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International Journal of Innovation Management

Vol. 17, No. 1 (February 2013) 1340003 (41 pages)


© Imperial College Press
DOI: 10.1142/S1363919613400033

BUSINESS MODEL INNOVATIONS FOR ELECTRIC


MOBILITY — WHAT CAN BE LEARNED
FROM EXISTING BUSINESS MODEL PATTERNS?
by EINDHOVEN UNIVERSITY OF TECHNOLOGY on 01/24/15. For personal use only.

NIZAR ABDELKAFI*, SERGIY MAKHOTIN†


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and THORSTEN POSSELT‡


Fraunhofer Center for Central and Eastern Europe and
Department of Innovation Management and Innovation Economics
University of Leipzig, Grimmaische Straße 12
04109 Leipzig, Germany
*nizar.abdelkafi@moez.fraunhofer.de

sergiy.makhotin@moez.fraunhofer.de

thorsten.posselt@moez.fraunhofer.de

Published 14 March 2013

The paper aims to generate systematically business model innovations in the field of electric
mobility. It introduces a new framework, in which a business model denotes a value-focused
concept with five value dimensions: value proposition, value communication, value crea-
tion, value delivery and value capture. The framework enables the classification of business
model patterns, identified in the literature, according to five categories. The combination of
patterns from different dimensions can lead to the systematic generation of business model
innovations. But the number of business models that can result from pattern combinations
can be overwhelming. Subsequently, the paper only evaluates the extent to which business
model patterns that are not necessarily observed in the automotive sector can be useful for
the field of electric mobility, and how they can be adapted to fit into the new context. We find
that the transferability strongly depends on the actor’s role in the system, if it is a manu-
facturer, supplier or service provider. More importantly, our analysis shows that some
models such as product-to-service (e.g., car sharing service), already implemented in the
automotive industry, will continue to be successful in the future because of their potential of
increasing customer acceptance and technology diffusion. Many other business models —
so far used in other sectors, but not in the automotive industry — may integrate the field of
electric mobility. Razor and blades, own the undesirable concept, and leverage new influ-
encers are all promising business models, if they can be fitted adequately to the new context
induced by the new technology.


Corresponding author.

1340003-1
N. Abdelkafi, S. Makhotin & T. Posselt

Keywords: Business model innovation; electric mobility; business model patterns; tech-
nological development.

Introduction
Technology innovations and business model innovations are strongly linked to
each other. A business model denotes the way how companies can make money
out of a technology. No matter how the technology is innovative and sophisticated,
it will fail, if it is not possible for market players to make profits from it.
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Chesbrough (2006:43) notes in this regard:


“There is no inherent value in a technology per se. The value is
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determined instead by the business model used to bring it to a


market. The same technology taken to market through different
business models will yield different amounts of value. An inferior
technology with a better business model will often trump a better
technology commercialized through an inferior business model.”
A new technology, which is currently strongly debated in academia, industry, and
politics, is electric mobility. Electric mobility is more than a means of transportation.
Depending on the pace of technology development and implementation, electric
mobility is expected to shape our near future. The electric cars are the cornerstone of
electric mobility. As proclaimed by the EU Members, the number of electric cars
will significantly raise in the next decade. For example, by 2020 Germany targets to
have one million electric cars; France even twice as much (IEA, 2009). To achieve
these objectives, governments developed many funding programs (e.g., National
Electric Mobility Development Plan in Germany, Low Carbon Vehicle Programme
in the UK), which aim to provide support to industry and research in the area of
electric mobility. Though several manufacturers already started mass production of
electric cars such as Mitsubishi i-MiEV, Nissan Leaf, Peugeot iOn, etc., their ap-
pearance on the roads is rather seldom. The large scale integration of electric cars to
the market faces numerous hurdles such as high total costs of ownership, short
driving range, a thin charging network, lack of standardization, etc.
The above mentioned disadvantages of electric cars can also be interpreted as
opportunities for new business model applications, as we can see it from the
practice of Better Place. The business model of Better Place reduces the costs of
purchase by separating the ownership of the battery from the car (Wallentowitz
and Freialdenhoven, 2010). It also counters the range anxiety and shortens
charging time by installing battery switch stations (Meenakshisundaram and
Shankar, 2010). The major advantage of this business model is the easy and
convenient use of electric cars. With improved use concepts of electric cars, the

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Business Model Innovations for Electric Mobility

customer base can expand significantly, thereby accelerating the diffusion of


electric cars into the market. In a nutshell, right business models can make electric
cars more attractive to the customer.
In this paper, we focus on the role of the electric vehicles in the private sector.
We analyze how different business model concepts can be usefully applied to the
context of electric mobility. In the following we will refer to battery electric
vehicle as simply “electric car.” Christensen (1997) provides one of the first
approaches in this field and describes a hypothetical business case, where an
executive has to decide, whether to launch electric car or not. The main questions
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asked by Christensen are: “Is an electric vehicle really a disruptive technology?”


and “What organization best serves disruptive innovations?” (1997:217). The
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business case shows that the integration of a new technology in an enterprise is a


highly difficult task, requiring changes in the existing business model.
Since 1997, not only the technology of electric cars has changed, but also the
dimension of their application. Nowadays, we are facing the challenge of inte-
grating a whole system of electric mobility into existing transportation and energy
concepts. With regard to this development, actors of electric mobility face the need
to adjust their business models. IBM’s study “Advancing Mobility” (2010)
summarizes the results of interviews that were conducted with executives from the
automotive industry. It shows that the majority of executives are preparing to alter
their rather traditional business models in order to provide new offerings to the
automotive market.
The adjustment and development of new business models for actors, so far not
involved in the automotive industry, is an important area. Certainly, one of the
main topics in this regard is Smart Grids, which provide the opportunity to gen-
erate completely new business models in the distribution of electric power
(Giordano and Fulli, 2012; Gómez et al., 2011; Wissner, 2011). Since not a single
Smart Grid has been put into practice so far (Wolsink, 2011), thinking about
business models based on this technology is only of theoretical importance. Other
approaches aim to define new business models holistically, including the vehicle,
infrastructure, and services. In this context, Kley et al. (2011) show potential
design options for business models of different actors in the field of electric
mobility by applying a morphological analysis.
This work is different from previous research in the area of electric cars and
business models. It assumes that business concepts that are created elsewhere, e.g.,
in other industries or sectors, are beneficial, and can be adapted to fit into the realm
of electric mobility. In other words, why do not researchers and practitioners look
at the business models created in the computer or mobile phone industry to create
innovative business models for the electric car industry? After all, in order to
develop the business model of Better Place, Agassi adapted the mobile phone
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business model to the automotive industry (e.g., Johnson, 2010). Thus, the study
of the transferability of business models from one field to another can be a very
advantageous exercise that stimulates the creation of new ideas.
The paper is organized as follows. The next section introduces the main area of
investigation, electric mobility, and provides a working definition. Then we in-
troduce a new business model framework, which is used to discuss business model
innovations. In addition, we identify several business model patterns in the liter-
ature and categorize them according to the proposed framework. The identified
business model patterns are applied to the field of electric mobility. By this ap-
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proach, we deliver hands-on examples of how actors in the field of electric mo-
bility can systematically generate business model innovations. The afterward
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discussion gives insights into the managerial implications. Finally, conclusions


and directions for future research are provided.

Electric Mobility
So far, there is no broadly accepted definition of electric mobility. Over the last years,
the understanding of electric mobility has shifted from simple transportation to a
more holistic and complex approach. Focusing on partial aspects of electric mobility,
such as technology, only slows down its adoption. The transition to new technolo-
gies, in particular the electric mobility, is systemic in nature (Johnson and Suskewicz,
2009). Electric mobility involves a number of different technologies that enable the
distribution and storage of electricity, in addition to energy generation and com-
munication management. Thus, it is shaped by different actors such as car manu-
facturers, energy providers, and communication companies. Although all actors
have different goals and self-interests, they should interact with each other to make
sure that the whole concept of electric mobility works adequately.
Each actor operates in a specific field of activities and aims to achieve a
competitive advantage. To make electric mobility work, an adequate infrastructure
is required. This infrastructure consists of stationary devices such as charging
stations and power plants. It also includes telemetric systems, which allow efficient
electricity use and convenient billing. Interactions between the technologies, actors
and infrastructure cause a complex interplay between all these elements. Conse-
quently, electric mobility is defined as follows.
Electric mobility denotes a system of interacting actors, technolo-
gies, and infrastructures that aims to achieve sustainable transpor-
tation by means of electricity.
This definition emphasizes the systemic character of electric mobility (Fig. 1).
Over time, this system is expected to grow, develop, and adapt because new
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Business Model Innovations for Electric Mobility
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Fig. 1. System of electric mobility.

technologies, actors and infrastructures may emerge, leading to new interactions


within the system. Furthermore, this definition focuses on electric mobility from a
sustainability viewpoint. In the following, we describe in more detail the tech-
nologies, actors, and infrastructures involved in electric mobility, and we deal with
their mutual interactions.

