The Next Great Disruptive Innovation
By Andrew Salzman
Principal, Chasm Group
Ever driven in a Tesla Model S? I have, albeit as a test drive. Problem is, in terms of the technology adoption lifecycle, I’m a pragmatist. Much as I reveled in the exuberance of accelerating from 0-60 mph in 4 seconds with no lag or engine noise, I’ll just have to wait.
Truly disruptive innovations like Tesla can re-invent the gas-powered automobile industry started way back in 1893. It is one of those rare innovations that create a new paradigm, much like Apple did with smart phones and Amazon has done with online retail. For the less mechanically (or electrically) inclined, a Tesla is the first 100% electric-powered vehicle that has cracked the code on both performance and driving range, touting 265 miles between battery recharges. It is designed like the Audi A7, offers spacious interiors and storage space, and carries such futuristic wow features as a 17 inch in-dash computer display, swappable batteries, and plans to embed solar panels. Is it worth a $20.3B market cap with an 800 P/E ratio on annual revenues of $390M with a 12 month operating loss of $217M? Or is it worth one third of these market figures as NYU Finance Professor Aswath Damodaran claims? I’ll let you decide and focus instead on the market development path.
For now, the Tesla Model S is in the visionary and early adopter stages of the technology adoption lifecycle. Early adopters do not expect a “whole product solution”. They are adventurous, think big, move independent from the herd, and spend first. They see those Pragmatists among us as pedestrian…perhaps a notch above Philistines. They are willing to endure, and even expect, the absence of a whole product solution, and willingly accept the risks inherent in buying a $100,000 disruptive innovation for personal use.
Getting to a low risk whole product is what I’m after as a Pragmatist…the key buyers in the Bowling Alley stage of technology adoption. I need to know that a national network of supercharging stations is in place, and be able to fully recharge the battery in the time it takes to refuel a gas-powered vehicle. Today, lots of Tesla-owned charging stations are quickly appearing here in the Bay Area (e.g., in parking garages), where you can get 19 miles of charge per hour. Too slow…too long. Charging at home or a regular charging station takes 5 hours. Too slow….too long.
I also need to know that a support ecosystem is in place to complete the pragmatist value proposition. Are there enough technicians trained in the ways of this disruptive innovation? In technology lifecycle adoption terms, is the complete value chain in place?
Will Tesla move into a “chasm stage” when all the wealthy Early Adopters have bought while all the Pragmatists continue to wait for a low risk, safe, whole product solution recommended by their Pragmatist peers? We shall see. A short chasm stage would be supported by the momentum around electric vehicles. As more early adopters buy (pent up demand being released by more production), the cost of electricity vs. gas is attractive (lower TCO), the clean energy lobby presses on, and dependence on foreign oil remains a pressure point in global politics. If so, Tesla may swoop into the bowling alley of pragmatist buyers, unleashing a tornado of buyers for electric cars as a category with Tesla leading the pack as the category gorilla.
I believe Tesla is the real deal and will force all auto makers to catch up fast. This is the logical next step after a 16 year run for the hybrid Prius, especially when Tesla develops a line of more affordable yet high performance mainstream sedans down the road. As Apple surpassed Sony’s Walkman with the iPod/iTunes ecosystem and later evolved into iPhones, so shall Tesla re-invent the auto industry.
Step aside Steve Jobs. My kudos to visionary Elon Musk with his Teslas, his Space X travel, and his vision for a “Hyperloop” high speed train line. Not all disruptive innovations cross the chasm, but I’d bet on the Tesla. Would you?
Andrew Salzman is a principal with the Chasm Group, a strategic market consultancy founded by Geoffrey Moore and devoted to helping companies transition disruptive technologies into material businesses. He can be reached at asalzman@chasmgroup.com or 415-812-1925.
