Co-Evolution of Disruptive Technologies
for Sustainable Transformation
Blockchain Start-ups’ Interactions
with Incumbents in the Energy Sector
Erniël de Boer
10248064 erniel@live.nl
Master’s Thesis
MSc Business Administration - Digital Business Track Faculty of Economics and Business
Amsterdam Business School University of Amsterdam Final Draft June 22nd, 2018 Supervisor: Ms. Merve Güvendik MSc Academic Year: 2017-2018
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Statement of Originality
This document is written by Erniël de Boer, who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
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Acknowledgements
This master’s thesis is the culmination of my MSc Business Administration degree at the Amsterdam Business School of the University of Amsterdam. The Digital Business track has ignited my interest in technology and innovation, while writing this thesis and following the Sustainability specialization has confirmed my drive and passion for sustainability and sustainable development. I thus hope that I am able to combine these interests in the next step of my career.
First of all I would like to thank Merve Güvendik, my thesis supervisor, for her openness, support, insightful comments, and enabling me to pursue such a motivating topic.
Secondly, I want to thank Thomas from Solarplaza, Paul from Clearwatts, Willem from HanzeNet, Fardau from Vandebron, and Kaushik from Power To Share, for taking the time to share their experiences and allowing me to gain some insights into their incredibly interesting companies.
Last, but not least, I want to thank my girlfriend Charlotte, my family, and my friends for their undying support, advice, encouragement and enthusiasm that helped me get through this master’s programme and enabled me to achieve results that I can be proud of.
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Abstract
In order to reach sustainable development, this paper proposes different interactional pathways to sustainable mass market transformations for start-ups utilizing a disruptive technology through co-evolutionary interactions with incumbents in their sector. Previous research has been primarily focused on competitive-oriented interactions (replication, M&A, and mimicry), and to a lesser extent on partnerships for joint innovation, contributing to sustainable transformation of a market. However, besides support for two competition-oriented interactions (M&A and mimicry), this study also uncovers the possible prevalence of start-up and incumbent partnerships in mass markets, and the existence of other co-evolutionary partnership-based interactions. Through a multiple cross-case study on five start-ups utilizing blockchain technology in the Dutch energy sector, six types of co-evolutionary interactions that start-ups have with incumbents emerge: The competition-oriented (1) Mergers and acquisitions, and (2) Mimicry; and the partnership-oriented: (3) Service-based partnerships, (4) Joint innovations, (5) Affiliating and funding, and (6) Coaching and support. The effects and potential of these interactions for sustainable transformation of a mass market, are displayed in a proposed theoretical market model. Additionally, this paper aims to clarify the similarities and differences between the disruption and innovation theory by examining how blockchain technology fits in this theory, and subsequently illustrating this in a proposed disruption and innovation model. Blockchain is found to enable both a low-end disruption or a new-market disruption, as either an incremental or radical innovation.
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Table of Contents
1. Introduction ... 1
2. Literature Review ... 5
2.1 Innovation and Disruption Theory ... 5
2.1.1 Incremental vs Radical Innovation ... 5
2.1.2 Sustaining vs Disruptive Technologies ... 7
2.1.3 Innovation and Disruption Similarities and Differences ... 9
2.2 Business Model Theory ... 11
2.2.1 The Business Model Concept ... 12
2.2.2 Business Model Innovation ... 13
2.2.3 Sustainable Business Models ... 16
2.3 Blockchain Theory ... 20
2.3.1 Blockchain Technology ... 20
2.3.2 Blockchain in the Energy Sector ... 22
3. Methodology ...26 3.1 Research Design ... 26 3.2 Research Setting ... 27 3.3 Data Collection... 27 3.3.1 Case Description ... 28 3.3.2 Coding Process ... 30 3.4 Data Analysis ... 30 4. Results ...32 4.1 Co-Evolutionary Interactions ... 32 4.1.1 Competition-Oriented Interactions ... 32 4.1.2 Partnership-Oriented Interactions ... 34
4.1.3 Interaction Overview and Comparison ... 38
4.2 Blockchain Technology Disruption and Innovation ... 40
4.2.1 Disruption ... 40
4.2.2 Innovation ... 41
v 5. Discussion ...46 5.1 Co-Evolutionary Interactions ... 46 5.1.1 Competition-Oriented Interactions ... 46 5.1.2 Partnership-Oriented Interactions ... 48 5.1.3 Interaction Model ... 49
5.2 Blockchain Technology Disruption and Innovation ... 50
5.2.1 Disruption ... 51
5.2.2 Innovation ... 52
5.2.3 Disruption and Innovation Similarities and Differences ... 53
5.3 Theoretical Implications ... 54
5.4 Managerial Implications ... 55
6. Conclusion ...56
6.1 Limitations and Future Research Directions... 57
References ...59
Appendix A: Framework for Blockchain Adaption ...64
Appendix B: Interviewee Overview ...65
Appendix C: Interview Protocol ...66
Appendix D: Interview Protocol (Dutch) ...67
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1.
