Trends I'm Watching

Advertisers Producing Creative Commercials To Get Consumer's Attention

Trend: Advertising videos: Skipping past TV commercials using DVR technology is becoming common. However, people will watch very creative commercials that provide great entertainment and skip the hype.

Here's an example:

GE Introduces Green Credit Card

Trend: General Electric sets a standard for carbon credits in the United States.

Joel Makower describes the new General Electric Earth Rewards credit card, aimed at reducing cardholders' carbon emissions. Excerpts below.

Link: Joel Makower: Two Steps Forward: GE Earth Rewards: Credit Where (Carbon) Credit Is Due.

...Earth Rewards is GE Money's contribution to GE's overall goal of making money by helping its customers become cleaner and more efficient.

The Earth Rewards card will invest 1% of consumer purchases made with the card in carbon offset projects. (Consumers can opt to get a half-percent cash back, in which case only one-half percent of their purchases will fund offsets.) The company isn't claiming that the card will necessarily render purchases "carbon neutral," though its promotional material explains that an average consumer charging $750 per month on an Earth Rewards card -- that's $9,000 a year in purchases -- would offset all of the emissions he or she is likely to produce in a year.

The launch of the card is accompanied by the release of a standard for carbon credits in the United States. The standard, which will be used by GE's joint venture with AES Corp. to develop and sell carbon credits, aims to ensure that the offsets purchased by GE on behalf of its credit card customers "are scientifically verified and provide a positive, measurable environmental benefit," in the words of the company. AES and GE plan to generate 10 million metric tons of greenhouse gas credits annually by 2010, some of which will be purchased by GE itself on behalf of its Earth Rewards customers.

According to GE:

If 100,000 cardholders spend $750 per month, the annual offsets retired would total approximately one million metric tons, equivalent to removing more than 175,000 cars from American roads for one year. If those 100,000 cardholders receive their statements electronically, they could save more than 50,000 pounds of paper, sparing 600 trees and more than 500,000 gallons of wastewater associated with paper production collectively.

Pareto's 80/20 Rule Expands Its Applicability

Trend: The normal curve may not be the best model for predicting market behavior in the future.

John Hagel writes in his blog that our reality is shifting from a "normal curve" (Gaussian) world to an "80/20 rule" (Pareto) world, with profound implications for business. He cites work by McKelvey and Andriani about the need to change our mindsets to adapt. Excerpts below.

Link: Edge Perspectives with John Hagel: The Power of Power Laws.

In a world of power law or Pareto distributions, extreme events become much more prominent.  Extreme events can take many forms.  They can be sudden and severe disturbances like a class 9 earthquake or a financial meltdown like the one that occurred in US stock markets in 1987.  As McKelvey and Andriani observe, “the lesson that we can draw . . . is that extreme events, which in a Gaussian world could be safely ignored, are not only more common than expected but also of vastly larger magnitude and far more consequential.”

Our institutions (not just businesses, but also educational and governmental) are largely designed for a Gaussian world where averages and forecasts are meaningful.  As a result, we have evolved a sophisticated set of push programs that have delivered significant efficiency.  In a world of sudden, severe and difficult to anticipate shifts, push programs become much less viable and we need to become a lot more creative in terms of designing pull platforms.

Yahoo Partners with Comcast

Trend: The era of personalized advertising on contained networks has begun.

Media mogul Mark Cuban sees a significant advertising breakthrough in the Yahoo-Comcast deal. Excerpts below.

Link: Yahoo - Comcast = The Deal of the Year - Blog Maverick

Little has been written about yesterdays announcement that Yahoo would be selling display and video ads for Comcast's websites, in particular, Comcast.net.

What's so special about this deal beyond the sheer size of Comcast and the inventory it makes available to Yahoo to sell its the network.

The one thing that Google doesn't have is a contained network. Comcast does. The implications are significant.

For the first time, an advertising monetization platform, such as Yahoo's Panama, can be integrated into a NON internet video platform. When Comcast serves video from comcast.net to its own high speed data customers, those are NOT internet customers. They are private network subscribers.

In short, Yahoo and Comcast can start working together to develop video content and ad platforms that Google can't touch. Any video that is streamed from Comcast.net can be streamed at bit rates that match the user's throughput, including commercials. If Comcast can deliver on demand video at full DVD quality to PCs, it can deliver commercials at that quality. All without ever touching the internet.