Technologies
New technologies play an important role to develop the electric mobility system
and to make electric cars a mainstream means of transportation. Due to recent
technological developments, especially in the field of battery technology, mass
private transportation by means of electricity seems to be possible in the near
future. By switching from nickel metal hydride to lithium ion battery, a significant
technological change took place. According to Anderson and Tushman (1990),
such a technological transformation indicates the beginning of a new technology
cycle. A technology cycle consists of four eras: the era of technological discon-
tinuity, the era of ferment, the era of dominant design, and finally the era of
incremental change. Electric mobility, in its current state of technological devel-
opment, is located in the era of ferment, which is characterized by “two distinct
selection processes: competition between (existing) technical regimes and com-
petition within the new technical regime” (Anderson and Tushman, 1990:611).
Currently, electric cars are competing against conventional cars and have to
fulfill the expectations of users, who are accustomed with the qualities of the old
technology and may not easily settle for a new technology with a lower perfor-
mance. A major difference between the two types of cars is the type of energy
carrier. Whereas conventional cars rely on fossil fuels, electric cars consume the
electricity stored in batteries. Though the development of batteries is currently

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N. Abdelkafi, S. Makhotin & T. Posselt

progressing, battery technology still cannot outperform fossil fuel-based technol-


ogy, in terms of energy capacity and costs (German Federal Government, 2009);
the driving range and current lifecycle costs of conventional cars are still better.
Therefore, new chemical materials and new battery types (Zinc Air, Lithium-Ion,
Lithium-Sulfur, etc.) are being tested primarily in order to achieve improvements
in six fields: security, costs, energy density, lifetime, power density, and cycling
stability (Wallentowitz and Freialdenhoven, 2011).
The era of ferment battles for technological dominance leads to the “emergence
of a dominant technological trajectory among several competing ones” (Suarez,
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2004:271). A prominent example, in the field of electric mobility, is the stan-


dardization battle for the charging plug. A charging plug for electric cars has to
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fulfill many quality criteria: to be secure, robust, and multi functional — for
charging at home and for a quick charge at the charging station. These quality
criteria, however, cannot be leveraged, if the charging plug does not fit every
charging station. Though different designs of the charging plug were available
(e.g., by Mennekes or by Scame), a consensus, benefiting a single technology,
needed to be found (Van den Bossche, 2003). Further examples for the technology
battles can be encountered in the fields of drivetrain solutions (e.g., electric
machines and gearbox), battery modifications (e.g., material and assembly), and
billing processes.
Though conventional and electric cars are currently competing, there are
complementary technologies, which would benefit both technologies alike. Similar
to conventional cars, electric cars will profit from research in the areas of vehicle
safety, material science, and communication. Electric mobility also creates new
opportunities with respect to upcoming technologies. These technologies can be
either completely new or only new to the automotive sector, as some technologies
may be adapted from other sectors (e.g., wireless charging). Furthermore, it is
expected that information and communication technologies will be used at larger
scale in electric cars than before (Dijk et al., 2013). Whereas internet access inside
cars has been provided by portable devices like smart phones, we expect future
cars to be directly connected to the internet, which will create new possibilities in
vehicle control systems. The effective, sustainable and profitable use of energy in
electric cars can be achieved by their active integration in energy supply systems
(e.g., smart grids).
It should be noted, however, that a multi-layer understanding of the technology
cycle is necessary (Murmann and Frenken, 2006). This understanding is based on
the assumption that there is one superior system level technology cycle and several
underlying subsystem cycles. Electric mobility, as a whole, should be regarded as
system in ferment state. But electric mobility involves a plethora of subsystem
technologies, which are placed in different eras of the technology cycle. For
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Business Model Innovations for Electric Mobility

instance, the electric machines have been developed, improved and used for more
than a century. Currently, they achieve high efficiency (more than 70%) and long
durability (Bertoldi and Atanasiu, 2009). Therefore, this underlying technology is
placed in the advanced phase of incremental improvement.
In summary, technologies in the electric mobility field require a systemic view
(Johnson and Suskewicz, 2009), and the fast development in one technology field
does not necessarily result in the success of the whole system (Adner, 2006). For
instance, if battery technology would develop extremely fast in the future,
advanced supportive technologies such as smart grids will be required to enhance
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the usability of electric cars. Because of this, the future development path of
electric mobility is highly uncertain. Thus, the next step towards the phase of
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dominant design for the system of electric mobility can be very challenging and
time-consuming.

Actors
The outcome of the technological development, described above, will strongly
depend on how actors deal with the challenges of the ferment era, such as instable
markets, high product variation, technical uncertainty, and ambiguous user pre-
ferences (Tushman and Rosenkopf, 1992). “When a technology first emerges,
actors — be they producers, users or institutions — are unsure about what it is or
how it will perform” (Kaplan and Tripsas, 2008:790). This is also the main
challenge participants of electric mobility are facing.
In the field of electric mobility, we identify six main actors: manufacturers,
suppliers, customers/users, service providers, government, and substitutes (Kley
et al., 2011; San Román et al., 2011). Traditionally, manufacturers cover the
biggest part of the value chain of vehicle production. For electric cars, this might
change, since mainly suppliers produce the electric machine and the battery. For
established manufacturers, this higher level of outsourcing may lead to a loss of
learning and control in this technological field, but it opens an opportunity for
newcomers such as Tesla and Better Place. As users of electric cars, customers
play a central role in this system; their needs, preferences, and behavior essentially
shape the electric mobility landscape (Biere et al., 2009; Peters et al., 2011).
Service providers such as car dealerships, repairs, car sharing providers, energy
providers, and network operators will have to adapt to the new technology. For
instance, electric cars are less maintenance-intensive than conventional cars (Faria
et al., 2012), and this will result in big challenges for the spare part market and
repair services. The actors in the electric mobility value chain should look for new
opportunities to make money. Government sets the regulatory framework and
develops policies that can advance or inhibit the development of electric mobility.
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Finally, substitutes like conventional or hybrid cars, public transport, railways etc.
may, in fact, act as a replacement for the electric car, but can also be used as an
extension of the electric mobility concept. For instance, when the users have to
drive long distances, car manufacturers may make conventional cars available to
their customers.
Kaplan and Tripsas (2008) emphasize the cognitive component of the tech-
nological development. Actors do not only shape electric mobility by being
member of the system, but also because they create a certain understanding of
what a technology is, what it is capable of, and how to apply it. For instance, users
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currently expect the charging stations to be as easily accessible as conventional gas


stations. If, however, this expectation of widely available infrastructure changes,
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then electric mobility can develop much more quickly.

Infrastructure
Infrastructure is the “basic physical and organizational structure” (O’Sullivan and
Sheffrin, 2003:474). It enables the use of technologies by actors. Electric mobility
builds upon existing infrastructures in the sectors of transportation and energy.
Nevertheless, considerable adjustments are required. The main challenge is to
establish an easy and efficient access to electricity sources, while creating a large
number of public charging stations and ensuring a convenient billing. Besides the
physical structures such as charging stations, infrastructure also includes infor-
mation and communication technology (ICT), which is required for the develop-
ment of smart grids. Smart grids integrate the car as unit for storing energy in the
electricity distribution process, allowing users to purchase cheap energy or even to
earn money by discharging car battery into the electricity grid during peak hours.
This creates new business opportunities, but also raises new requirements on
information and communication technologies.

Interactions
In the systemic approach to electric mobility, all three elements: technologies, actors,
and infrastructure, interact with each other. Interactions are the results of actors’
behavior (Bossel, 2007) and require at least two objects and two actions (Wagner,
1994). Figure 1 shows two kinds of interactions: between-element or reciprocal
interactions, and in-element interactions. In-element interactions occur inside each
element. For instance, inside the actors’ subsystem, customers interact with other
actors such as manufacturers when they buy an electric car or with electricity pro-
viders when they use or pay for electrical power. The reciprocal interactions take
place between different elements. For instance, smart grids (infrastructure) will be
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Business Model Innovations for Electric Mobility

beneficial, only if many customers (actors) make the energy stored in their batteries
available to the electricity network grid. By frequent charging and discharging,
however, battery lifetime (technology) can be considerably reduced.
The future development of electric mobility will depend on the internal
dynamics of the whole system. These dynamics will be influenced by many external
factors such as economic, environmental, demographic, and social changes. The
internal and external complexities related to electric mobility make the system
dynamics very uncertain. There are still many questions to be answered in this
regard. Most importantly, how to make a profitable business in an environment
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where technology uncertainty is high and the own success depends on the decisions
taken by others (Adner, 2006)? To switch to the new technology, profit-oriented
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actors must be able to make money out of their participation in the electric mobility
system. It is worth noting that new technologies are not mature at the early stages of
the technology life cycle, and very frequently, the way organizations are selling their
technologies is critical for success. Thus, the development of innovative business
models represents a pressing issue in the area of electric mobility.

Business Model Innovations and Business Model Patterns


Good business models are essential in order for electric mobility to thrive. At the
beginning of the 20th century, the industrial world witnessed the rise of a
sophisticated business model that changed the world of mobility forever. This
business model was created by Henry Ford for the T car model. Henry Ford
succeeded in putting together a business model that reduced the costs of car
manufacturing and assembly, so that every American family could afford money to
buy a car to serve its own mobility. Before the model T, cars were expensive and
exclusively bought by rich people (e.g., Kim and Mauborgne, 2005).
At the beginning of the 21st century, we are equally witnessing a new mobility
era. The technology of electric mobility is developing and moving forward, but we
are still in need of innovative business models that push the electric car on our
streets much more aggressively, as Henry Ford did with the model T. Techno-
logical innovation is important, but business model innovation is even more im-
portant, especially in the case of a technology that is still immature and in which
standards have not been established yet.

