Navigant Research Blog

Cashing In on Blockchain

— January 23, 2018

The 325 initial coin offering (ICO) events in 2017, as tracked by CoinSchedule.com, raised a combined $3.7 billion that the Securities and Exchange Commission is still working out how to define and regulate. Surging cryptocurrency market capital is drawing huge numbers of new players into the market—some are pioneers, some are sheep, and some are going to jail for using ICOs to make a quick buck.

It is not just ICOs and greenhorn startups that dangle blockchain as a shiny object in front of investors. The combination of uncertainty, novelty, and potential for wealth has created an environment where a finance firm’s stock price can grow by 2,000% just by acquiring a blockchain company that has yet to post revenue. Seekingalpha.com put together a graphic showing how non-alcoholic beverage company, Long Island Ice Tea, boosted its stock value 183% in one day just by changing its name to Long Blockchain and by making vague promises about experimenting with the technology. Similarly, Kodak’s share prices doubled after it announced a blockchain-based photo licensing platform.

Something Is Rotten in the State of Blockchain

It is tempting to look at the explosion of blockchain projects in 2016 and 2017 as an encouraging sign that blockchain has earned its way into the mainstream as a powerful and innovative technology. Surely the diversity of companies announcing pilot currencies and proofs of concept can only be good for R&D, right?

The answer is that a yawning gap exists between announcing a project and treating the underlying technology seriously, just as there is a gap between announcing an ICO and having a real and sustainable product. Projects like this only help blockchain progress if the companies behind the announcements have a legitimate purpose beyond capitalizing on the world’s blockchain fever.

Where We Are Headed

It is possible—maybe even likely—that fraud, exploitation, and publicity stunts are a natural part of blockchain’s growing pains. And it is true that for the strong applications and business models to rise to the top, the weaker applications must drop out, one way or another.

We should not be afraid of projects and experiments failing. But is a cause for concern that blockchain has become a talisman, drawing in everyone from first-time investors to established companies, few of whom seem aware that most will fail. When the hype dies down, share values will drop with it—blockchain’s status as a magic word simply cannot last.

It is not just the opportunists that benefit from all the hype. Developers of serious blockchain solutions need to work doubly hard to separate themselves from the chaff, and they have an obligation not to let the investment flowing their way go to waste. The question is not whether the crash will come, but, as the creator of the joke turned billion dollar reality, Dogecoin, asks, “will there be enough magic left to build something real once it does?”

 

Even If It Doesn’t Survive, the Tesla Vision Has Already Won

— December 14, 2017

Whatever the ultimate fate of Tesla as a business, the vision of its founders seems assured to come to fruition. They set out nearly 15 years ago to build an electric sports car that would show a skeptical public that EVs aren’t the car form of broccoli (good for you, but not much fun). The envisioned electric car would be a gateway to electrifying all transportation.

With every new job at an EV maker, we are moving closer to that goal. Sales of the Chevrolet Bolt EV climb steadily with each month, Nissan is about to launch the second-generation LEAF, and more options will arrive in the coming months. Perhaps most importantly, the future combination of automated driving and electrification will provide great synergy in making transportation clean and safe.

The Bolt and LEAF are examples of automakers taking inspiration from Tesla and mixing traditional expertise in mass manufacturing and support. These automakers and most others are now aggressively developing and planning deployment of automated EVs like the Chevy Bolts being tested in San Francisco, California by GM unit Cruise Automation.

Can Tesla Stay Afloat?

Sadly, Tesla’s own quarterly financial statements don’t bode well for the brand that kick-started this next era of mobility. The company has shown an inability to execute on the core task of profitably building consistently reliable, high quality products to customers. The 3Q 2017 report showed the company was spending more than $2,000 per year per vehicle providing service while only generating $1,000 in revenue. Given the reduced maintenance an EV should require compared to an ICE, this is a clear indicator of Tesla’s spending on honoring warranties. As the in-service vehicle fleet grows, this problem will grow rapidly unless the company can come to grips with the basics of mass manufacturing.

As Tesla attempts to ramp up production of the Model 3, it must first address these challenges—or the reputation the brand has built around Elon Musk’s cult of personality will be squandered.

The Quandary of Some Typical Tesla Customers

Take, for example, a Northern California couple that can afford to buy a Tesla, including the Model X they own. He loves technology and is the definitive early adopter, often buying the latest life-enhancing gadgets. His CEO wife is far more pragmatic, though she also appreciates what technology can do to make life easier and better. She wants to replace her current premium German performance car with an EV when the lease is up in the next month. On the surface, another Tesla would be the obvious choice, but they’ve had numerous issues with it that have taken multiple service trips to resolve. Some issues, like an Autopilot system that has a predilection for randomly shooting toward guardrails, remain unresolved.

They looked at the 2018 LEAF this week, and she is seriously considering it. While it lacks the performance of the Tesla, she expects it to be far more reliable, coming from a company that knows how to bend and weld steel. Despite the problems with the Tesla, her husband wants to stick with the brand to support the vision. Fortunately, he’s in a financial position where he can do that. Most of the car buying public can’t afford to be so tolerant.