More importantly, since all the users of Comcast.net video are Comcast customers, the two companies can work together to leverage customer data (within privacy limits) to deliver ads that are not only personalized, but also can evolve to be "over the top" of the set top box and be delivered to the TV in the future using Comcasts future switched digital capabilities and OCAP features.

Together Comcast and Yahoo have created an advertising playground that could potentially define the future of advertising on the net. Rules that even Google and Microsoft would have to follow.

The competitive landscape for video advertising just changed, and no one even noticed.

If done right, this is the first step towards integration of integrating advertising from websites

Results-only Work Environment

Trend: Work from anywhere anytime may soon gain some momentum if Best Buy's results give it a competitive advantage.

BusinessWeek describes Best Buy's experiment with flexible work hours. Excerpts below.

Link: Smashing The Clock

The nation's leading electronics retailer has embarked on a radical--if risky--experiment to transform a culture once known for killer hours and herd-riding bosses. The endeavor, called ROWE, for "results-only work environment," seeks to demolish decades-old business dogma that equates physical presence with productivity. The goal at Best Buy is to judge performance on output instead of hours. Hence workers pulling into the company's amenity-packed headquarters at 2 p.m. aren't considered late. Nor are those pulling out at 2 p.m. seen as leaving early. There are no schedules. No mandatory meetings. No impression-management hustles. Work is no longer a place where you go, but something you do. It's O.K. to take conference calls while you hunt, collaborate from your lakeside cabin, or log on after dinner so you can spend the afternoon with your kid.

Best Buy did not invent the post-geographic office. Tech companies have been going bedouin for several years. At IBM (IBM ), 40% of the workforce has no official office; at AT&T, a third of managers are untethered. Sun Microsystems Inc. (SUNW ) calculates that it's saved $400 million over six years in real estate costs by allowing nearly half of all employees to work anywhere they want. And this trend seems to have legs. A recent Boston Consulting Group study found that 85% of executives expect a big rise in the number of unleashed workers over the next five years. In fact, at many companies the most innovative new product may be the structure of the workplace itself.

But arguably no big business has smashed the clock quite so resolutely as Best Buy. The official policy for this post-face-time, location-agnostic way of working is that people are free to work wherever they want, whenever they want, as long as they get their work done. "This is like TiVo (TIVO ) for your work," says the program's co-founder, Jody Thompson. By the end of 2007, all 4,000 staffers working at corporate will be on ROWE. Starting in February, the new work environment will become an official part of Best Buy's recruiting pitch as well as its orientation for new hires. And the company plans to take its clockless campaign to its stores--a high-stakes challenge that no company has tried before in a retail environment.

Emissions Trading: An Investment Opportunity?

Trend: Emissions trading is a free market approach to pollution control that may grow rapidly in the future as laws are passed reflecting concerns about climate change.

Charles Morand at Alternative Energy Stocks describes how emissions trading works and discusses some potential opportunities in climate exchanges in the future. Excerpts below.

Link: Alternative Energy Stocks: Carbon Finance…The Next Bonanza

Goldman Sachs took, on September 20, 2006, a 10.1% stake in a little outfit known as Climate Exchange plc (LSE:CLE) for approximately $23 million. Admittedly, by Goldman Sachs standards, that’s peanuts. Not to be outdone, Morgan Stanley unveiled a plan on Thursday October 26 to invest a whopping $3 billion in global carbon markets over the next few years....

What is carbon trading and how does it work?

Emissions trading is an innovative concept that was first used in the US to reduce emissions of the acid rain-forming gases NOx and SO2. It entails placing a cap on the total emissions of a given pollutant within an imaginary ‘bubble’ (e.g. an industrial district, a city, a state, or, in the case of carbon dioxide (CO2), the whole planet), and allowing emitters of that pollutant to sort out, among themselves, who should emit how much of that limit based on factors such as the nature of their industries, the efficiency of their operations, periodic requirements for higher commercial output, etc.

The Global Carbon Market

An interesting thing about CO2 and other greenhouse gases (GHGs) is that they are global pollutants, meaning that the end result of their presence in the atmosphere in large quantities will be the same whether they came from a Chinese power plant or an American SUV. This spells great possibilities for coordination between national regulatory bodies and the eventual setting up of a global marketplace for CO2 emissions rights.