Business model framework and business model innovations


The different electric mobility actors, specified above, will not be successful,
unless they develop adequate business models. Simply defined, a business model
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denotes the way companies make money. A business model is first of all a model,
which is “always a simplified representation of a particular domain of reality”
(Bossel, 2007). Therefore, a business model is not a one-to-one representation of
the enterprise; it defines the essential mechanisms that explain how the enterprise
works without going into operational details. Thus, business model innovations
change the way companies are doing their business.
Before being able to investigate business model innovations, it is important to
define, at first, the exact meaning of business models. Unfortunately, the term has
been usually ill-defined. It seems, in fact, that many people have an implicit
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understanding of what business models are, but most of them find it difficult to
provide an exact description of the concept (George and Bock, 2012).
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To understand what a business model really is, it is helpful not only to identify
its constituting elements, but also to highlight the main differences to related
concepts such as strategy and operations. Obviously, there are strong dependencies
between strategy, business models, and operations, and in a successful business
they all must fit together (Porter, 1996). Based on literature research, Seddon et al.
(2004) identify five possible overlaps between strategy and a business model.
Casadesus-Masanell and Ricart (2010:195) argue that strategy and a business
model may coincide to a certain degree, but since they define business models as a
“reflection of a firm’s realized strategy,” the differences between both concepts are
more obvious. The connection between existing business models and operations
also seems to be fuzzy, because of the common confusion of business models and
business (process) modeling (Gordijn et al., 2000). Osterwalder (2004), however,
provides a more consistent approach by assigning three clearly differentiated
layers for strategy (vision and goals), business models (money earning logic) and
operations (organization and workflow). Though these layers are clearly separated,
interdependencies between them are not excluded.
There have been many trials to operationalize the business model as a theo-
retical construct (Zott et al., 2010). For example, according to Magretta (2002:4),
business models are “stories that explain how enterprises work.” Although this
definition provides an intuitive understanding of what a business model is, it needs
more clarifications. Shafer et al. (2005:200) find 12 different definitions of busi-
ness models and note that “by peering through different lenses, authors are seeing
different things.” Now, there are numerous definitions for the term, which refer to
business models as “core logic,” “architecture,” “stories,” “strategic” or “con-
ceptual tools,” “rationale,” “representation,” etc. None of these definitions is
completely flawless or false. An overview of existing business model definitions is
also provided in Wirtz (2011) and Bieger and Reinhold (2011). By analyzing the
existing definitions of business models, Shafer et al. (2005) identify four major
categories; three of them are directly related to value: strategic choices, creating
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Business Model Innovations for Electric Mobility

value, capturing value, and the value network. This observation is rather not
surprising, because earlier research indicated that creating more value than a
competitor leads to a major competitive advantage (Porter and Millar, 1985;
Brandenburger and Stuart, 1996; Bowman and Ambrosini, 2000). Thus, the
concept of value is common to all previous definitions. Zott and Amit (2007:4)
point to the importance of value in a competitive situation: “A firm with a distinct
business model that creates more value than that of its rivals holds a potential
advantage.”
Though literature provides many business model definitions that build upon the
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value concept, there is still some ambiguity around what value really is. In this
regard, the scientific literature offers quite different conceptual definitions of value
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(Holbrook, 1994; Vargo and Lusch, 2004; Gupta et al., 2004). Economists
describe value as the relation between benefits and costs. Benefits represent what
the “stakeholder ultimately wants,” while the costs are what the stakeholder needs
to “sacrifice. . . in order to achieve the benefits” (Davies and Davies, 2011:31).
From the perspective of service dominant logic, Vargo et al. (2008:148) argue that
“value is always uniquely and phenomenologically determined by the beneficia-
ry.” Thus, value depends on the perspective of the stakeholder (beneficiary); in
other words, the value of a product for the manufacturer may be different from the
value that the customer expects to get out of the product. This aspect plays a major
role in the systemic view of electric mobility, since for different actors value of the
same product may have different meanings. Recapitulating, in our understanding,
value should combine both interpretations; it represents the relation between costs
and benefits, depending on the stakeholder in question.
Osterwalder and Pigneur (2010:14) define a business model as a “rationale of
how an organization creates, delivers, and captures value.” A similar definition is
also provided by Johnson (2010:22), who defines it as a “representation of how a
business creates and delivers value, both for the customer and the company.” An
example of an in-depth implementation of value as a core idea in a business model
is the approach by Bieger and Reinhold (2011). The authors create a value-based
business model, which consists of six elements: value proposition,value creation,
value communication and transfer, value capture, value dissemination, and value
development. The authors consider these elements to be highly interdependent and
emphasize the necessity to harmonize them. Though having a rather descriptive
character, value-based business model by Bieger and Reinhold (2011:33) includes
“value development,” an element which suggests an “evolutionary” and “revo-
lutionary” improvement or even innovation of an enterprise’s business model. This
may be interpreted as advantage, but also implies a mix of five static and one
variable element (i.e., value development) that suggest the change of the static
elements.
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N. Abdelkafi, S. Makhotin & T. Posselt
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Fig. 2. Business model framework.

Based on previous literature (Osterwalder, 2004; Johnson, 2010; Osterwalder


and Pigneur, 2010; Bieger and Reinhold, 2011), Abdelkafi (2012:300) provides a
value-focused definition for business models:

A business model describes how the company communicates, creates, delivers,


and captures value out of a value proposition.

In our business model framework (Fig. 2), we put the value proposition at the
center of the business model, whereas value communication, creation, delivery and
capture are placed around (Abdelkafi, 2012). Value proposition denotes “an
overall view of a company’s bundle of products and services that are of value to
the customer” (Osterwalder, 2004:43). Similarly, Johnson (2010) describes value
proposition as an offering that addresses the job-to-be-done and satisfies custo-
mers’ needs whether they know it or not. Value creation is the result of a resource
transformation. Resources are tangible (e.g., production facilities, materials,
money, etc.) and intangible (e.g., knowledge, reputation, etc.) goods, which are
transformed to a product or service (Huff et al., 2009). Value communication
ensures the delivery of value proposition as a message to the target groups, such as
customers, investors, etc. Since different target groups require different informa-
tion, value proposition has to be conveyed by a story which should be under-
standable, catchy and coherent. To whom the value proposition is addressed and
how it is distributed describes the value delivery. It defines the means by which
enterprises establish interactions with the customer in order to provide the value

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proposition (Bieger and Reinhold, 2011). Value capture describes how the value
proposition is transformed into revenue stream and then captured as profit. Value
capture depends on the cost structure, which includes “direct costs and overhead,
taking into account economies of scale” (Johnson, 2010:36). The revenue stream is
the product of the offering price and the quantity of sold goods. The difference
between the revenue stream and costs represents the enterprise’s profit.
Now, after having provided a framework that describes the concept of business
models, we can investigate business model innovations much more easily. In the
past, innovation thinking was merely focused on products and processes. Recently,
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literature has recognized other dimensions, in which innovation can take place. For
instance, Tidd and Bessant (2009) define the 4Ps of the innovation space,which
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includes product, process, paradigm, and position innovations. In the 4Ps space,
paradigm innovation denotes the firm’s mental model, which is nothing else than
the company’s business model. Amit and Zott (2012:41) remark that “. . . more
companies now are turning toward business model innovation as an alternative or
complement to product or process innovation.”
The framework, presented above, represents a tool that supports the genera-
tion of business model innovations. A business model innovation happens when
the company modifies or improves at least one of the value dimensions. It is
noteworthy that product innovation, in this framework, corresponds to a new
value proposition; that is to a new offer provided to the customer. But the
company may innovate at any other dimension. For instance, it can innovate in
the way it creates or captures value, while keeping the other dimensions
unchanged. Thus, starting with an existing business model, the level of business
model innovation depends on how many dimensions have been improved and
how radical the improvement within each dimension is. For startup businesses,
however, the degree of business model innovation depends on the newness level
in the industry. For instance, Southwest Airlines launched, at the time of its
inception, a radical new business that was totally uncommon to the airline
industry (e.g., Johnson, 2010). It introduced changes in all dimensions of the
framework, and the corresponding changes were dramatic.
Our conceptualization of business model innovation is different from other
approaches in the literature. Amit and Zott (2012:44), for instance, notice that
business model innovations can occur by adding novel activities (content), by
linking activities differently (structure), and by changing parties that do the ac-
tivities (governance). This understanding is rooted in the authors’ specific defi-
nition of business models, as a system of interconnected activities that determines
how the business is performed (p. 42). The systemic description of a business
model, as a bundle of interrelated activities, is very useful, but generic. It has a
higher level of abstraction than our framework, because activities can be regarded
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N. Abdelkafi, S. Makhotin & T. Posselt

as the fundamental elements underlying all value systems (Button and Ison, 2009;
Raynor, 2011).
Giesen et al. (2007) introduced a framework with three main types of business
model innovations: industry model, revenue model, and enterprise model. An
industry model innovation denotes a horizontal move into new industries or a
redefinition of the existing industry in which the company operates. Firms inno-
vate their revenue models, if they come up with new pricing models or when they
reconfigure their offerings, for instance by providing value-added services or by
transforming their business from product to service. Finally, innovations in the
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enterprise model are related to organizational boundaries and to the value network
in which the company is embedded. It is obvious that our framework involves the
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types of innovation by Giesen et al. (2007). Whereas the revenue model is tightly
related to the value capture and value proposition, the enterprise model is strongly
linked to the dimensions of value creation and value delivery. However, innova-
tion in the industry model is somehow confusing, since moving to a new industry
or changing the rules of business in one industry is more a strategic goal than a
business model innovation. In fact, business model innovations are required to
achieve these goals.
All in all, the business model framework provides a good basis for under-
standing business model innovations. It also does not completely break with the
work on business model innovations, already published in the literature. It rather
gives to the business model concept a new structure that is focused on value.
Furthermore, the framework points to value communication, an aspect that has
been, so far, insufficiently addressed. We believe that with its five dimensions, the
framework is comprehensive and can support companies in doing business model
innovations more systematically.

