Navigant Research Blog

Google Robots: More About the Patents Than the Products

— December 18, 2013

Google has quietly bought up more than eight bleeding-edge robotics companies in the last 6 months.  They include Bot and Dolly, a designer of robotic camera systems, Boston Dynamics, the creator of the famous Big Dog, and Industrial Perception, an machine learning engineering firm.  Clearly, the Mountain View, California-based search giant is planning a big move in robotics.  But it might not be what everyone is expecting.

While the head of the robot blitz, Andy Rubin, has declared that a Google robotics product will be available soon, that might end up being more of a sideshow than the real goal.  The prize for Google in this shopping spree is in the patents, not the people or the products.  That’s because, it’s my belief that, Google’s primary interest is in creating the operating system for the next generation of robots, not the robots themselves.

Rubin has always been obsessed with robot design.  In 2003 he chose the name for his photography software startup, Android Inc., as an homage to his obsession with robotics.  A year later, the company pivoted to a different business model: smartphone software.  Bought by Google in 2005, the platform that Rubin and his team created became the Android Operating System, a multibillion dollar enterprise, which is Google’s primary engine of profit growth today.

Android, Again

I believe that Rubin is returning to his original passion: creating a universal software platform for robotics.  If that is what he is doing, then it would make sense that Google’s executives and board of directors would fund it.  After all, the biggest obstacle to the ability of Android (the mobile phone OS) to completely take over the smartphone industry are the patents they don’t own that are required to make Android phones work.  Apple’s phones have some functional advantages that are protected by its patents.  And Microsoft gets more money from Google’s royalty payments for its smartphone patents than it gets from its own smartphone operating system.  This is all because Google was slightly late to the smartphone party.  It doesn’t want to be late to the next big thing.

A bigger clue as to where Google is going with this is in another of its robotic ventures: autonomous vehicles. That’s an area near and dear to our hearts here at Navigant Research because we published our first report on the topic, Autonomous Vehicles, in November. The search giant puzzled the world in 2010 when it divulged that it was experimenting with driverless cars. After the announcement, a few tittering articles were written about Google becoming a car company, but that hasn’t happened. Instead, Google has been hiring the brightest minds in the field of autonomous vehicles, getting them to invent things, and then salting away the patent trove. At some point, the income stream from those royalty payments will be considerable, all without Google ever having to learn how to bend steel.

So my best guess is that Google will utilize the talent it has acquired in the eight robotics company acquisitions (as well as many more that have probably been made that have so far gone unreported) to make a few flashy products.  Maybe it will be a disaster recovery robot or a land mine detection robot.  But the real treasure for the company will be sitting in the file cabinets of the U.S.  Patent and Trademark Office, where the more than 600 patents (according to my initial count) that go along with those acquired companies, will be sitting, waiting for this robotics thing to take off.


Suddenly Popular, Carsharing Services Seek Profits

— December 18, 2013

Carsharing, suddenly, is hot.  A slew of media stories has documented the dawning of the era of the shared economy, where consumers feel less need to own things than to have access to them.  Whether this movement is attributed to the recession, smartphones, demographic changes, or Napster, many observers think it promises to transform the automotive industry.  Navigant Research developed its first forecasts for this market this year.  Our report, Carsharing Programs, forecasts that membership in global car sharing programs will reach 12 million, up from around 2.3 million as of 2013.

Annual Revenue from Carsharing Services by Region, World Markets: 2013-2020


(Source: Navigant Research)

These programs have unquestionably boomed in the past decade.  According to the Transportation Sustainability Research Center at UC Berkeley, there were 350,000 members of carsharing programs in 2006, so Navigant’s 2013 forecast represents a 31% compound annual growth rate since then.  Automakers and traditional rental car companies have been jumping into the carsharing sector.  The U.S. General Services Administration (GSA), one of the largest fleet operators in the United States, is testing carsharing services as a way to reduce costs.  China is implementing one of the biggest and most ambitious carsharing programs, with a fleet of 100,000 electric cars.  But as appealing as the concept is, and as much as it is in tune with the zeitgeist of collaborative consumption, carsharing still faces some challenges as a business.

