Better Place to Offer Electric Car Subscription Service

By Tien Tzuo December 4, 2008

by Tien Tzuo

 

As many of our blog readers know, I’m an avid New York Times reader.

 

In Tuesday’s issue, I read an interesting article on a promising company called Better Place—otherwise known as “Shai Agassi’s electric car venture.” Several years ago, Shai Agassi famously left SAP to head up this new, ambitious venture to bring electric cars into the world.

 

Hawaii Endorses Plan for Electric Cars

 

Given all the buzz around the collapse of the American auto industry and the future of electric cars, Shai’s initiative is quite timely. Better Place already has endorsements from Israel, Denmark, Australia, California’s Bay Area, and now Hawaii to roll out his electric car initiative. In addition, he has over a billion dollars in committed venture funding for these large scale rollouts.

 

What’s so intriguing about the Better Place vision? How does it stand apart from the vision of Tesla or GM’s Volt, or the new electric Mini Cooper from BMW?

 

Shai isn’t just producing cars. He’s envisioning an entire network of thousands of recharging stations in every region where Better Place is rolled out.

 

And it’s more than just new technology. It’s a new business model. And guess what? It’s subscription-based! On their own Website, Better Place compares its business model to that of mobile phones. Here’s the excerpt:

 

Think of it like this: we pay mobile providers for minute-by-minute access to cell towers connected together in cellular networks. Truth is, we pay comparatively little—or next to nothing—for the phones themselves. After all, what you’re really buying is air time, not a box with buttons.

 

The same model works for transportation. Just replace the phone with an electric car, replace the cell towers with battery recharge stations, and replace the cellular networks with an electric recharge grid. Now you’re buying miles, not minutes.

 

When you think of it in those terms, suddenly a seemingly revolutionary business model becomes something a lot more proven—and more than a little appealing.

 

Why pay for an addictive, expensive and harmful substance like oil when you can simply pay for transportation as a sustainable service? Why produce pollution when you can bring your emissions to zero and produce economic advantage as the only by-product? The proposition sells itself.

 

In Shai’s vision — you don’t buy cars — you buy miles! You pay based on how many miles you expect to drive, just like you pay only for the minutes you use on your cell phone. It’s brilliant!

 

In fact, in the NY Times article, Shai talks to the superiority of the subscription model, especially in this economy:

 

On Tuesday, he said that he was optimistic about his project despite the dismal investment and credit markets because his network could provide investors with an annuity. Users of his recharging network would subscribe to the service, paying for access and for the miles they drive.

 

Given the downturn in the mortgage market, he said that investors are looking for new classes of assets that will provide dependable revenue streams over many years. “I believe the new asset class is batteries,” he said. “When you have a driver in a car using a battery, nobody is going to cut their subscription and stop driving.”

 

In this blog, we’ve shown that subscriptions are everywhere—from Sex in the City to alternative transportation systems. What was once a revolutionary idea is now mainstream.

 

Companies like Better Place are proving that business model innovation is just as important as product innovation. Especially in our economic downturn. We’ll definitely be watching out for Better Place’s next move.