From business model patterns to business model innovations


Recall that the objective of our research is to study the possibilities of generating
business model innovations in the field of electric mobility. To achieve this goal,
we should identify business model patterns that have been already applied in
practice and then examine whether they can be fitted to the context of the new
technology.
In the field of architecture, “a pattern describes a problem which occurs over
and over again in our environment, and then describes the core of the solution to
that problem, in such a way that you can use this solution a million times over,
without ever doing it the same way twice” (Alexander, 1977:1216). In other
words, a pattern describes the relationship between a certain context or environ-
ment, a recurring problem and the core of its solution. So what is the advantage of
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Business Model Innovations for Electric Mobility

using patterns? By giving a vivid example of chess players, Simon (1979) reasons
that knowing a high number of patterns of previous games alleviates decision
making. Similarly in the field of business models, by knowing patterns, managers
and decision makers can find it easier to generate a new business model in their
industries or to adapt an existing one.
Business model patterns have been discussed quite frequently in the literature.
The rapid development of the internet had a great influence on the generation of
new business models and the transformation of old ones. The internet created new
opportunities; it enabled companies and startups to do businesses differently,
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although the value proposition was not necessarily new. For instance, amazon.com
did not invent book selling, but it revolutionized this business by using the online
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channel. In a nutshell, the internet allowed new companies to emerge and reshape
the existing markets (Teece, 2010). Often the success of these new entrants is
ascribed to their new business models (Williamson, 2010).
There are two types of publications dealing with business model patterns; some
publications stem from the e-commerce field (Timmers, 1998; Tapscott et al.,
2000; Hartman et al., 2000; Applegate, 2001; Rappa, 2003; Sgriccia et al., 2007;
Sinha, 2007); others are not specific to any sector (Linder and Cantrell, 2000;
Weill and Vitale, 2001; Weill et al., 2005; Jalozie et al., 2006; Andrew and Sirkin,
2006; Johnson, 2009, 2010; Osterwalder and Pigneur, 2010; Tuff and Wunker,
2010). In total, we could identify about 200 patterns. Nevertheless, we observed
several shortcomings of business model pattern research. First, patterns identified
by different authors are found to be redundant or overlapping. Second, it is
sometimes difficult to compare among patterns, since they underlie different
business model understandings. Third, there is no recognizable logic how to
categorize the patterns in a consistent way, as the identification of patterns is
frequently based on examples and rarely on a systematic approach.
In the following, we will not deal with all business model patterns found in the
literature. Therefore, we define following selection criteria in order to reduce the
set of business models that will be discussed in the context of electric mobility:

. The business model patterns must be found in recent literature; contributions


published before 2005 will be excluded. We make this choice because of two
reasons. First, recent publications are more comprehensive and are based on
recent examples or case studies. Second, earlier publications may draw com-
panies’ examples and business models that do no longer exist.
. The source from the literature should have a general, not an e-commerce or an
internet focus. Consequently, this criterion will exclude the business model
patterns in Jalozie et al. (2006), which focus on e-commerce and the patterns
found in Sgriccia et al. (2007), because of their mobile commerce focus. In

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N. Abdelkafi, S. Makhotin & T. Posselt

addition, a closer look to the patterns in these sources shows that they are either
not interesting for electric mobility, or already existing among the patterns that
are present in other sources.
. The business models will be excluded from the discussion, if they are trivial
(e.g., manufacturer and wholesaler/retailer) or impossible (e.g., human creator
and human distributor).

After applying the selection criteria, six sources will be considered for the
discussion of business model patterns in the field of electric mobility (Weill et al.,
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2005; Andrew and Sirkin, 2006; Johnson, 2009, 2010; Osterwalder and Pigneur,
2010). Weill et al. (2005) define a taxonomy of business model patterns on the
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basis of two dimensions; the first represents the type of asset involved, which can
be: financial, physical, intangible or human, and the second is the rights that are
being sold, which can be: creator, distributor, landlord, or broker. By combining
both dimensions, Weill et al. (2005) obtain sixteen business models. Some of them
are, however, impossible such as human creators or human distributors, whereas
others are trivial such as manufacturer or wholesaler or retailer. Others are very
interesting such as financial landlord or financial brokers. Using a dataset from the
year 2000, the authors classified the largest 1,000 US enterprises according to this
taxonomy and found out that the most widespread business models (e.g., Manu-
facturer with a proportion of 46% in the sample) are less profitable. They conclude
that “. . . selling the right to use assets is more profitable and more highly valued by
the market than selling ownership of assets” (Weill et al., 2005:1).
Andrew and Sirkin (2006) define three business model patterns: orchestrators,
integrators, and licensors. Integrators are companies who choose to do it all
themselves. Orchestration is a business model that needs different skills than
integration. It does not mean outsourcing; it focuses on collaboration and man-
aging a network of relationships. The licensor is the company that chooses to earn
money on the basis of its ideas and intellectual assets without bothering with
commercialization or realization.
Johnson (2009, 2010) provides a good overview of many business model
patterns that have been widely used in practice. These patterns are: affinity club,
brokerage, bundling, cell phone, crowdsourcing, disintermediation, fractionaliza-
tion, freemium, leasing, low-touch, negative operating cycle,pay-as-you-go,
razors/blades, reverse auction, reverse razors/blades, product-to-service, stan-
dardization, subscription club, and user communities.
In a recent publication, though without making any claim of completeness,
Osterwalder and Pigneur (2010) define five business model patterns: unbundling
business models to three types of core businesses (product innovation, customer
relationship management and infrastructure management), long tail business

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Business Model Innovations for Electric Mobility

models, multi-sided platforms, free business models, and open business models.
The patterns identified by Osterwalder and Pigneur (2010) do not evolve from a
taxonomy or a categorization; they are broadly defined and are more general than
other classifications. For instance, multi-sided platforms apply to many e-com-
merce companies, as long as the platform involves two types of groups such as
application programmers and users on the Apple platform or buyers and sellers on
the auction-based e-Bay platform.
The selected business model patterns identified in the literature are provided in
Table 1. The patterns are classified according to our business model framework.
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The table shows very clearly that the business model patterns, so far implemented
in practice, generally focus on a single value dimension. With the exception of
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“Leverage new influencers,” the business model implemented by Unilever in India


to communicate and to deliver cosmetic products to a local female clientele, all
patterns have a single value dimension in focus; either value proposition, value
creation, value delivery or value capture. It is also clear that the value commu-
nication aspect has not been intensively considered by the literature. Furthermore,
most business model patterns focus on value capture, confirming the widely dif-
fused definition on business models as the way to make money.
Drawing on this table, we can also derive an interesting insight for business
model innovation research. To generate an innovative business model, it may not
be necessary to come up with completely new patterns. The combination of pat-
terns from each value dimension can lead to a new model with good chances of
success. For instance, why not combine razor/blades (value capture) with stan-
dardization (value proposition), and negative operating cycle (value creation)? Of
course, consistency among the combined patterns should be checked, and the
suitability for the industry in question should be examined. But the combination of
patterns can principally generate business model innovations, while making the
creation process of new business models more systematic.
Recapitulating, companies can use three options to systematically generate
business model innovations. In the first option, companies look for the successful
business model patterns in their industry and then try to adapt them to their specific
context. The second option is to adapt and transfer business model patterns from
outside their industry and fit them to their company. The transfer of patterns from
one context to another, however, only leads to the improvement of a single value
dimension, but not of the whole business model. Therefore, the third option is
more comprehensive, as it suggests combining different patterns — one from each
value dimension — in order to assemble a complete business model. Note that the
combination of patterns can lead to more radical innovations, as more than one
value dimension will be modified. In the following, however, we only focus on the
first two options for the generation of business model innovations, thus excluding
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Table 1. Business model patterns.