Take Zipcar for example.  Even though Zipcar is by far the biggest carsharing company in the world, with around 760,000 members as of 2012 – that is 43% of global membership in 2012 – it has struggled to find profitability.   In 2012, after 12 years in business, Zipcar finally reported net income for an entire fiscal year.  Zipcar was then acquired by Avis, in a move that the two companies expected would help reduce Zipcar’s operational costs and thus improve the bottom line.  Like any merger between a small, nimble startup and a conservative corporate behemoth, this move was fraught with risks.  So far, Zipcar seems to have been able to retain its brand identity a high-tech company with cool cars, which has been critical to its success.

We are likely to keep seeing carsharing companies partner with or be purchased by bigger companies, either traditional rental car companies or automakers, as has happened with BMW and GM.  Carshare companies, though, must search for new revenue opportunities.  One that seems to be gaining traction is selling the company’s expertise in fleet management.  Zipcar is developing fleet management solutions for New York City and Houston.  Switzerland’s Mobility Cooperative launched a subsidiary business intended to exploit its software expertise.  Renault is using the company’s software to operate its some of its Twizy BEV carsharing services.  Another opportunity lies in expanding into new market segments such as government fleets or airports.  Turning a profit will require a delicate balance between exploring these expansion opportunities and maintaining the brand identity of the carsharing company.


Why Tesla Should Sell Trucks

— December 13, 2013

If you want to attract media attention for an idea, attach Elon Musk’s name to it.  Any technology he proposes taking on instantly attains a higher profile, whether it’s autonomous vehicles, high-speed public transport, or space travel.  Musk is also not afraid to buck conventional wisdom: he announced that Tesla would explore battery swapping immediately after battery swap pioneer Better Place declared bankruptcy.  Now, you can add electric pickup trucks to the list of challenging new transportation technologies that Musk wants to tackle.  A Tesla pickup truck would not have quite the same cachet as a Model S, but Musk says he wants to develop one because of their popularity in the United States.  He has mentioned modeling a Tesla electric pickup after the best selling Ford F series pickups.

The pickup truck vehicle segment actually seems like a good target for better fuel efficiency in the United States.  In spite of the move toward more fuel efficient passenger cars, pickup trucks continue to be among the top-selling vehicles in the United States, with the Chevy Silverado and Dodge Ram set to join the Ford F series among the top 10 best-selling cars in the United States in 2013.  Some of this may be due to pent-up demand, as these are quite likely to be work vehicles for contractors, landscapers, and other businesses that have been in a belt-tightening mode following the global recession of 2009.  But since pickup trucks are consistently big sellers in the United States, they represent an obvious target for any efforts to reduce overall transportation fuel consumption.  Musk specifically says he isn’t interested in developing an electrified commercial truck, like those used by Fedex or UPS, since that market is much smaller.   In 2012, the Ford F series, Dodge Ram, and Chevy Silverado combined for sales of 1.36 million.  By contrast, Navigant Research projects that U.S. sales of all medium and heavy duty trucks – the primary models sold to commercial users ‑ will be just over half a million in 2013.

Thanks, No Thanks

However, as I found researching for an update of the forthcoming Navigant Research report, Hybrid and Electric Trucks, U.S. automakers are not terribly interested right now in electrifying this vehicle segment.  GM announced it will be discontinuing all of its hybrid truck models in 2014.  Chrysler produced 35 Dodge Ram truck plug-in hybrids for testing with utility customers but has not announced any plans for commercial production.  Ford has announced that it is working on a hybrid system for its rear-wheel-drive pickups and SUVs; however, the company does not plan to introduce a commercial version until the latter part of this decade.