If Musk wants Tesla to remain a viable business after he rockets off to Mars, he needs to start listening to frustrated Tesla owners like this pragmatic CEO rather than reveling in his adoring fans.

 

Realistic Goals, Measurable Outcomes Lead to Columbus Smart City Challenge Win

— July 21, 2016

Bangkok SkylineOhio won its first major victory of the year when LeBron James led the Cleveland Cavaliers to the state’s first major sports title in over 50 years. Soon after, the City of Columbus, Ohio was officially announced as the winner of the U.S. Department of Transportation’s (DOT) Smart City Challenge. The city is set to receive a total of $140 million, with combined contributions from the DOT ($40 million), Seattle-based company Vulcan ($10 million), and a group of local businesses called the Columbus Partnership ($90 million).

One of the keys to Columbus winning the competition and beating out the better-known technology centers of San Francisco, Austin, and Denver was the city’s ability to demonstrate that its plan would result in increasing poor residents’ access to new transportation options. The city has proposed numerous solutions in this area. A few of the key proposals were:

  • An autonomous vehicle program that would transport residents from the Linden neighborhood—which has 3 times more unemployment compared to the city average—to a nearby employment center.
  • The creation of transit cards for low-income populations to use for ride-hailing or carsharing services, with or without having smartphones or bank accounts.
  • The building of smart corridors through wireless technology, which enables a new bus rapid transit (BRT) system that is more safe and efficient for high numbers of users (it’s important note that Columbus is also the largest city in the United States to not offer rail service).

Several of these transport initiatives are also expected to be integrated with improved access to healthcare services to help address the high infant mortality rates in many of Columbus’ poorer neighborhoods.

Other components of Columbus’ transport plan include an increase in electric vehicle (EV) charging stations throughout the city, enhancing smart grid technology by using EVs as distributed energy storage devices, expanding the municipal EV fleet, and securing 50 of the city’s CEOs to personally commit to buying and driving EVs, as well as installing charging stations for their employees.

Additional Funding Sources Also Crucial

While a focus on increasing poor neighborhood access to reliable and affordable transportation options was vital to the final awarding of the Smart City Challenge competition to Columbus, the $90 million pledged by the Columbus Partnership (if the city was to be selected) also played a major role. Financing the development of smart city projects continues to be the most significant challenge in the market, as outlined in Navigant Research’s recently published Smart Cities report. The guaranteed added investment by the Columbus Partnership made the city a highly realistic option for successful implementation and more likely to achieve the outcomes that were highlighted in its final proposal.

 

California Water Summit: A New Landscape for Water Management

— June 21, 2016

??????????????????Drought is not new to California, but 2012-2015 has been the driest 4 consecutive years in history. With climate change forcing us to face the idea of a new normal, the biggest question is: What if the next drought is even worse? This year’s California Water Summit highlighted how the discussion around California’s water situation is shifting focus from emergency measures to long-term preparation. This will require stakeholders to generate new solutions to address water management, both from the top down and the bottom up.

Top Down: Putting the Right Systems in Place

The California Department of Water Resources has been managing the variety of funding opportunities available to public utilities and others through Proposition 1. One focus area relates to the implementation of the Sustainable Groundwater Management Act (SGMA), which requires the formation of Groundwater Sustainability Agencies (GSAs) to oversee the management of the groundwater basins that provide over half of California’s water in dry years. The process of forming GSAs requires the input of many stakeholders on how to protect our watersheds from unsustainable use. As this effort evolves, it will be important to help these entities organize effectively and meet their planning requirements.

Another hot topic as resources become scarcer is that of water rights. Nobody wants to lose their access to water, but things have definitely changed since this fragmented system was put in place, resulting in suboptimal use of a precious resource. The summit called upon a number of Australians to share their experiences with the electronic water markets implemented in response to a culmination of factors, including their own drought that lasted over a decade. Though the endeavor was technologically challenging, the Australians said the largest obstacle was political inertia.

The California Water Summit also exhibited a strong focus on recycled water as an important water supply. Case studies showed the criticality of regulation and investment that support this resource as consumers become more comfortable with expanding its uses.

Bottom Up: Aligning the Resources

The Pre-Summit Workshop was dedicated to public-private partnerships, termed P3s, as a way to spur investment in water infrastructure. Various opportunities were discussed throughout conference sessions, including grant funding, which can take up to several years to secure. The summit wrapped up with a number of case studies that highlighted the importance of involving various stakeholders at every step in the process. One set of stakeholders to be particularly aware of is disadvantaged communities, as these sometimes overlap with areas hardest hit by drought.

Infrastructure is composed not only of large civic construction projects, but also of the more subtle IT networks that enable more precise management of water-related systems. These investments are also necessary as utilities seek to eliminate inefficiencies from leaks and other sources of waste. As the saying goes, “You can’t manage what you don’t measure.” We can expect increasing focus on (and hopefully investment in) California water data over the next few years.

 

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