Elon Musk’s Tesla Motors has recently announced plans to enter the market for battery-based, backup power systems for homes and businesses. A Harvard professor says the firm is likely to succeed not just because of the versatile and well-marketed Powerwall system, but “because of Tesla’s potential to deploy a true ecosystem strategy to jump-start what has so far been a product-based game.”
The professor argues that even though the home power-backup business has been a flop to date, Tesla has a good chance to change all that and transform the market with its success.
Understanding how Tesla and Apple build on ecosystem carryover
Harvard professor Ron Adner introduces the concept of ecosystem carryover, where firms use their current positions in existing market spaces to jump-start a winning position in a new market space, and says Tesla is following the classic blueprint.
As Adner discussed in his book The Wide Lens, Apple used ecosystem carryover to enter the already-established smartphone market and changed the game. He argues that Apple leveraged its iPod user base to “reinvent the market.” He says it “was not the uniqueness of the iPhone that persuaded mobile operators to break from previous industry norms; rather it was the assured support of eager iPod buyers who would be happy to upgrade to this next-generation device.”
He goes on to argue that ecosystem carryover is critical for a successful market convergence. It’s all about recognizing your product and your brand and perceiving two (or more) markets as a single coherent opportunity. Adner points out that it is “easy to forget that MP3 players and mobile phones were once regarded as separate market opportunities. So, too, for electric cars and home-energy management.”
Tesla’s plans for ecosystem carryover
According to Adner, Tesla has the ability to pursue a two-pronged ecosystem carryover strategy. First is the firm’s strong position with existing Tesla EV owners, a customer base with strong loyalty and high disposable income. Second is the charismatic personality of Elon Musk, Tesla’s founder and chairman of SolarCity (industry leader in residential solar-power), who has the ability to create excitement in distribution channels and convince the industry and the public that Powerwall will be a huge success.
If Tesla is able to leverage their unique relationships, the firm should have a distinct competitive advantage. Moreover, the advantage does not derive directly from size, brand strength, or even design. Best of all, it is an advantage that can’t be overcome through product imitation. Many of Apple’s deep-pocketed, highly capable rivals in the smartphone market have delivered products arguably as good or better Apple’s, but they can’t come close to the iPhone maker’s product numbers or highly profitable price point.