The reason is simple: low sales.  GM reported 2012 sales of around 2,800 Silverado, Tahoe, Escalade, and Yukon hybrids.  The major challenge for this market is that the businesses buying these cars are very price-sensitive and have rigorous performance requirements.  Edmunds found that the 2013 Silverado hybrid had limited towing capacity and fuel economy compared to the (non-hybrid) Dodge Ram, which cost thousands less.

The main companies in this space now are XL Hybrids and VIA Motors, both startups.  XL Hybrids is developing a hybrid drive that can be retrofit onto a Chevy Express van chassis or a Ford E Series chassis.  VIA Trucks has developed a plug-in hybrid powertrain to be integrated into Class 2 light trucks and vans, like the Chevy Silverado and Chevy Express van.   The company just announced it was beginning production in its factory in Mexico.  These two companies are still in the very early stages of producing commercial products, and it remains to be seen if they can succeed where the big OEMs could not.

No doubt Elon Musk will learn from these examples.  Succeeding in this market will require a vehicle with impeccable performance and significant fuel savings benefits, at a reasonable price point.


ESCOs Start to Recover from the Recovery Act

— December 13, 2013

By many accounts, the American Recovery and Reinvestment Act (ARRA) was a boon for the American economy in the wake of the financial crisis of 2008.  The availability of $25 billion in federal funds for energy efficiency measures sent the building industry into action at a time when sluggishness in new construction was shifting attention to existing buildings, and concepts such as corporate sustainability and carbon regulation were in their infancy.  Leading energy service companies (ESCOs) such as Johnson Controls and Ameresco, which use a financing structure known as energy performance contracting (EPC) to guarantee energy savings for customers in long-term contracts, scaled up their energy efficiency capabilities to benefit from these generous incentives.

Briefly, it seemed that ARRA would be a net positive for the ESCO market.  From a base of $3.9 billion in annual revenues in 2008, the market peaked in 2011 with annual revenues of $5.6 billion.  Interestingly, ARRA actually had a negative impact in 2009, when many would-be ESCO customers deferred plans to hire ESCOs while awaiting the distribution of stimulus funds for 2010 and 2011.

And that was the first of several unforeseen consequences of ARRA for the ESCO market.  In 2012, the market underwent a painful contraction, with annual revenues shrinking to $4.8 billion – a 13% decline.  The causes of this decline were diverse, and include a range of factors such as the federal sequester and pervasive concerns among municipalities about ESCO-related debt (as EPCs typically show up on customer balance sheets as debt service obligations).  A more insidious cause of the decline was the fact that ARRA funds, which were largely exhausted by the end of 2011, created an expectation of low-interest financing and widespread rebates for energy efficiency measures among municipal customers, the core market for ESCOs.  As those financing facilities evaporated, so did many customers’ willingness to take on long-term EPCs characterized by pre-ARRA interest rates.  As a result, many municipalities now view the extended payback periods of EPCs (which are, in reality, consistent with the payback periods in the pre-ARRA period) as unacceptably long.

ESCO Revenue, United States: 2010-2020


(Source: Navigant Research)

Even in the post-ARRA era, though, EPCs represent a low-risk way for cash-strapped customers to reduce their long-term facility operating costs and finance other non-energy-related infrastructural improvements.  Changing the mindset in the municipal sector will be critical in resuscitating the ESCO market in the United States and placing it on a pathway for strong growth.

The good news for ESCOs is that the federal government has been aggressively promoting EPCs through the $2 billion Better Buildings Initiative and other policies, which will lead activity in that sector to grow considerably in 2014.  In our recent report, The U.S. Energy Service  Market, Navigant Research forecasted that the market will grow from $4.9 billion in 2013 to $8.2 billion by 2020.  The municipal sector will only recover to pre-ARRA levels of EPC activity, though, when municipal decision-makers recall the diverse cost reduction benefits afforded by ESCOs that they once enjoyed.


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