On the lookout for new Business Models in the Auto industry

Much is written about the auto industry today and the need for new business models, but what it means is just "We need to produce our cars cheaper".

The auto industry has for a long time relied on a business model selling a product that doesn't make money when it sells but on service and high margin spare parts. However without control over the high margin spare parts, the car manufacturers rely on a Razor-and-blade business model where someone else often provides the blades. Another important source of revenues is the financing of the cars as buying a car today is a major investment.

I have not seen any innovative business models in the auto industry since a year ago when Better Place, with CEO Shai Agassi started its campaign to connect different stakeholders around its idea. Once a senior executive at software giant SAP, Shai Agassi has raised $200 million and reached agreements with car manufacturers and different cities, regions and nations to establish supportive policies and infrastructure for electric cars. What Better Place is doing is creating a new value network within the auto industry with itself in the role of an electric car operator owning the so far expensive batteries, providing charge spots and battery swapping stations. Israel is the first launch with hundreds of electric cars 2009 and production cars from Renault-Nissan 2010.

Better place uses a Subscription based business model in which cars will be sold or leased bundled with monthly subscriptions in the same way as mobile phones today, providing payment models such as "Pay-as-you-go", "Unlimited use" and "Maximum use" for car buyers. AND, to quote a Shai Agassi presentation "if you commit for long enough time, for Israel that is 6 years, at the prize of gasoline today, you get a free car". Imagine what this business model will do with the ones that relies on spare parts for combustion engines and the financing of expensive cars...

In the first country of launch Better Place invests and owns the infrastructure but what if they think in a Multi-layer business model way? What if you combine infrastructure from one industry to another with a market player that would benefit in more ways? McDonalds have standardized drive-ins in the whole world and would probably be happy to get one more value proposition towards its customers; "I'll have a BigMac and an XL battery".

With cars connected to Internet the car operators would be in an interesting position for new services such as remote lock-down if the car is stolen, using information about the speed of individual cars to quickly spot traffic jam etc. Two-sided business models should also be possible. I could easily participate in surveys and polls by answering some questions while driving and appreciate getting information about stores or restaurants in the area I'm currently in. And with my electric car connected to the grid most of the time, I would be happy to sell some of my electricity back to the grid at peak times or serve as a back-up at power failures. I could also be interested in having small advertising on my car if the advertising was for something I loved and I got paid by the advertiser or brand owner.

Should I really pay for driving around in my car or should I be paid?

Multi-Layer Business Models

This is the last post in a series of four on my view on business models, more specifically the different directions for product and service refinement and monetary flow. The other posts have be on One-Sided Business Models, Two-Sided Business Models and Horizontal Business Models.

When the refinement of products and services, or the monetary flow comes from different industries I refer to it as Multi-Layer Business Models.


Cross-industry technology, IPR and brand licensing is common Multi-Layer Business Models in which a company in- or out-license assets to a company in another industry in return for upfront payments, royalties, shares in a joint-venture etc.

An interesting example is how companies are pushed into cross-industry collaboration and the use of Multi-Layer Business Models through technology development. The convergence in mobile devices where cameras, calendars, music and movie players, payment services, transport tickets etc. are all being integrated into single hand-held devices, where no company can do everything themselves, will open up for new interesting Multi-Layer Business Models.

Mobile phone operator example
In the Two-Sided Business Models example, mobile phone operators charged advertisers, brand-owners, developers of applications, content or games, instead of only charging end-users as in One-Sided Business Models. In the Horizontal Business Models example, competitors were charged for developed or in-licensed applications and services. With a Multi-Layer Business Model, different industries that would benefit from for example user-data could be approached. Value propositions towards other industries could be to provide restaurants and store owners with information on where different user-groups hang out, provide companies, governments and tourist information companies with information such as when users arrive at new destinations. Also, as described above, the convergence in mobile services open up for new cross-industry services such as movie rentals, photo printing, tickets to concerts or transportation, banking services etc.

Further reading:
One-sided business models
Two-sided business models
Horizontal business models