Business model patterns Business model components Author Year

Value Value Value Value Value


proposition creation communication delivery capture

Contractor X Weill et al. 2005


Entrepreneur X Weill et al. 2005
Financial broker X Weill et al. 2005
Financial landlord X Weill et al. 2005
Financial trader X Weill et al. 2005
Human resources broker X Weill et al. 2005
N. Abdelkafi, S. Makhotin & T. Posselt

Intellectual landlord X Weill et al. 2005


Inventor X Weill et al. 2005
Intellectual property broker X Weill et al. 2005
Intellectual property landlord Weill et al. 2005
Intellectual property trader X Weill et al. 2005

1340003-18
Physical broker X Weill et al. 2005
Physical landlord X Weill et al. 2005
Integrator X Andrew and Sirkin 2006
Licensor/Franchisor X Andrew and Sirkin 2006
Orchestrator X Andrew and Sirkin 2006
Alter the usual formula X Johnson 2009
Bricks-and-clicks X Johnson 2009
Dial down features X Johnson 2009
Do more to address the job X Johnson 2009
Electronic bourse X Johnson 2009
Leverage new influencers X X Johnson 2009
Multi-level marketing X Johnson 2009
Own the undesirable X Johnson 2009
Unique partnerships X Johnson 2009
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Table 1. (Continued )

Business model patterns Business model components Author Year

Value Value Value Value Value


proposition creation communication delivery capture

Affinity club X Johnson 2010


Brokerage X Johnson 2010
Bundling X Johnson 2010
Cell phone X Johnson 2010
Crowdsourcing X Johnson 2010
Disintermediation X Johnson 2010
Fractionalization X Johnson 2010
Freemium X Johnson 2010
Lease instead of sell X Johnson 2010
Low-touch X Johnson 2010
Negative operating cycle X Johnson 2010

1340003-19
Pay-as-you-go X Johnson 2010
Product to service/Servitization X Johnson 2010
Razors/blades X Johnson 2010
Reverse auction X Johnson 2010
Reverse razors/blades X Johnson 2010
Standardization X Johnson 2010
Subscription club X Johnson 2010
User communities X Johnson 2010
Free business models X Osterwalder and Pigneur 2010
Long-tail business model X Osterwalder and Pigneur 2010
Multi-sided platforms X Osterwalder and Pigneur 2010
Open business models X Osterwalder and Pigneur 2010
Unbundling the business model X Osterwalder and Pigneur 2010
Business Model Innovations for Electric Mobility
N. Abdelkafi, S. Makhotin & T. Posselt

the combination option. The main reason is that the number of combinations can
be so overwhelming that the analysis will largely go beyond the scope of this
research.

Business Model Patterns in Electric Mobility


The identified business model patterns can be very useful to the electric mobility
field. The question is: what can we learn from already implemented business
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models to generate business model innovations for the electric mobility, and to
what extent are these models transferable? Therefore, in the following, we propose
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to explore, whether the identified patterns, make sense within the context of
electric mobility, and if yes, how they may be adapted to this new context.
We analyze the transferability of the patterns from two perspectives. First, we
deal with the business models that have proven successful in the automotive in-
dustry; in particular, we analyze to what extent these business models can work in
the new context. Second, we deal with business models that are new to the industry,
or at least they have not been so popular. In addition, we make the distinction
between business models with focus on the electric car and business models of
services provided around the car. In our discussion of the transferability of business
models, the patterns in Table 1 will be written in italics to improve readability.
In the following, however, we exclude some of the business model patterns
identified by Weill et al. (2005). The model of intellectual property traders, who
focus on selling IPs, will be certainly applied, if companies feel that they cannot
make money out of the commercialization of their knowledge in terms of products
or services. Financial traders, financial landlords, and financial brokers actually
describe the business model of banks and insurances, which have played an im-
portant role in the automotive industry so far, and will continue to be important in
the era of electric mobility. The contractor business model pattern will also be
disregarded, as it refers to consulting services. Needless to say, consultants will try
to make profit of the new technology, by providing technical or management
advice to the actors involved in the electric mobility system.

Transferability of business model patterns already known


in the automotive industry to the context of electric mobility
Business models with focus on the electric car
Among the business model patterns identified in Table 1, some business models
have been already used by car manufacturers. For example, the bricks and clicks
model has been around for a long time; in fact, since the time customers have
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Business Model Innovations for Electric Mobility

gotten the possibility to order their cars online. Electronic data exchange between
the supply chain participants such as suppliers, car manufacturers, customers and
dealers is state-of-the-art business and will continue to be useful in the electric
mobility era. Disintermediation, the direct business model pioneered by Dell in the
computer industry, has also been practiced very frequently by the car manu-
facturers. In particular, it has been used to sell mass customized cars online di-
rectly to the customer. Thus, conventional cars have been sold via different
channels, and it is also expected that car manufacturers will use different channels
of distribution to sell the electric car. This approach is called “multi-level mar-
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keting” in Johnson’s classification of business model patterns.


Where as bricks and clicks, disintermediation, and multi-level marketing in-
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troduced major changes into the automotive value network, other business model
concepts focused more strongly on the value proposition. For instance, the long
tail business model (Anderson, 2006; Osterwalder and Pigneur, 2010), has been
applied since a long time in the automotive industry and is also expected to be a
popular model in the electric mobility era. The long tail model aims to make
money out of the so-called slow runners or low-volume products, which are items
or products that are sold very infrequently and therefore unprofitable, if distributed
via the traditional channels. In fact, a Pareto analysis would recommend elimi-
nating these items form the assortment. Anderson (2006) ascribes the emergence
of this model to the development of the internet, which makes it possible to sell
slow moving items at a profit. Nowadays, we can observe that car manufacturers
are differentiating their offers with customization and variety, and sometimes it is
hardly to find two identical car configurations in the assortment.
Another business model which is related to the value proposition is the product-
to-service business model (servitization). This business model is very promising,
as it can increase market penetration and support the wide diffusion of the electric
car. However, this model will not be new to the car industry; it has been imple-
mented with the conventional cars before (e.g., car sharing services such as Zip-
car). The value proposition is the mobility service, instead of the physical product
itself. Customers buy the job-to-be-done, not the artifact (Christensen, 1997). A
related, but in principle, different business model that has also been applied suc-
cessfully in the automotive sector is leasing, or also physical landlord in the
taxonomy of Weill et al. (2005). This model is, of course, very popular and has
been practiced since a long time. Leasing can be a rewarding way of doing
business for car manufacturers or service providers in order to achieve a wide
diffusion of the electric car. With this model, customers do not pay the whole
price, but instead monthly fees for a duration that is indicated in the leasing
contract. Leasing reduces the risk on the customers’ side; if they are not satisfied
with the electric car, they can decide not to buy it, when the contract reaches its
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N. Abdelkafi, S. Makhotin & T. Posselt

end. Viewed from this perspective, with a leasing contract, the customer buys a
mobility service, but the car is available only for him, as it is not shared as in the
product-to-service business model.
Compared to leasing, subscription is a similar but simpler business model.
While paying a regular fee, customer gains access to a certain product or service,
which allows convenient use of the offering and high price transparency. This
model is broadly known, since subscribing for magazines and newspapers is a
popular example. In the field of electric mobility, subscription is used by providers
of charging infrastructure services, such as Coulomb Technologies Inc. By signing
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for Coulomb’s offering, a customer is enabled to use a broad charging network


and several related services, such as notification of available charging stations or
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24  7 driver support hot line (Meenakshisundaram and Shankar, 2010).


A business model with large impacts on the value proposition and the profit
formula of car manufacturers is the low-touch approach. This business model aims
to offer cheap versions of products or services that are traditionally high-end
offerings (Johnson, 2010). Especially at the beginning of the electric car life cycle,
this business model pattern is not applicable, since the technology is still at its
beginning and expensive, per se. However, as the technology matures, this busi-
ness model may become more attractive, in particular for followers. Fast followers
are manufacturers or service providers who observe the industry, but do not enter
the market until the technology has proved to be profitable, and standards have
been established (Markides and Geroski, 2005). These companies can apply the
model because of their advantageous cost structures that results from their ability
to avoid heavy investments in research and development. The low touch approach
model is also very similar to the standardization business model suggested by
Johnson (2010). This model aims to provide lower cost standardized solutions to
tackle problems that were previously addressed through customized products or
services. This business model has been especially observed in the medical sector,
since many treatments or examinations that needed the availability of knowl-
edgeable experts in the past are currently done by the patients themselves at home,
e.g., pregnancy tests (Johnson, 2010:83). In the electric mobility field, Better Place
currently offers a variety of fixed price battery packages to customers, depending
on the number of driven kilometers. This variety of fees takes into account cus-
tomers’needs with respect to the distance they drive yearly. This model, however,
may change to a standardized offering in the future, as the technology matures.
Similar to internet providers who offer flat rates to their customers, service pro-
viders in the field of electric mobility can make offers such that no matter how
many kilometers are driven per year users have to pay a single fee.
Among the patterns in the final list, some business models derive from the
advances achieved in the internet era, e.g., crowdsourcing or user communities. It
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Business Model Innovations for Electric Mobility

