAKER: OK, so why is it platform-based? 1446 01:03:22,650 --> 01:03:24,530 AUDIENCE: There's hydrogenation. 1447 01:03:24,530 --> 01:03:29,900 There's also solar thermal, solar cells. 1448 01:03:29,900 --> 01:03:37,598 There's a lot of ways to get [INAUDIBLE] 1449 01:03:37,598 --> 01:03:38,890 GUEST SPEAKER: OK, so there's-- 1450 01:03:38,890 --> 01:03:42,940 we're in, certainly, a transitional technology area. 1451 01:03:42,940 --> 01:03:47,590 I would think the platform base becomes, again, 1452 01:03:47,590 --> 01:03:50,380 who bears the cost of storage and where does the storage 1453 01:03:50,380 --> 01:03:51,530 fit into the system, right? 1454 01:03:51,530 --> 01:03:53,155 So it's going to become part of a grid. 1455 01:03:53,155 --> 01:03:55,405 AUDIENCE: But it's also who are the complementers that 1456 01:03:55,405 --> 01:03:56,080 make the pieces? 1457 01:03:56,080 --> 01:03:58,810 You may have battery makers on one hand, and semiconductor 1458 01:03:58,810 --> 01:04:01,870 people, or the folks doing the thermal-- 1459 01:04:01,870 --> 01:04:03,370 who makes the big block of graphite 1460 01:04:03,370 --> 01:04:06,220 or wherever you use as the thermal storage medium. 1461 01:04:06,220 --> 01:04:09,460 So you do have different sets of complementers 1462 01:04:09,460 --> 01:04:11,800 depending on what road you go down, I think. 1463 01:04:11,800 --> 01:04:13,670 Is that what you have in mind? 1464 01:04:13,670 --> 01:04:14,170 Yeah. 1465 01:04:14,170 --> 01:04:15,628 GUEST SPEAKER: And so there's going 1466 01:04:15,628 --> 01:04:20,230 to be some pathway of grid development 1467 01:04:20,230 --> 01:04:24,430 with particular types of storage embedded in order to make 1468 01:04:24,430 --> 01:04:25,900 this storage feasible. 1469 01:04:25,900 --> 01:04:27,700 That, in that sense, would be a platform. 1470 01:04:27,700 --> 01:04:28,367 And that's good. 1471 01:04:28,367 --> 01:04:31,030 OK, next group? 1472 01:04:31,030 --> 01:04:32,890 AUDIENCE: We were talking about solar also. 1473 01:04:32,890 --> 01:04:38,230 But [INAUDIBLE] getting better, and the need for solar 1474 01:04:38,230 --> 01:04:41,110 is always going to be increasing as well. 1475 01:04:41,110 --> 01:04:42,940 What's more important in our eyes 1476 01:04:42,940 --> 01:04:46,042 is pressing it on [INAUDIBLE] part 1477 01:04:46,042 --> 01:04:47,500 that's already mature for something 1478 01:04:47,500 --> 01:04:50,750 that doesn't [INAUDIBLE]. 1479 01:04:50,750 --> 01:04:53,750 GUEST SPEAKER: So where does that put you? 1480 01:04:53,750 --> 01:04:57,485 AUDIENCE: [INAUDIBLE] where-- like, it's not that-- 1481 01:04:57,485 --> 01:05:01,490 not necessarily that you're even improved one solar to another, 1482 01:05:01,490 --> 01:05:02,570 but you're improving a-- 1483 01:05:05,840 --> 01:05:07,490 just acquiring. 1484 01:05:07,490 --> 01:05:09,710 GUEST SPEAKER: Grid level or household? 1485 01:05:09,710 --> 01:05:11,245 AUDIENCE: More household. 1486 01:05:11,245 --> 01:05:13,370 GUEST SPEAKER: That would be very different, right? 1487 01:05:13,370 --> 01:05:16,620 So it may be radical for the household. 1488 01:05:16,620 --> 01:05:19,040 But it's kind of one more feature 1489 01:05:19,040 --> 01:05:22,100 to change your energy cost mix, and change your greenness. 1490 01:05:22,100 --> 01:05:24,410 So in that sense, it might be new and improved. 