The market for CO2 emissions currently exists in 2 forms: (a) in jurisdictions where there are legislative frameworks with formal targets in place to control GHGs, such as in the EU, carbon markets, as they are called, form the cornerstone of regulatory implementation, and (b) in areas where there are no regulations but certain market players adopt voluntary emissions targets, such as in the US, carbon trading is one tool used to meet those targets. The actual exchanges used to carry out carbon trades are known as climate exchanges, although many trades also occur in OTC markets.

In the EU, the Emissions Trading Scheme (ETS) came into force on January 1, 2005. That year, the first one during which selected facilities were subjected enforceable regulatory limits, the value of the market reached $8.2 billion. By half-year 2006, carbon finance information provider Point Carbon reported that the ETS’ value already stood at $12.5 billion. Point Carbon estimates that the global carbon market, including both the ETS and voluntary initiatives such as the Chicago Climate Exchange (CCX), will be worth upwards of $27 billion by the end of 2006, up from around $12 billion in 2005 and $377 million in 2004. Now the ETS will continue to account for the bulk of this until other jurisdictions adopt mandatory GHG targets, and that’s where the fun begins.

Most folks outside of environmental or political punditry circles probably didn’t pay too much attention to the signing into law of Assembly Bill 32 in California just a few weeks back. AB 32 will impose firm caps on GHG emissions in that state, the 6th largest economy in the world, starting in 2012, and will in all likelihood rely on carbon trading to achieve its targets. The Regional Greenhouse Gas Initiative (RGGI) is another interesting development that has been in the works for some time. RGGI will cap GHG emissions from power producers in Northeastern and Mid-Atlantic states and establish a trading system starting in 2009. Even more interesting is the growing number of commentators that now predict federally-imposed GHG emissions targets sometime in the near- to medium-term.

Seeing as the US (a) accounts for about 25% of global GHG emissions and (b) houses the most liquid financial markets in the world, we could be talking about some pretty big money here. A recent Financial Times article estimates that, should consensus be attained on a plan to fight global climate change between the largest emitting jurisdictions, expenditures could top $1,000 billion within 5 years. Seen under this light, those recent announcements by Morgan Stanley and Goldman Sachs look increasingly less like a means to placate environmentalists and earn a little goodwill, and increasingly more like pretty sound strategic positioning to cash in on one of the biggest business opportunities of the 21st century.

Closing Thoughts on Carbon Finance

To those who kick and scream every time you hear the words climate change or Kyoto, stop your senseless whining! I've got two pieces of news for you. First, there is far more scientific consensus on this then Fox News would have you believe, and GHGs will be regulated one day or another, whether you like it or not. Two, it’s not all downside. You need to get that poisonous idea out of your mind and look at this like Goldman is, i.e. like a big opportunity to cash in.

Is there going to be a massive transfer of wealth away from inefficient and dirty companies towards cunning investors who understand carbon trading? That remains to be seen but I and some big institutions strongly believe that to be the case. I see a great opportunity in carbon finance for those who can navigate the waters ahead.

Dupont’s Sustainability Commitment

Trend: Dupont joins a small group of large companies announcing strategic initiatives that appear to be more than green-washing.

Joel Makower at Two Steps Forward describes DuPont's strategy of sustainability.

Link: Joel Makower: Two Steps Forward: Dupont’s Sustainability Commitment.

Dupont today announced that it is joining the growing ranks of old-line industrial companies embracing sustainability as a core business strategy. At an event in Washington, D.C., Dupont's chairman and CEO, Chad Holliday, set forth the company's "2015 Sustainability Goals," including its plans to derive $6 billion or more in new revenues from sustainability-minded products.

In his announcement, Holliday made four specific marketplace commitments: To double Dupont's R&D investments in "environmentally smart market opportunities" by 2015; grow annual revenue by $2 billion or more from products that create energy efficiency or reduce greenhouse gas emissions; double annual revenues to $8 billion from sales of non-depletable resources; and introduce at least 1,000 new safety products or services.

In addition, Holliday announced five 2015 "footprint goals," including reductions in greenhouse gases, water consumption, and airborne carcinogens, and ensuring that 100% of its off-site fleet of cars and trucks by 2015 "represent the leading technologies for fuel efficiency and fossil fuel alternatives."