is expected, however, that these models will not represent the major business
models of the main participants in the electric mobility value network. The
models can be used as add-on concepts, but not as the major logic to do the
business. They may inspire new players, however, and help them identify new
business concepts to enter the electric mobility system. Note that due to the
complexity of car technology, it is hard to crowdsource a car. For instance, in
1999 Markus Merz launched a tentative project called OSCAR (Open Source
CAR) in order to initiate the development of a new car with geographically
distributed hobby designers, who invest their private time to work collectively on
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the car design (Müller-Seitz and Reger, 2010). Though the idea was revolu-
tionary, the project has never taken off; it turned out to be very hard to develop a
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car using the principles of open source and crowdsourcing (Abdelkafi et al.,
2009). Therefore, crowdsourcing will not work in the automotive industry, as it
worked for Wikipedia, Youtube, or Threadless in the business of T-shirts. In
addition, user communities can represent an interesting approach to boost the
diffusion of the electric cars. For instance, automobile manufacturers may think of
creating new and modern electric versions for cars that were very popular in the
past such as VW Beatle or Citroen 2 CV. Crowdsourcing and user communities
are business models that have been identified as value creation-focused. These
patterns belong to the category of open business models, which help companies to
get valuable contributions from the outside (Chesbrough, 2003, 2006; Abdelkafi,
2012). To facilitate this process of opening, many intermediaries such as Inno-
centive have emerged in order to connect problem solvers to solution seekers
(Brabham, 2008). To make progress in the field of electric mobility, such
intermediaries are required, since they can strongly accelerate the pace of de-
velopment of the new technology.
So far, two further business models with focus on value creation have been
implemented in the automotive industry. At the early times of the industry, higher
focus was given to the integrator model; car manufacturers had a high level of
vertical integration and performed almost all value adding activities in-house. In
the course of time, however, because of increased degree of specialization and
declining transaction costs, the level of vertical integration decreased considerably.
Many value adding operations have been dislocated to suppliers. Thus, car man-
ufacturers had to embrace more orchestrator capabilities with respect to the
management of complex networks. In the era of electric mobility, we predict that
car manufacturers have to give up even more of their internal value chain in favor
of their supply chain network. For instance, it is very likely that electric machines
and batteries, two core components of the electric vehicle, will not be manu-
factured by the car producer but outsourced to external specialized suppliers.
Consequently, many car manufacturers have to redefine their core competencies
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N. Abdelkafi, S. Makhotin & T. Posselt

(Prahalad and Hamel, 1990), especially if their success in the past was mainly due
to competencies (e.g., engine technology) that suppliers will deliver in the future.

Business models with focus on the services around the electric car
Affinity club is a business model pattern with focus on services around the electric
car. It denotes a business model that enlarges the role of the customer, who
becomes a member of an exclusive club. By partnering with membership asso-
ciations and other affinity groups, an enterprise can create additional offerings,
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which are only available for the members of the club (Johnson, 2010). For
example, users of credit cards receive reward points for every purchase they make.
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These reward or payback points can lead to several advantages to the driver. In the
automotive sector, gas stations often provide such incentives to loyal customers,
using own membership cards. In the context of electric mobility, this business
model may remain unchanged despite the fact that car drivers will pay for elec-
tricity and not for gas. Electric power service providers are interested in customers
driving long distances with electric cars. At the same time, customers are happy to
get reward points with increasing driving range. These reward points may result in
free or discounted car washes, inspections etc. For this purpose, electric service
providers may have to establish partnerships with car washes and repair shops.

Transferability of business model patterns from other sectors


to the context of electric mobility
Business models with focus on the electric car
The business model patterns we deal with in the following are directly related to
the electric car itself. For instance, when the cell phone business model is applied
to electric mobility, this means for the car manufacturers or for the dealers to offer
the main product at a comparatively low price or for free, while charging per use
for the driven distance or electricity consumption. This is very similar to the pay-
as-you-go business model pattern, since the longer the distance the higher the fees
to pay; and the model is also akin to the freemium business model, which consists
in giving the product for free and finding other sources to earn money (Johnson,
2010).
A freemium business model may be achieved, if cars additionally serve as
medium for advertisement when they are used within the city. Thus, car sellers can
collect advertisement fees from the advertisers. When the car is used outside the
city, this is considered as a premium service for which the customer has to pay.
Better Place found that, given the current levels of the gasoline and electricity
prices, it is not possible to give away the electric cars for free (Johnson, 2010).
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Business Model Innovations for Electric Mobility

Instead, Better Place thought to implement a cell phone-like business model, in


which the prices for the electric cars are reduced considerably, due to govern-
mental support, and money is made when the fees for charging the battery are paid
by the customer. But such a business model is at risk, as big retailers such as Wal-
Mart recently announced that they will provide their customers, who go shopping
in their stores, a free service for charging their batteries (Bell, 2011).
Very similar to the cell phone model is the razors/blades business model, which
is based on low cost of purchase for the main product, but results in higher costs
for exchangeable parts or for coupled services. This is the model with which
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Hewlett Packard could lead the business of DeskJet printers (Feitzinger and Lee,
1997). Applied to electric mobility, this model means that manufacturers or service
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providers sell electric cars (razor) with short lifetime batteries (blades). This model
depends on battery technology and only makes sense, if it is possible to sacrifice
the battery lifetime in favor of a better performance and longer driving distances
per charged battery. After a certain number of driven kilometers (e.g., 50,000 km),
the battery needs to be replaced. Using this model, manufacturers sell more bat-
teries, and customers get high performance electric vehicles. Since the turnover of
batteries is rather high, the manufacturers can consider repairing the batteries and
selling them as second-hand articles or for other purposes, such as stationary
electricity storage devices. This business model may raise some environmental
issues, because of the problems that are connected to the disposal of the batteries.
If we suppose that the car lifetime is approximately 200,000 km (Johnson, 2010),
and the battery has to be substituted after each 50,000 km, this leads to four
batteries per car during its lifetime. Note that this model may benefit the repair
services companies. Repair services are expected to be the big losers, if they do not
think of new business models, since electric cars are much more robust and need
much less maintenance than conventional cars. By exchanging and selling bat-
teries much more frequently, they may ensure a sustainable source for profits.
The opposite of this business model is reverse razors/blades. Applied to
electric mobility, it suggests to buy a battery (blade) and to lease a compatible car
(razor). This concept strongly depends on the high durability of batteries. It allows
the users to quickly change designs of the cars, as they want, but still maintain the
desired quality of the battery. The success of this business is, therefore, dependent
on the advances that will be achieved in the area of battery technology.
Freemium, razors/blades, and reverse razors/blades are all subcategories in the
business model pattern called “free business models” by Osterwalder and Pigneur
(2010). Though these business models are some how reliant on the same logic,
they exhibit some differences. Whereas the freemium model means to give a basic
product or service for free and to earn money through additional services or
premium memberships, the razors/blades model still requires some investments
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N. Abdelkafi, S. Makhotin & T. Posselt

from the customer’s side at the beginning, as the “razor” is not given for free, but
for a small amount of money that generally does not cover the production costs. In
the razors/blades case, money is earned because the customers frequently purchase
the blades, and this represents neither an additional service nor a premium
membership. In the razor/blades model and its reverse, a product must be
decomposable into at least two parts that are complementary.
Similar to reverse razor/blades, reverse auction modifies the commonly
established processes. In a reverse auction, a price for a product is set before the
participants begin to bid it down (Johnson, 2010). Reverse auction may be used in
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smart grids that use electric cars as temporary energy storage. Assuming that the
future electricity mix will have a higher share of renewable energies, we will
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experience unexpected energy production peaks due to weather conditions (Klose


et al., 2010). During the peaks, energy suppliers will be seeking to sell as much
electricity as possible, even if there is no adequate demand. This might be the
opportunity to apply reverse auction business model. In this case, electric car
owners or intermediaries may set a price they are willing to pay for the electricity.
Since energy suppliers will strive for selling electricity, they might bid down the
price, set by the electric car owner or the intermediary.
Another business model approach that may motivate some users to switch to
electric cars is the own the undesirable concept. This business model is about
pursuing a business in seemingly unprofitable market segments. Currently, the
long-range electric vehicle is the desirable concept, with about 180 km driving
reach (Sammer et al., 2008; Pearre et al., 2010; Grünig et al., 2011). Therefore, the
undesirable concept would be an electric car concept with a small driving range,
let’s say between 20 and 50 km. For instance, Sammer et al. (2010) find that the
average driving range for one ride is approximately 15 km. The success of such a
business model presupposes that there are customers whose needs would be sat-
isfied by this “scaled-down” product. It is worth noting, however, that this value
proposition has some potential, because the required battery would be less bulky,
thus lightening the car and freeing up space within it. Due to the convenience that
results for customers from a smaller battery, electric car manufacturers benefit
from the advantages of the “dial down features”-business model, which aims to
target less-demanding consumers with products or services that may not be
superior but are adequate, convenient, and simple (Johnson, 2009). It should be
mentioned, however, that for short-distance electric cars quick charging concepts
are extremely important. The advantage of this “undesirable” concept is the
positive impact on charging station providers and operators of switching stations.
As mentioned before, quick charging stations are considered to be economically
inefficient (Schroeder and Traber, 2012). The own the undesirable concept will
increase the number of times cars are recharged and the turnover per station. In the
1340003-26
Business Model Innovations for Electric Mobility

case that the users of electric cars with short distance battery need to travel a longer
distance, they could switch the scaled down battery for another one with the same
size but with higher energy density. This would benefit the operators of switching
stations and provide a flexible solution for electric car users. These two effects
result in positive reinforcing feedback loops, which enhance the impact of the
business model (Casadesus-Masanell and Ricart, 2010). It is worth mentioning
that despite the advantages of this concept, in the niche of short-range transpor-
tation, electric cars will face strong competition with substitutes such as electric
bikes or scooters.
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The own the undesirable concept may be backed by a mass-customized of-


