Sunday, May 9, 2010

Shut-up Stupid Sunday: Invincible

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.”


Grant Lawrence said...

Excellent post. Yes, companies underestimate the competition and do it to their own peril.

Still, my thinking is that this goes beyond competition. The company should be looking at the survivability of their company in the face of the future of little or no oil.

You may be right that the BP best and the brightest of engineers, geologists, accountants, etc. are actually too stupid to realize what the future of peak oil holds for their corporation.

Or as I think, they believe in the long term availability of oil and that is why they are not investing more into alternatives. After all, with the real or manufactured shortages of the future oil will likely bring in more massive profits (as you rightly point out). The government is also geared toward a future of fossil energy (no matter what they pretend) and barring any other super disasters and the actuality of peak oil, we will be addicted to gasoline for as long as the multinationals can pull big profits from it.

But thanks for the well written and well reasoned response.

Stephanie Barr said...

You are a font of insight. I love reading these posts.

I personally think big oil's comeuppance is sooner than anyone expects.