Tesla, iPhone, and sliced bread – what’s next?

When Hannibal saddled 38 elephants to cross the Alps and defeat the Roman Empire back in 218 BC, I wonder about his odds with the bookkeepers of his times. He comes to my mind when I think about Elon Musk, who is the driver behind the electric car venture called “Tesla” – on a mission to disrupt the oil industry and the incumbent (luxury) car manufacturers. Why deal with a car in a telecom-related blog post? Besides from the contingency that I recently was lucky enough to grab a Tesla cab at Stockholm airport, I see two more reasons. Firstly, Tesla is a parallel example of how mobile connectivity could have the power to (contribute to) transform other industries. Secondly, Tesla is an inspiring recipe for how disruption can work, even in an industry with high entry barriers like automotive, with some similarities to what happened when the iPhone entered the scene.

Tesla could kill the car market leaders from above

At first it looked like Tesla cars were most likely to disrupt themselves as several incidents of cars that caught fire were keelhauled in the media. As a result Tesla reinforced the bottom plate with additional armor and official investigations certified there was no safety risk. Despite its disadvantages (high price points for a middleclass car, limited range), the advantages seem in the eyes of customers to outweigh. In 2014 Tesla already sold more cars in the US than any of Mercedes, BMW, Audi or Porsche. However, aforementioned top dog car companies seem unworried and point out the inferior specifications of the challenger compared to conventional cars. Ironically, their ecar models like those of any of the other established car manufacturer are not competitive: they reach at most a range of 200 km (as opposed to 400-500 km with a Tesla). And they don´t seem to be overly eager to establish a tight network of charging stations; whereas Tesla is massively rolling out charging stations across the US and Europe. This reminds me of Nokia, Blackberry and Motorola which all – more or less fatally – underestimated the iPhone upon its arrival. According to the textbook Tesla and the iPhone are unusual disruptive cases. Usually a disruptive product conquers the market from the lower segment (“The leaders get killed from below”, Clayton Christensen) creating a new market for previously non-consumers. So did the Japanese car manufacturers in the 80´s to disrupt Detroit´s Big Three (General Motors, Ford, and Chrysler). IPhone and Tesla in contrast start from the high end.

But in any case, disruptive products cater to customer needs, which are not yet catered for by the established players and basically not even “needed” by the users until they get to know them. Often this is done by reinventing the market space and establishing new rules. The iPhone opened up a new sphere that was non-existent until then: the app market. The phone gave the consumer an ease of use that was of its own kind. Tesla is also establishing a new market. It does so by sharing openly all patents to boost the market for car batteries and thus electric mobility. And it offers iPhone-like usability and a compelling proposition of technical specifications along with economic operating costs.

Tesla´s edge: Ease of use and economics

The ease of use a Tesla offers is what I have been missing in even such a high-end car as a Mercedes S-class, which I recently happened to rent over a weekend. I tried throughout the entire weekend to figure out how to get the navigation system to use the full size of the maybe 18 cm (7-inch) screen instead of only one third. I failed. Blame it on my own clumsiness. But, my father, an engineer, has leased Mercedes cars for the last 10 years and I can tell you he has not been thrilled either by any of the past navigation systems´ usability that came along with his leases. I was actually tempted to use my phone and roam for navigation instead. The Tesla car´s touch screen in contrast works like your smartphone and lets you touch-navigate through Google Maps on a screen with a 43 cm diagonal (17 inch). Even more, almost all control is exerted via this screen, in iPhone-like ease. Only three physical buttons are left at all: window lifter, hazard light and glove box lid release.

How about operating costs and maintenance? Operating costs are record-low: According to the cab driver 2 Eurocents per kilometer; if you pay for the electricity refill that is. Recharging via a Tesla supercharging station is actually for free, thus included into the price of the car. Compared to a fuel-efficient gas-driven car consuming say 6 liters of diesel per 100 km, i.e. around 10 Cents/ km, the Tesla thus renders at least one fifth of gas-driven fuel costs or lower. That is in any case a compelling business case for anyone driving a lot. With a rapidly expanding network of chargers that holds true even for long-range drives. Charging stations already span across Europe and from US coast to coast.

Mobile connectivity and convergence

As usual when it comes to IoT connectivity, there is a question mark behind the business model. For all we know, the flat rate included into the purchase of a Tesla comprises unlimited data (excluding video streaming), and apparently Tesla strikes one deal per country with a mobile network operator offering the desired coverage. Tesla then picks up the bill – for the first couple of years at least. What happens afterwards remains vague. Supposedly, the owner will – sooner or later – have to pay for connectivity. This might become the moment of truth, because the owner may decide to subscribe anew or to use substitute by using a mobile phone as a hotspot.

The connectivity-enabled use cases (on the giant touch screen) are manifold: navigate, get traffic updates and stream music, not to mention everything else that Internet may bring … Also, these connectivity use cases share the user interface and converge with a variety of traditonally button-controlled functions: steering of climate control and sunroof as well as suspension and engine settings. Engine and other logs go straight to Tesla, which allows for remote diagnostics and maintenance. While even other luxury cars transmit e.g. when oil or brakes need to be changed and have your dealer set up an appointment with you, Tesla seems to be taking it one step further: malfunctions can allegedly be fixed via over-the-air software updates and if you, God forbid, should have an accident, the car will tell you if you can continue your journey or otherwise prompt you to pull over as the vehicle will power itself off within 60 seconds.

Qué será, será …

So, what am I trying to say with all this? Disruptive events happened, do happen and will happen. And just like the mobile phone itself changed many other industries, the telecom industry’s latest “invention” IoT will enable disruptions in many areas. The jury is still out, but a few things can be said. Volume-wise expectations are in general exaggerated. A connected thing is still a thing and physical things by nature require physical installation, thus always stay behind the massive scalability known from digital applications (where you download an app with a few clicks). Still, I see most potential in the following verticals: 1) Manufacturing 2) Wearables 3) Connected cars; given car manufacturers agree upon a scalable global standard (see Open Automotive Alliance). Otherwise Tesla might teach them what Apple taught Nokia, Blackberry and Motorola. Hannibal never managed to destroy Rome, but he inflicted some of the most devastating losses of all times upon the Romans. After my experience onboard a Tesla, I am convinced, that Tesla will churn the car market as much as Hannibal single-handedly awed an empire. And IoT will for sure disrupt a few more established markets. Why the above are the hottest candidates and what value connectivity has in this equation are other issues, though. Such, that we might examine in an upcoming blog post …

/Franz-Josef

Franz-Josef is a Senior Consultant at Northstream

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