Business Strategy of Elon Musk: Developing a whole industry ecosystem to monetise.

While companies are busy filing for patents and defending them with the best law firms, Elon Musk has surprised everyone by declaring that he will open source Tesla patents for free.

Whole business world was bewildered at first and some quarters started singing paeans to the maverick entrepreneur who is now worshipped like Steve Jobs by the technoholics.

Of course while this is going to benefit world, a close look will reveal it is also a business strategy of developing a business ecosystem with a possible revenue stream from users.

First let’s understand the progress of Tesla from a successful product to a full winning ecosystem.

 The car was introduced to the luxury segment. It is important for a new product to be successful here to become an aspiration for rest of the population. In the luxury segment there is a small segment of rich customers who value the green and clean tech. Tesla was attractive to them, since it offered the 0 to 60 acceleration of a Porsche and then zero emission.

Having demonstrated the technology Elon worked on the scale and cost. With a range over 500 kilometres and nationwide charging stations, convenience got set in. Low operational cost lowered the lifecycle cost of the product. Along with the charging stations where a tesla customer has free charging facility, came the robotic battery exchange set up. A discharged battery is replaced with a charged battery by robotic arms. The vehicle can be quickly on road, in fact much faster than from a fuel filling station. Slowly the product is graduated from the luxury segment to the ‘need and want’ segment.

This segment once growing, is going to be so large, there is going to be several followers/imitations for the product. Big daddies of the automobile industry have no option but to start making electric vehicles (EVs).

This is what Elon is waiting for.

Everyone knows, the automobile industry is a huge ecosystem business. There are several hundred vendors supplying the parts around the main factory.

Like SpaceX, Elon almost made all parts for Tesla in-house. In other way, unlike the century old motor car business, EV's is a relative new industry and Elon didn’t have good suppliers for the type of quality and performce he was expecting. Many components in Tesla are unique compared to the usual fuel consuming cars. For the new entrants it will make sense to buy from Elon than reinventing the wheel.

Elon is making huge giga factories for manufacturing of the batteries. Other players will have no choice but to get into a supply agreement with Elon.

The nationwide charging stations for Tesla will be free for its customers but Elon will be charging fee for the other customers. Obviously it doesn’t make sense to compete with Tesla for the new makers. Elon has backward integrated for power with solar city, his other company for electricity supply to these charging stations. Now it will be like Elon owns all the gas stations in U.S. Cost for him will further go down with more cars charging on his charging stations.

Other logistic advantages will start kicking in. Unlike the huge and complex storage and transportation logistics of the fuel stations the Tesla charging stations just need a power supply. No replenishment is needed by tankers or the pipelines. This will be a game changing situation in the automobile energy supply business. Over a period of time financial and environmental advantages will kick out the traditional fuel stations. Gas stations will go soon the Kodak way!

Over a period of time Elon may not be looking at just making a electric car. He will be looking to revolutionize the transportation industry. For example world’s water bodies ie rivers, lakes and oceans have today boats and ships powered by the fuel guzzling engines. It is highly possible to imagine the heart of all those vessels to be powered by Tesla style electric motors. And like the nationwide charging stations there can be floating solar stations for these vessels to charge at sea.

Like Microsoft and Google, Tesla is on way to become world’s biggest monopoly company. This can bring some regulatory challenges. Intelligent as he is, may be one reason Elon is having separate companies for making cars, for batteries and power production.

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