Transcript Engineering Systems: Broadening Engineering Research

Platform Technologies and Multisided
Markets – The Case of Electric Vehicles
David Keith
Ph.D Student
MIT Engineering Systems Division
Motivating Phenomenon
 Increasing momentum behind electricity as
a key alternative fuel platform to displace
oil dependence.
 The (re)introduction of electric vehicles
into American showrooms and driveways is
imminent.
 Numerous and varied vehicle technologies,
battery technologies and recharging
methods being developed.
 The existing electric grid infrastructure
capable of supporting some early adopters.
 How to efficiently scale up EV technologies
to achieve a sustaining market?
Barriers to Adoption of
Alternative Fuel Vehicles
 Struben and Sterman (2008):
 Chicken and egg problem – drivers need fuel, parts,
accessories, but energy providers and auto makers
need a market in order to develop these things.
 Adoption of new technologies strongly path dependent.
 Many AFV innovations provide spillover opportunities
for the dominant platform.
 Once a technology has been deemed a failure, it does
not easily recover.
 Focus on inter-technology dynamics
The State of the EV Market
 Production plug-in hybrid and all-electric vehicles available in next 1-3
years (depending on who you listen to), from auto incumbents (ie. Ford,
GM) and startups (ie. Tesla).
 Auto companies each partnered with different battery company.
 Battery costs prohibitively high at present ~$1,000/kWh, in the order of
$40,000 per 100 miles of vehicle range.
 Recharging infrastructure extremely limited, but various pilot projects
underway and startup companies with ambitious plans (ie. Better Place).
 Market (largely) lacks agreement over technology standards, governance
structures, payment mechanisms etc.
 What role do inter-firm dynamics have in the ultimate success of EVs?
Industry Examples - Infrastructure
Better Place
Coulomb
Infrastructure
Recharging points and
battery swap stations
Recharging points
Pricing
All-inclusive monthly plan
fee based on miles driven
(vehicle included)
Ie. ~$500/month for 500
miles driving
Bring your own vehicle and
pay per use
Ie. ~$4 per 100 miles
Compatibility
Better Place vehicles only
Any electric vehicle with
compatible plug
Locations
Proposed for Israel,
Denmark, Australia,
Hawaii, Ontario, Bay Area
Limited installations
currently in Vancouver,
Portland, Chicago, Bay
Area, LA, Florida, Texas,
etc.
Industry Examples - Vehicles
Tesla Roadster
Chevrolet Volt
Powertrain
Battery electric
Plug-in hybrid
Range
240 miles
40 miles all-electric,
640 miles total using
on-board gasoline
generator
Cost
$109,000
$40,000+
Market Segment
High performance
sports car
Family sedan
Production Volumes
Low
High (So GM hope)
Availability
Now
2011?
Overarching Questions
 What is required to achieve a sustaining
market for electric vehicles?
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Deep reductions in battery costs?
Government incentives? To whom?
Higher oil prices? A gas tax?
A single (open) infrastructure?
A particular mix of EV technologies?
All of the above?
Definition of Two-sided Platform/Market
 Definition: “A two-sided platform provides goods
or services to two distinct groups of customers
who need each other in some way and who rely
on the platform to intermediate transactions
between them” (Evans, 2003).
 In other words, (increasing) returns exist for each
group, dependent on the installed base of the
complement group.
Example Two-sided Markets
Seller
Platform
Buyer
Software Developers
Operating System
Users
Merchants
Credit Card
Customers
Sellers
eBay
Buyers
Advertisers
Newspaper
Subscribers
Doctors
HMO
Patients
Men
Nightclub
Women
Platforms typically reduce transaction costs by:
1.Matchmaking (ie. eBay)
2.Building an Audience (ie. Newspapers)
3.Sharing Costs (ie. Operating Systems)
Multi-sided Market Literature
 Emerging literature from:
 Rochet and Tirole (Toulouse)
 Evans (Chicago) and Schmalensee (MIT)
 Van Alstyne (BU, MIT Sloan Ph.D) and Parker (Tulane,
MIT Sloan Ph.D)
 Literature based on formal economic models and
management/strategy books and journals.
Key Lessons from Existing Literature
1. A firm can rationally invest in a product it intends to
subsidize/give away in perpetuity even in the absence of
competition.
2. The market that contributes more to demand for its
complement is the market to provide with a free (or
subsidized) good.
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Audience
Applying These Lessons to EVs…
 Infrastructure Providers (Better Place, Coulomb etc.) are
the Platform, the key enabler.
 Consumers most demand sensitive given initial cost of
electric vehicles –> subsidize this side.
 Early evidence of retail stores willing to provide free EV recharging
to attract customers.
 Cost-sharing analogy fits Better Place business model.
Customers to subscribe to the platform, sharing the costs
of infrastructure development, the “API”. Expectation of
customer base via platform incentivizes technology
providers (ie. Renault-Nissan) to build BP-specific vehicles.
Limitations of Existing Literature
 Literature concentrates on information goods, with a
particular emphasis on IT applications.
 Formal models based on rational choice theory.
 Formal models limited to two-sided market for tractability.
 Assumption of “near zero marginal cost” due to
information nature of good (Parker and Van Alstyne, 2000).
 No deductive studies have been undertaken despite
numerous real-world examples cited.
The Case of Electric Vehicles
 Car purchase decisions have much more $$$ at stake than
most current MSM examples
 Delays: Slow rate of capital stock turnover in vehicle fleet
(average vehicle life ~= 12 years)
 Numerous Actors
 Boundedly Rational Behaviour
 Non-trivial Marginal Cost
 Spatial distribution of actors
 Competing Platforms (Gasoline, Biofuels, Hydrogen etc.)
 Utility bump for EVs relative to incumbent negative initially
Towards an SD Model
Research Questions – Platform Dynamics
 Do the findings from analytical models hold when key
assumptions (ie. rationality, marginal cost) relaxed?
 Which policy interventions are most successful at
stimulating adoption of EVs?
 To what extent does the vehicle battery size / recharging
rate affect adoption of EVs?
 To what extent does the backstop role of gasoline in PHEVs
have on the emergence of a sustaining EV market?
 To what extent do Vehicle-to-Grid (V2G) interactions affect
platform development and adoption of EVs?
Research Questions – Platform
Competition
 To what extent does the existence of multiple
incompatible platforms slow market penetration?
 Is a single, open infrastructure the preferred arrangement
in order to accelerate adoption?
 To what extent does the spatial development of
infrastructure affect platform competition?
 What strategies/partnerships should auto companies,
battery companies, component suppliers pursue?
Research Questions – AFV Competition
 How do dynamic feedbacks within the EV market affect the
market share of electric vehicles when competing with
gasoline and other alternative fuels?
 How responsive is the EV market to government
intervention compared with other alternative fuel
platforms?
=> Embed model of EV market dynamics within broader
model of AFV dynamics developed by Struben & Sterman.
Thanks
 Supervision
 Prof. John Sterman – MIT
 Ass’t Prof. Jeroen Struben - McGill
 Funding
 American Australian Association
 Australian-American Fulbright Commission
References
 Evans, D. S. (2003), “The Antitrust Economics of Two-Sided
Markets”, Yale Journal on Regulation.
 Parker, G.G. and Van Alstyne, M. (2005), “Two-Sided
Network Effects: Information Product Design”
Management Science.
 Struben, J. J. R. and J. Sterman (2008), "Transition
Challenges for Alternative Fuel Vehicle and Transportation
Systems." Environment and Planning B.