1491 01:05:24,410 --> 01:05:26,810 It probably has a brand name beside it. 1492 01:05:26,810 --> 01:05:29,390 It probably has a financing complementer. 1493 01:05:29,390 --> 01:05:33,350 It may have-- be series Home Improvement, where you put it 1494 01:05:33,350 --> 01:05:36,090 on charge and you do 17 other things at the same time. 1495 01:05:36,090 --> 01:05:37,280 So it could be-- 1496 01:05:37,280 --> 01:05:40,220 it might be here or it might be here. 1497 01:05:40,220 --> 01:05:42,233 It could be between those two, depending 1498 01:05:42,233 --> 01:05:43,400 upon the economies of scope. 1499 01:05:43,400 --> 01:05:44,067 But that's good. 1500 01:05:44,067 --> 01:05:45,590 OK, next team? 1501 01:05:45,590 --> 01:05:50,121 AUDIENCE: We talked about [INAUDIBLE] solar, [INAUDIBLE].. 1502 01:05:53,390 --> 01:05:56,570 GUEST SPEAKER: OK, and again, the question 1503 01:05:56,570 --> 01:05:58,340 is whether you need to link those 1504 01:05:58,340 --> 01:06:00,200 or whether the grid will link those, right? 1505 01:06:00,200 --> 01:06:02,120 And Dick and I were just talking about what's 1506 01:06:02,120 --> 01:06:03,830 the difference between a closed system 1507 01:06:03,830 --> 01:06:06,740 and a platform-based system. 1508 01:06:06,740 --> 01:06:09,830 If the grid manages the complementarities, 1509 01:06:09,830 --> 01:06:11,190 then it's an open system. 1510 01:06:11,190 --> 01:06:13,070 If you manage the complementarities, 1511 01:06:13,070 --> 01:06:14,912 you've chosen to mix them. 1512 01:06:14,912 --> 01:06:16,388 AUDIENCE: [INAUDIBLE]. 1513 01:06:21,890 --> 01:06:24,540 GUEST SPEAKER: OK, I'm going to run out of time quickly. 1514 01:06:24,540 --> 01:06:26,870 So let me do a couple more teams-- 1515 01:06:26,870 --> 01:06:29,150 that team and this team here, and then we'll 1516 01:06:29,150 --> 01:06:31,460 come down to one team over here to more or less cover. 1517 01:06:31,460 --> 01:06:33,030 So what do you have? 1518 01:06:33,030 --> 01:06:34,850 AUDIENCE: [INAUDIBLE] 1519 01:06:34,850 --> 01:06:36,140 GUEST SPEAKER: Nuclear again? 1520 01:06:36,140 --> 01:06:37,550 Anybody who's different? 1521 01:06:37,550 --> 01:06:41,120 Anybody who's down at the user end of the chain? 1522 01:06:41,120 --> 01:06:42,528 Yes? 1523 01:06:42,528 --> 01:06:44,070 AUDIENCE: Well, I want to say-- yeah, 1524 01:06:44,070 --> 01:06:45,880 I guess user in terms of transportation. 1525 01:06:45,880 --> 01:06:49,460 So yeah, so ours is about publicly-shared electric 1526 01:06:49,460 --> 01:06:50,270 vehicle systems. 1527 01:06:50,270 --> 01:06:51,020 GUEST SPEAKER: OK. 1528 01:06:51,020 --> 01:06:54,630 AUDIENCE: So our guess would that that would kind of tend 1529 01:06:54,630 --> 01:07:00,046 towards a platform more, because in the middle 1530 01:07:00,046 --> 01:07:02,450 of the actual market before the transportation 1531 01:07:02,450 --> 01:07:03,830 market is kind of mature. 1532 01:07:03,830 --> 01:07:06,312 But the economy technology is very 1533 01:07:06,312 --> 01:07:07,520 much in a transitional phase. 1534 01:07:07,520 --> 01:07:08,990 Like, you have to improve a lot of-- 1535 01:07:08,990 --> 01:07:10,532 you'd have to improve the technology. 1536 01:07:10,532 --> 01:07:13,580 To make it feasible, you'd need to kind of change existing 1537 01:07:13,580 --> 01:07:17,410 infrastructure in the system, like charging and other things. 