Sunday, May 9, 2010
This post is in response to a question Grant asked after my post “Technology is not God” "...if we are in peak oil then these giant oil companies (like BP) would be spending more than 4% of their take on expanding into other sources of energy. They are good business people they should know how to read the future.”
A trap that is the downfall of many business empires, is trying to corner the market relying on the “fact” that they are invincible. During the oil embargo the big three had a plan to continue their dominance over the car market. Kill off their competitors. They destroyed AMC and the few other American carmakers that dared make more fuel-efficient cars. This strategy was based on the fact that consumers wouldn’t buy the funny looking European and Japanese cars that were being brought over.
IBM responded to Apple coming out with the Personal Computer by slapping together an “off the shelf” personal computer and putting their name on it, because businesses would pay a little more for the IBM brand and they would retain their dominance. No one would buy stuff from the little electronics companies that could make an identical product.
The major oil companies are responding in the same way now.
BP is spending a small amount of their profits (4%) on big alternative energy projects, Wind Farms, Solar Energy Farms, and Biofuels; the other major oil firms spend slightly less. The idea behind these projects is to make them big and scalable so they can retain control of the energy market.
This makes good business sense if you figure consumers won’t want the hassle of installing solar shingles to power their homes and remember to plug in their cars every night.
Instead of investing in manufacturing the hardware to provide household energy production they are investing in the technology to maintain the existing power infrastructure at a much higher cost. They are basing alternative energy investments on a time when gasoline is consistently between $4 and $5 a gallon. So they are just laying out the groundwork so after more oil shocks the price stays up there they can start pushing these big project aggressively.
Luckily these companies aren’t invincible and smaller companies will come in and take over. Like the big three were “blindsided” by the Japanese carmakers, and IBM couldn’t foresee that having Microsoft make the most important part of their computers would take away their dominance of the computer market, the major oil companies will lose control of the energy market.
So to any business executive that thinks their business model is invincible to smaller companies, I say, “Shut-up Stupid history shows you’re wrong.”