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On December 14, 2015, L commented on Off-Grid Electric’s Mobile Power :

Off-Grid Electric seems to be a logical combination of the pay-as-you-go model that is prevalent in East Africa for banking and cell phones with SolarCity’s leasing model that has gained traction in the U.S. Not coincidentally, I noticed that SolarCity and DBL Investors, an investor in SolarCity, have both invested in OGE’s early funding rounds. It seems that OGE is well set up on the payment side to support residential solar installations, but I imagine that the sustainability of OGE’s business model will depend heavily on execution, access to low-cost capital, and customer acquisition.

This past summer, I worked with CrossBoundary Energy, which provides a platform to aggregate financing for commercial and industrial solar installation in East Africa. The company chose to focus on commercial rather than residential installations because of the high cost of customer acquisition in rural areas (note that this is an issue that SolarCity and other U.S.-based installers have also struggled with). In addition, the company found that there was little to no access to capital to support a leasing model for residential installations given the low cost of individual solar systems and the fact there was not a mechanism to aggregate disparate projects to attract international capital. Without access to these sources of capital, solar installations will be expensive and difficult to fund over the long-term. OGE could be positioned to address these challenges by leveraging the strong network for SolarCity and DBL to bring in foreign capital at a lower cost. However, I think that the ability for OGE to emerge from its current start-up stage will depend on the company’s efficacy of acquiring customers and delivering solar installations at less than the market cost for diesel-powered generation. I am hopeful that the company will succeed, but I recognize that it is up against some fairly stiff hurdles in terms of access to capital markets and the fact that its customers have absolutely no credit history. The commercial and industrial segment has attracted more capital for solar installations due to the lower risk profile of the customer and the fact that the customer has extremely high energy costs due to back-up diesel generation. If OGE is able to expand beyond the residential segment, it may be able to more effectively cross-subsidize its initiatives in residential solar given that there are few competitors in the East African market.

On December 14, 2015, L commented on Sunrun – Solar as a Service :

I find Sunrun to be an interesting growth story in the residential solar industry. In contrast with SolarCity and Vivint, Sunrun’s original business model was a partnership or channel model. Sunrun would provide financing through the third-party ownership model (both PPA and lease) and other support to its channel partners who would sell and install solar systems to residential customers. Even though SolarCity was the first company to extend SunEdison’s third-party ownership model from the commercial & industrial segment to residential, it was quickly leapfrogged by SolarCity, the aggressive and fast-growing industry leader in residential. SolarCity has pursued a vertical integration strategy in which it controls everything in the solar value chain from module manufacturing through installation. In 2014, Sunrun recognized that its unique partner model could not fuel the kind of growth that SolarCity, Vivint, and Sungevity were seeing and so the company decided to make a play for vertical integration by acquiring REC’s residential solar unit. In order to prevent its two models from cannibalizing solar sales, Sunrun has to carefully select its channel partners to avoid competition in certain geographic areas.

At the time of its IPO this summer, Sunrun lagged behind SolarCity in terms of customers (Sunrun had 78,000 to SolarCity’s 218,000). In addition, Sunrun’s dual business model limits its ability to reduce costs in anticipation of the ITC’s expiration at the end of 2016 (note – ITC drops to 0 for residential installations and to 10% for utility-scale and commercial installations) because it does not control module manufacturing and installation to the same extent that SolarCity does. Given the recent selloff in solar stocks and in energy stocks more broadly, Sunrun is well-positioned to weather the downturn given the diversification provided by the channel partner model. SolarCity has been punished by investors after scaling back its 90% growth year-over-year to a projected 40% growth in order to rein in costs in advance of the ITC expiration. Sunrun has not faced the same kind of pressure because its channel partner model requires less resources and may provide an advantage in certain markets. With discussions about ITC extension ongoing in Congress today, it will be interesting to see how Sunrun fares relative to SolarCity in the next year, especially given Vivint’s troubles with the SunEdison acquisition.

On December 14, 2015, L commented on Twitter at a Crossroads :

Twitter’s rocky performance and revolving door of executives over the past couple of years suggests that the company is not adequately supporting its business model. It seems that Twitter’s business model may not actually be appropriate given the nature of its user base and the fact that its users are responsible for generating content through the platform. Twitter’s current business model seems to largely be based on Facebook’s and tries to monetize users by showing them advertisements or promoting mobile app installations. However, Twitter does not have the same targeting capabilities that Facebook does because users can only communicate in 140 characters rather than the wealth of data available through Facebook profiles. In addition, Facebook allows users to keep certain information private, which encourages users to share more information that Facebook can use for advertising. Twitter, on the other hand, is public and users are less likely to share as much information as a result.

Twitter’s recent effort to reach non-Twitter users through re-targeting of advertisements seems like a shift in business model because the current model is not delivering enough growth in revenue or in new users. It remains to be seen whether this shift in business model will be enough to cross-subsidize its existing user base and to prevent the low levels of engagement with Twitter relative to competitors like Facebook, Instagram, and Snapchat.

Finally, the frequent changes in Twitter’s leadership seem to be a symptom rather than a feature of a broken operating model. It may be that Twitter’s search for a better business model has led to the company’s seemingly rash decision to fire its software engineers, change the entire executive team, or to antagonize the developer community. Either way, these changes have limited the company’s ability to change its direction dramatically and may continue to threaten its growth in users.