fering. Having a powerful long-range battery might not be always an advantage.
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Customers who drive the same distance every day may not use the whole capacity
of the battery. They may also wonder why they have to carry a battery weight they
actually do not use. A mass-customized offering, in this regard, can solve this
problem. Customers can order a customized battery for their electric cars. The
customized battery is designed under consideration of customer’s driving distance,
driving mode, landscape, etc. In this way, the battery fits the needs of the cus-
tomer. Since electric car batteries consist of a certain number of battery packs, the
battery capacity may be adjusted by adding or removing them. The application of
this model can also solve the problem of “range anxiety,” since the model may
provide a tailored fit between the customers’ needs and the offering.
Unlike the own the undesirable concept, fractionalization allows users to own a
part of a rather luxury and expensive good such as private jets or time sharing
condos. The advantage of this business model is that users pay only a fraction
amount of the whole price, while being able to get most of the benefits of a product
(Johnson, 2010). The application of this model to electric cars would mean that a
small group of users owns the electric car and that the car is maintained by a
service provider. If, however, more than one user needs the electric car at the same
time, the service provider gives a substitute. This model would face some diffi-
culties when it is implemented in practice, as the car has to be usually driven back
to a parking place, which is ascertained in advance. Furthermore, this model is
expected to face competition by the common car-sharing and leasing business
model concepts. Therefore, we suggest applying fractionalization to quick
charging stations, which may be owned and used by a group of people, who live or
work close to each other, e.g., neighbors or colleagues.
Leverage new influencers is a business model pattern that focuses on identi-
fying and mobilizing new influencers, who are able to deliver and communicate
the value proposition as more “convenient, far-reaching, or affordable” (Johnson,
2010:131). For example, Unilever identified Shakti-women as reliable advertisers
and sellers for hygiene products in Indian villages, thereby exploring a completely
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N. Abdelkafi, S. Makhotin & T. Posselt

new market (Schuster and Holtbrügge, 2011; Dahan et al., 2010). Transferred to
the field of electric mobility, electric power suppliers may decide to additionally
offer mobility services; they may use their access to a large base of subscribers,
thus increasing their influence on electric mobility. A further potential group of
influencers are mobility consultants such as The Next Generation Mobility KG, a
spin-off of Barkawi Management Consultants. Due to the growing complexity of
services in electric mobility such as smart grids or transportation mix, consultancy
companies can exert a high level of influence and contribute to the wide diffusion
of electric mobility.
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The main idea of a negative operating cycle lies in making customer pay up-
front while keeping own costs low and delivering the service or the product later
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on (Johnson, 2010). A famous example for this business model pattern is the
traveler’s check that allowed secure and convenient access to money by the end of
19th century (Magretta, 2002). In the field of electric mobility, this business model
may be applied, if public charging stations are not connected to the internet, and
customers use a prepaid card to pay for electric power. In this way, the model
would be advantageous for the infrastructure provider because of two reasons.
First, the payment process is kept simple (prepaid cards). Second, the electric
power provider is paid up-front, before the actual electricity consumption.
Two business models proposed by Johnson (2009, 2010) are less evident to
apply to the electric mobility context, because they are less concrete and, in
principle, suggest thinking differently of the value proposition than before. The
first is do more to address the job; it is a business model that mainly impacts the
value proposition and recommends going beyond the existing offer to address jobs
that customers are trying to get done (Johnson, 2010). For instance, car manu-
facturers may leverage the specific technical characteristics of electric cars to
support the mobility requirements of their customers much better. As car devel-
opers have more freedom in the design of the electric car, they may place the
electric machine not as usual under the engine hood, but they may assemble many
smaller electric machines at the four wheels. This concept can free up valuable
space, leading to a bigger luggage compartment within the car. The other business
model is altering the usual formula. Perhaps, the electric energy provider may
think of mobile charging stations instead of the stationary units.

Business models with focus on the services around the electric car
An electronic bourse business model pattern can allow different actors in the
electric mobility value network to trade electricity on the web. A bourse is a
more general approach than an auction, as it brings N possible buyers and N
sellers together, whereas an auction involves one seller and N Bidders (e.g., Picot
1340003-28
Business Model Innovations for Electric Mobility

et al., 2008). For example, a broker can create a B2C platform for bidding and
selling electricity. An energy service provider can use this platform to buy
electricity back from the owners of electric cars. For the bourse mechanism to
function appropriately, the service provider should name the highest price he
wants to pay for customers in order to feed the energy stored in their batteries
back into the grid, whereas customers should define the lowest price for which
they agree to sell electricity. The electronic bourse matches sellers to buyers by
fully automating the process. For instance, in Germany, electricity is less costly
during the night and more costly during the day. On average, at night (between
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22:00 and 06:00) electric energy can be 20% to 50% less expensive than during
the day (Schill, 2011:6183). This difference can lead to enormous savings for
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households. Therefore, electricity for the electric vehicle may be bought during
the night and sold to the grid at daylight during peak consumption. Of course,
this only makes sense for the car owners who do not intend to use their cars
during the day. This business model will work, however, only if the car owners
and the brokers can earn money, and if the energy used at night stays less
expensive than the electricity purchased during the day. With this business
model, it is therefore clear that the broker business model will generate money,
not only for the brokers (the business maker) themselves, but also for the sellers
who are the car owners.
Weill et al. (2005) distinguish among many types of brokers. A physical broker
connects buyers to sellers of tangible goods. Autoscout24 or Buy a Car are
physical brokers in the automotive sector. Obviously, such physical brokers do not
need any extra effort to integrate electric cars in their assortment. Nevertheless, the
rising number of electric cars will cause an emergence of a strong used battery
market. This market may go beyond the automotive sector, since the batteries may
be used for other purposes. Therefore, physical brokers of spare parts will have to
adjust their business models. A more challenging application is matching buyers
and sellers of intangible assets, which is the task of an intellectual property broker.
As pointed out before, technologies are an important element in the electric mo-
bility system, and only some of them are patented. We expect a significant number
of technologies to be protected as company secrets, e.g., battery chemical com-
position. Therefore, a small number of patents may be available for trade by
intellectual property brokers. The task of human resources broker is to mediate
between buyers and sellers of human services. The rise of electric mobility causes
new requirements in the field of education and training (Humphrey and Meme-
dovic, 2003). Automobile companies are lacking qualified staff, especially in the
fields of electrochemistry and battery technology. Thus human resource brokers
may focus on this niche to mediate between job seekers with the required com-
petencies and companies requiring this special expertise.
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N. Abdelkafi, S. Makhotin & T. Posselt

In the classification of Osterwalder and Pigneur (2010), brokerage is a subcate-


gory of the multi-sided platform business model, which is aimed to bring different
groups such as buyers and sellers together and to facilitate the interactions between
them. Such platforms are only successful, if a critical mass of users is reached
(network effects). Whereas multi-sided platforms, in particular brokerage, introduce
a new actor in the electric mobility value network, bundling is a business model that
aims to achieve the opposite, at least from the final customer’s viewpoint. As a
consequence, customers do not have to deal with a large number, but only with one
or a few suppliers. According to Johnson (2010:131), bundling aims to “make
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purchasing simple and more complete by packaging related products together.” In


addition, bundling increases the quantity of goods that may be sold to the customers.
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Applied to electric mobility, bundling may change our understanding of services.


The idea is to combine the mobility needs with other services that customers require.
Doing so, we propose that electric cars will be a part of a bigger value proposition
which is offered by one service provider. Bundling all services of energy con-
sumption, such as electric driving, telecommunications and energy supply for
homes provides an all-inclusive, carefree solution for the customers. It is also
conceivable that the electricity service provider plays the role of the broker, de-
scribed above. But instead of paying money in cash, the service provider may offer
to the customers a price reduction on energy consumption, when they plug their cars
to feed the grid with electricity. In this regard, the challenge for the service provider
is to coordinate and perform services that are based on different technologies.
Whereas bundling is related to the value proposition that is offered to the
customer, unbundling the business model according to Osterwalder and Pigneur
(2010) refers to the whole corporation. This approach assumes that enterprises
operate much better when they only focus on one type of business, which can be:
product innovation, customer relationship management, or infrastructure man-
agement. This pattern has been observed in the mobile phone sector. In the past,
companies have done all types of businesses combined, but currently there is a
tendency to focus on only one type of business. For instance, the mobile com-
munication service providers concentrate on customer relationship management
and close the contracts with customers. Companies such as Nokia Siemens Net-
works focus on infrastructure management and network operations; whereas
product innovation is generated by small companies that develop new user
interfaces or even individual programmers create new apps. In the electric mobility
field, unbundled business models are already there, since the electric power pro-
vider is the one who operates the electricity network, product innovations stem
from car manufacturers and suppliers, and customer relationship management can
be done by companies such as Better Place or car sharing services who are
assumed to maintain tight relationships to the users of electric cars.
1340003-30
Business Model Innovations for Electric Mobility

The bundling approach can be, in fact, combined with another similar business
model, which consists in developing unique partnerships. This business model
may introduce completely new services to the electric mobility. Nowadays,
electric mobility is associated with sustainable transportation, which is a very
rational goal that only relies on the environmental consciousness of buyers. In
order to improve its attractiveness, however, we suggest combining electric mo-
bility with a sustainable, convenient, and healthy way of life. For instance, electric
car owners may get special services (exclusive parking areas for electric cars), or
discounts at bio stores, and fitness centers. In addition, the combination of private
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and public transportation may improve the usability of electric cars.


