I spent a lot of time in my talks this week discussing business model innovation. The main point is that this is often the most powerful form of innovation while also being one of the most overlooked. I ran across a great example of business model innovation today on Kevin Kelly’s blog.
One of the big obstacles to installing solar panels is the pretty high upfront cost. Even with big subsidies and an environment that would be pretty close to perfect for solar power, Australia is lagging in this area right now. So someone here should pick up the business model being used by a couple of companies in the US. They install solar panels on homes for $0 down. Then over the course of 15 years or so, they generate revenue essentially by taking a chunk of the money that is saved through generating your own power. So if you start generating 80% of your own electricity, your actual electricity bill drops by maybe 10%, with the difference going to the company that put the panels in.
If you run the math, you’re better off just buying the solar panels upfront. Provided you have $10,000 on hand. This model is a really nice way around the problem that lots of the people that want solar panels don’t happen to have an extra $10k lying around. This is very similar to the way that Xerox changed the business model for photocopying. They got around the problem that their initial machines cost about 6 times more than other (inferior) copying technologies by leasing them instead of selling them, then adding a per copy charge for any copies over the monthly allowance. By changing the revenue model, they eliminated the major barrier to getting their innovation to spread.
I think that $0 solar panels are a great idea – I wish someone was doing that down here! In any case, this is another excellent example of the power of business model innovation.