Of course, Dupont also is grappling serious issues. Chief among them is a chemical called perfluorooctanoic acid, or PFOA, used by Dupont in Teflon, among other applications, which has come under fire by regulators, activists, and shareholders, who have accused the company of hiding information suggesting that a chemical might cause cancer, birth defects, and other ailments. Dupont says it is committed to reducing PFOA use.

Electric Cars Are in the Pipeline

Trend: Highly efficient electric cars are being developed by innovative, agile small companies.

Elon Musk, Chairman of the Board of Tesla Motors, blogs the business strategy and energy efficiency of the line of electric cars his company is developing. Excerpts below.

Source: Tesla Motors - the Tesla blog

...the initial product of Tesla Motors is a high performance electric sports car called the Tesla Roadster. However, some readers may not be aware of the fact that our long term plan is to build a wide range of models, including affordably priced family cars. This is because the overarching purpose of Tesla Motors (and the reason I am funding the company) is to help expedite the move from a mine-and-burn hydrocarbon economy towards a solar electric economy, which I believe to be the primary, but not exclusive, sustainable solution.

Critical to making that happen is an electric car without compromises, which is why the Tesla Roadster is designed to beat a gasoline sports car like a Porsche or Ferrari in a head to head showdown. Then, over and above that fact, it has twice the energy efficiency of a Prius. Even so, some may question whether this actually does any good for the world. Are we really in need of another high performance sports car? Will it actually make a difference to global carbon emissions?

Well, the answers are no and not much. However, that misses the point, unless you understand the secret master plan alluded to above. Almost any new technology initially has high unit cost before it can be optimized and this is no less true for electric cars. The strategy of Tesla is to enter at the high end of the market, where customers are prepared to pay a premium, and then drive down market as fast as possible to higher unit volume and lower prices with each successive model.

Without giving away too much, I can say that the second model will be a sporty four door family car at roughly half the $89k price point of the Tesla Roadster and the third model will be even more affordable. In keeping with a fast growing technology company, all free cash flow is plowed back into R&D to drive down the costs and bring the follow on products to market as fast as possible. When someone buys the Tesla Roadster sports car, they are actually helping pay for development of the low cost family car.

Now I’d like to address two repeated arguments against electric vehicles — battery disposal and power plant emissions. The answer to the first is short and simple, the second requires a bit of math:

Batteries that are not toxic to the environment!
I wouldn’t recommend them as a dessert topping, but the Tesla Motors Lithium-Ion cells are not classified as hazardous and are landfill safe. However, dumping them in the trash would be throwing money away, since the battery pack can be sold to recycling companies (unsubsidized) at the end of its greater than 100,000-mile design life. Moreover, the battery isn’t dead at that point, it just has less range.

Power Plant Emissions aka “The Long Tailpipe”
A common rebuttal to electric vehicles as a solution to carbon emissions is that they simply transfer the CO₂ emissions to the power plant. The obvious counter is that one can develop grid electric power from a variety of means, many of which, like hydro, wind, geothermal, nuclear, solar, etc. involve no CO₂ emissions. However, let’s assume for the moment that the electricity is generated from a hydrocarbon source like natural gas, the most popular fuel for new US power plants in recent years.

The CO₂ content of any given source fuel is well understood. Natural gas is 14.4 grams of carbon per mega-joule and oil is 19.9 grams of carbon per mega-joule. Applying those carbon content levels to the vehicle efficiencies, including as a reference the Honda combusted natural gas and Honda fuel cell natural gas vehicles, the hands down winner is pure electric:

Car	Energy Source	CO2 Content	Efficiency	CO2 Emissions
Honda CNG	Natural Gas	14.4 g/MJ	0.32 km/MJ	45.0 g/km
Honda FCX	Nat Gas-Fuel Cell	14.4 g/MJ	0.35 km/MJ	41.1 g/km
Toyota Prius	Oil	19.9 g/MJ	0.56 km/MJ	35.8 g/km
Tesla Roadster	Nat Gas-Electric	14.4 g/MJ	1.14 km/MJ	12.6 g/km

The Tesla Roadster still wins by a hefty margin if you assume the average CO₂ per joule of US power production. The higher CO₂ content of coal compared to natural gas is offset by the negligible CO₂ content of hydro, nuclear, geothermal, wind, solar, etc. The exact power production mixture varies from one part of the country to another and is changing over time, so natural gas is used here as a fixed yardstick.