Another business model, which can be very useful in the realm of electric
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mobility, is the intellectual landlord model (Weill et al., 2005). This model may
take two forms: licensor or franchisor business model (Andrew and Sirkin, 2006).
Let us assume that the Better Place model succeeds and becomes the dominant
way of doing business. To develop its business further, Better Place may decide to
license or to franchise its business model. In the case of a license, the buyer cannot
carry the name of Better Place; he is only allowed to use its technology, processes,
and know how. In the case of a franchising system, the buyer is allowed to carry
the name of better Place and to apply its processes and technology. Both systems
involve fees that should be paid to the licensor or franchisor.

Discussion
Business model innovation plays a crucial role for achieving a high diffusion of
any new technology, most notably the electric car. Without adequate business
models, any industry will find it difficult to make profits out of a new technology.
Our work provides a new perspective for academia and practice how business
model innovations can be generated more efficiently. It is not necessary to reinvent
the wheel to come up with business model innovations; managers should look
outside their industries what concepts can be adapted and fitted to the new tech-
nology or to the new context. The theoretical and practical lessons that derive from
our work are the following:

. Business models developed and implemented successfully in various industries


can actually represent business model innovations in the industry under inves-
tigation. These business models are, however, not new-to-the world (OECD,
2005) business model innovations. Instead, they can be referred to as new-to-
the-firm or new-to-the-industry business model innovations.
. The business models transferred from other industries should be carefully
examined with respect to their suitability in the new context. In effect, what
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N. Abdelkafi, S. Makhotin & T. Posselt

worked excellently in one industry such as the chemical industry does not
necessarily work successfully in the digital music industry.
. Capturing business model patterns is a rewarding endeavor. It enables one to
reduce the different types of business models encountered in the practice to a
few recurring patterns.
. A business model pattern captures the essence of how the business is conducted.
Each of the business model patterns presented in this work (Table 1) refers to a
single dimension of the business model framework. Thus, to develop a com-
prehensive model, we need to combine patterns from each of the five dimen-
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sions. This actually offers a method how to generate business model innovations
in a systematic way. Nevertheless, mixing and combining patterns, without any
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consistency check, may lead to unfeasible concepts. Therefore, managers should


carefully examine, whether the generated business model can work successfully
in the new context. By combining the patterns, however, radical business model
innovations can happen.
. At the practical level, this work provides managers and decision makers with
valuable options how they may adapt existing car-focused business models to
the new context of electric mobility. Some business models already imple-
mented in the automotive industry will continue to be useful in the era of the
new technology, most notably the product-to-service (e.g., car sharing) and
leasing models. Automotive manufacturers have a large experience with these
models and may not find any difficulties to continue using them. For instance,
Daimler AG has been using its car2go car sharing concept since 2009 and is
currently experimenting with this model by using electric cars instead.
. Other business model patterns are not typical to the car producing sector, but
they may find their way to the industry. For instance, razor/blades, own the
undesirable concept, or leverage new influencers are interesting options that can
increase the acceptance of the electric car and improve its diffusion. Because of
the lack of experience with these business models, decision makers in the car
industry may be reluctant or very careful to implement them in the new context.
Anyway, as new business models can radically change the logic of the business,
the decision to implement a new business model is not easy to take. To support
the decision making process, managers should carry out a SWOT-analysis to
examine the strengths and weaknesses of the business model, and to determine
potential opportunities and threats that may result out of it.
. Providers of services around the car should join the electric mobility network.
Especially, energy producers and distributors become actors that can generate
additional profits out of the new technology. These actors are new to the car
business and need business model innovations. Electricity distributors may
benefit from their access to a large base of subscribers and can take over the role
1340003-32
Business Model Innovations for Electric Mobility

of a broker, by selling electricity and buying it back from the car owners.
Nevertheless, energy providers should take into account how related technolo-
gies (e.g., smart grid) will develop in the future. In addition, they should make
decisions on the location and density of charging stations inside and outside
cities.
. Electric mobility is challenging, not only for the Original Equipment Manu-
facturers (OEMs), but for the whole value network. The new technology will
lead to established actors leaving the industry and new players coming into the
business. The suppliers of the conventional engine parts may go out of the
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industry, while opening the way for the suppliers of the electric machine and
battery to do more businesses. Consequently, to stay in the industry, traditional
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suppliers need to adapt their business models radically; in particular they should
come up with totally different value propositions. Even the business of raw
materials will witness big changes, as the production of batteries needs new
kinds of materials that are not only new to the industry, but also scarce (Buchert
et al., 2011).
. The challenge is to design a landscape with different business models, in which
actors can pursue their own interests, yet the whole system functions adequately.
For instance, car manufacturers are interested in a high density of charging
stations to convince their customers to buy the electric cars. But the electricity
providers may strive for optimizing the number of the charging stations to
decrease costs. Therefore, OEMs’ business models cannot be based on the
assumption that the charging stations will be widespread across the country and
that every driver can charge their cars with electricity when they wish. Because
of this constraint, the OEM may make the following value proposition: “We sell
electric cars for customers who frequently drive relatively small distances within
the city. If they have the desire to drive long distances, we will make conven-
tional cars available for them.” This value proposition is only achievable, if the
revenue streams can compensate the costs. Note, however, that this business
model makes sense at the current state of development of the new technology. If,
at some future point in time, the battery technology development will allow
driving long distances, then this value proposition will become obsolete.
. The value proposition of OEMs, when they sell the electric cars, is extremely
important. We believe that there is one major reason explaining why the dif-
fusion of the electric car is still difficult, and why many customers are more or
less skeptical. In order to prevail, a new technology should offer a compelling
advantage over the old technology that customers can actually perceive. For
instance, the Compact Disc (CD) could substitute the tape because it has more
storage capacities and is more robust. The mobile phone offers a clear advantage
over the call box of the Telecom services and over the fixed line network. The
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N. Abdelkafi, S. Makhotin & T. Posselt

electric cars, however, are marketed as substitutes for the conventional cars; the
single advantage lies in the anticipated environmental friendliness. But through
this value proposition, the individual customer does not get a real advantage
from the new technology, despite the importance of the environmental aspect.
The environmental friendliness is even a contested issue, because it depends on
how the energy is produced; by using fossil energy or renewable resources
(Pehnt et al., 2011). According to the design-driven innovation theory of Ver-
ganti (2009), technology epiphanies arise when the technological change is
radical and when the change in the meaning of the product is radical. Therefore,
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because the technology is out there, the real challenge for the car manufacturers
is to identify a new value proposition that reflects a new meaning of the electric
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car, enabling the customer to perceive its real advantages, beyond environmental
friendliness. The main question that should be asked in the future is: What are
the innovative meanings to be associated with the electric car? By applying
Verganti’s theory, car manufacturers who will first identify a real innovative
meaning for the electric car, will be able to get a serious advantage.

Conclusions
This paper generates business model innovations in the field of electric mobility.
Our approach is very systematic; it starts with already established business model
patterns and discusses their transferability to the context of the new technology.
The classification of business model patterns is carried out by using a value-
focused business model framework. This framework consists of five value
dimensions: value proposition, value communication, value creation, value de-
livery, and value capture. Business model innovation happens, therefore, when at
least one of the value dimensions is modified.
The analysis of the business model patterns, identified in the literature, shows
that most patterns are related to a single value dimension. The combination of
patterns from different dimensions can actually lead to completely new business
models that have not been thought of so far.
Business model patterns such as disintermediation, product-to-service, and
leasing have been already practiced in the automotive industry. Among them, some
patterns such as car sharing have a high potential to increase customer acceptance
and improve the diffusion of the technology. Other patterns have been observed in
other industries and are new to the automotive sector. For instance, own the unde-
sirable concept or razor and blades are likely to be successful if they are adequately
implemented. Our analysis sheds light on the conditions and circumstances that
should be available in order for these patterns to be applicable. In addition, we found
1340003-34
Business Model Innovations for Electric Mobility

that some business model patterns can be very useful for the service providers, while
others better fit the business of the car manufacturers. It should be noted, however,
that some patterns can be applied in combination because they focus on different
value dimensions; other patterns such as the razors/blades and its reverse model are
mutually exclusive, since both focus on value capture.
From the conceptual viewpoint, this work achieved its objectives. Because of
the absence of the empirical aspect, there is a big potential to extend this study.
First, expert interviews with practitioners and researchers can provide additional
evidence that the business models proposed in this paper are actually useful. We
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can ask the experts about the extent to which the proposed models are applicable,
how interesting they are, and how they can be adapted in order to generate feasible
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and competitive models. Second, the most promising business models that result
after the interviews can be simulated in order to identify the most suitable model
from the perspective of the actors involved in the automotive network. This
represents an academic exercise. Certainly, this simulation cannot be carried out
without making assumptions about the business models of the other players, the
development of the market for electric mobility, and the dynamics of technology
development. In addition, as in the near future we will have a situation, in which
conventional, hybrid and electric cars are co-existing, it is very important to think
of transition scenarios that consider these patterns of technologies.
The work we did in this paper can be generalized beyond the electric mobility
case. It can be very rewarding for practitioners who want to update their existing
business models and entrepreneurs who search new models for their startup
businesses. Before trying to create completely new, breakthrough business models,
it is recommended to start with exploring the transferability of the business model
patterns created in other sectors to the sector, in which practitioners and entre-
preneurs intend doing their business.

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