1538 01:07:17,410 --> 01:07:19,160 GUEST SPEAKER: And you also have to change 1539 01:07:19,160 --> 01:07:21,820 some fundamental habits in many ways. 1540 01:07:21,820 --> 01:07:24,170 So you're talking about a large system change. 1541 01:07:24,170 --> 01:07:27,030 You're going to need an important systemic change 1542 01:07:27,030 --> 01:07:27,530 agent. 1543 01:07:27,530 --> 01:07:29,510 OK, you could go on on this. 1544 01:07:29,510 --> 01:07:32,690 I think it's very important to kind of classify where you are. 1545 01:07:32,690 --> 01:07:35,630 If you think of what are the different business models-- 1546 01:07:35,630 --> 01:07:37,310 just quickly in the last minute-- 1547 01:07:37,310 --> 01:07:39,440 start up or skunkworks, right? 1548 01:07:39,440 --> 01:07:41,120 So either it's a freestanding company 1549 01:07:41,120 --> 01:07:43,160 or it's a freestanding piece of a company. 1550 01:07:43,160 --> 01:07:44,990 Because it really is autonomous. 1551 01:07:44,990 --> 01:07:47,570 And you want to optimize the innovation process. 1552 01:07:47,570 --> 01:07:49,520 That's probably an established brand-- 1553 01:07:49,520 --> 01:07:51,230 new and improved, but it already has some reputation. 1554 01:07:51,230 --> 01:07:52,522 It already has market position. 1555 01:07:52,522 --> 01:07:54,440 It already has distribution. 1556 01:07:54,440 --> 01:07:56,990 The product is not different enough 1557 01:07:56,990 --> 01:07:59,060 to get you out of that channel. 1558 01:07:59,060 --> 01:08:02,060 If it's up here, you know you need a networked shaper-- 1559 01:08:02,060 --> 01:08:05,300 somebody who's got money, and name, and whatever else. 1560 01:08:05,300 --> 01:08:07,520 Down here, this is already somebody 1561 01:08:07,520 --> 01:08:09,050 who has a dominant platform. 1562 01:08:09,050 --> 01:08:11,720 So the utility has a dominant platform 1563 01:08:11,720 --> 01:08:12,920 if it will bring you in. 1564 01:08:12,920 --> 01:08:15,380 If not, how do you go around it? 1565 01:08:15,380 --> 01:08:19,640 This is probably a public/private consortium. 1566 01:08:19,640 --> 01:08:22,812 You're nuclear/solar, you're going 1567 01:08:22,812 --> 01:08:24,979 to get this developed by a public/private consortium 1568 01:08:24,979 --> 01:08:25,896 the first time around. 1569 01:08:25,896 --> 01:08:26,550 It's too big. 1570 01:08:26,550 --> 01:08:27,500 It's too complex. 1571 01:08:27,500 --> 01:08:29,779 No one is going to take it on other than that. 1572 01:08:29,779 --> 01:08:31,370 On the other hand, if we're talking 1573 01:08:31,370 --> 01:08:33,830 about a new generation of-- 1574 01:08:37,290 --> 01:08:39,620 a new kind of grid generation, probably-- maybe 1575 01:08:39,620 --> 01:08:41,930 a large incumbent, so Duke Power, or South East-- 1576 01:08:41,930 --> 01:08:45,920 one of the big utilities in the south, or a private consortium. 1577 01:08:45,920 --> 01:08:47,930 This is not final, but this gives you 1578 01:08:47,930 --> 01:08:51,439 an indication of who do you have to be when you grow up, 1579 01:08:51,439 --> 01:08:54,420 not because of the complexity of the technology, 1580 01:08:54,420 --> 01:08:56,390 but because of who needs to change 1581 01:08:56,390 --> 01:08:59,870 in what ways in order for your technology to be implemented. 1582 01:08:59,870 --> 01:09:02,840 So that's the story on innovation in business models. 1583 01:09:02,840 --> 01:09:04,779 All set, thanks.