Becoming Energy Positive
I should mention that Tesla Motors will be co-marketing sustainable energy products from other companies along with the car. For example, among other choices, we will be offering a modestly sized and priced solar panel from SolarCity, a photovoltaics company (where I am also the principal financier). This system can be installed on your roof in an out of the way location, because of its small size, or set up as a carport and will generate about 50 miles per day of electricity.

If you travel less than 350 miles per week, you will therefore be “energy positive” with respect to your personal transportation. This is a step beyond conserving or even nullifying your use of energy for transport – you will actually be putting more energy back into the system than you consume in transportation!

Firefly Energy Earns the 2006 Frost & Sullivan Technology Innovation Award for Its Disruptive Battery Technologies

Trend: Lighter, longer-lasting batteries are essential to reducing dependence on fossil fuels as an energy source.

Firefly Energy is recognized by Frost & Sullivan for its new battery technology.

Link: Firefly Energy, Inc. Earns the 2006 Frost & Sullivan Technology Innovation Award for Its Disruptive Battery Technologies

Frost & Sullivan selected Firefly Energy, Inc. as the recipient of its 2006 Technology Innovation Award in the field of advanced lead acid battery technologies for developing an innovative graphite foam lead acid battery that could cause disruptive changes in the market.

    The lead acid cell, a technology born in the 1850s, is reliable, safe and inexpensive. It can also handle large surges in current, which makes it attractive to the world's automobile manufacturers. On the flip side, the lead acid cell realizes very little of its theoretical power density and has a relatively short battery life.

    The approach used by Firefly Energy, a spin-out of Caterpillar, is radical but simple. The company's new battery removes past obstacles such as heavy weight, extensive corrosion and sulfating positive and negative lead metal grids by substituting them with carbon-graphite foam, increasing the surface area, to enhance the chemistry taking place. The result is a battery that can rival the advanced chemistries in performance, take advantage of an existing manufacturing base and address environmental concerns through the removal of one-half to two-thirds of the lead content.

    By "taking the lead out" and replacing the plates with carbon foam, it is possible to obtain longer battery life while enhancing the battery's desirable characteristics, particularly in terms of fast discharge and recharge conditions. Additionally, by replacing most of the lead with a much lighter material, Firefly has drastically lowered the specific weight of the battery, which can help by either increasing output from the same weight or in creating a smaller package but with normal power output.

    Firefly's battery runs cooler than normal lead acid cells, giving it longer life and a significant stealth advantage in military applications, particularly in desert environments. On the commercial side too, there is significant potential. With a large number of automobiles and trucks in America running on short-lived batteries, manufacturers that can deliver a cost-effective yet better battery technology stand to gain the most.

    "Apart from these, there are markets for hybrid and electric vehicles that also require high performance batteries," notes Sabesan. "And while Firefly is initially looking to focus on select commercial and military markets, it is reasonable to expect that this novel technology will find equally viable markets elsewhere if the company should choose to enter them, given that the overall size of the worldwide lead acid market is over $16 billion per year in sales."

On the Brink of the Fuel Cell Future?

Trend: Innovative companies, not government, will develop the next generation of clean energy powered vehicles.

Jamais Cascio at WorldChanging describes Honda's progress in developing a fuel cell car that will be available in several years. This is great news for those of us who dream of a oil-free future. Excerpts below.

Link: WorldChanging: Another World Is Here: On the Brink of the Fuel Cell Future?

Last month, Honda announced that it would begin production in Japan of its fuel cell FCX vehicle within the next three to four years. The FCX line has been Honda's fuel cell vehicle prototype for a few years now, and beyond a handful of experimental locations, the car seemed ill-suited to regular use.... The new FCX design, however, changes all of that, and manages to induce something that previous hydrogen fuel cell vehicles couldn't: auto lust.

Sleek, roomy, and built upon Honda's latest-generation fuel cell system -- a stack providing a hundred kilowatts of power (that's a respectable 134 horsepower) and a hydrogen storage tank allowing over 350 miles range -- Honda's production prototype FCX suddenly looks like a viable contender. As for the fueling issue, two developments may mitigate the problem, at least a bit. In California, the "hydrogen highway" initiative continues to move forward (PDF), promising hydrogen fueling stations every 20 miles along major highways in the state. More importantly, Honda has coupled the announcement of the FCX production with the latest generation of its Home Energy Station (HES) -- and it's this combination that could make the FCX a winner.