Introduction
To combat global climate change and the accelerating depletion of natural resources, sustainable development of large industries is necessary (Hockerts and Wüstenhage, 2010). In order to achieve this, these mass markets must become more sustainable (Schaltegger, 2002). Companies can play a major role in transforming markets and society (Geels and Schot, 2007), but they need to rethink their business models in order to contribute to sustainable development (Schaltegger, Lüdeke-Freund, & Hansen, 2012), and integrate social and environmental value creation in addition to economic value creation (Boons and Lüdeke-Freund, 2013). Both small sustainability aimed niche start-ups (“Davids”) and large mass market incumbents (“Goliaths”) can pursue this transformation into a more sustainable industry (Hockerts and Wüstenhagen, 2010).
In the early stages of an industry’s sustainability transformations, start-ups are often the pioneers by integrating sustainability opportunities, innovations and principles as core aspects into their business model (Jolink and Niesten, 2015). While large market incumbents react by engaging in corporate sustainable entrepreneurship activities once the market starts to grow (Hockerts and Wüstenhagen, 2010). The small players have to grow and multiply their sustainable business (model) to be able to contribute to the transformation, after which the large incumbents follow with their own sustainable activities. This interplay between the pioneering start-up and the incumbents with a large market share can create a compounded impact that is more likely to take the sustainable development of their industry to the next level, than efforts of either of the two alone (Hockerts and Wüstenhagen, 2010).
The characterization of sustainability contributions according to such a “small vs big” dichotomy may however limit the analysis of sustainable market transformations, as the different sized firms may take on deviating roles (Schaltegger, Lüdeke-Freund and Hansen, 2016): Large incumbent can engage in sustainable practices, while start-ups can exert sustainability-oriented influence
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through direct or indirect market-mechanisms without growing their market share. This co-evolutionary interplay influences the retention and diffusion of sustainable business models in the mass market, and may so contribute to its sustainability transformation. (Schaltegger, Lüdeke-Freund and Hansen, 2016). Another possible important road to sustainable change within mass markets are alliances and partnerships between start-ups and incumbents (Yang, Zheng and Zhao, 2014). These alliances are a vehicle for large incumbents and small-start-ups for joint innovation that disseminates sustainable technologies throughout the industry (Wadin, Ahlgren and Bengtsonn, 2017).
There is however a lack of insight on which co-evolutionary interactions – competition (Hockerts and Wüstenhagen, 2010); interactional market-mechanisms (Schaltegger, Lüdeke-Freund and Hansen, 2016); alliances and partnerships (Wadin, Ahlgren and Bengtsson, 2017); or other possible interactions – exist within large unsustainable industries.
While there currently are rapid progressions in the field of sustainable energy sources, the energy sector is still primarily dependent on fossil fuels (Boroojeni et al., 2016), and the use of these non-renewable energy sources is directly linked to environmental degeneration (Silvente et al., 2015). Large electricity company monopolies are often invested in preserving their own conventional energy systems (Musing, Mather and Moura, 2017). So, as most incumbents in the energy sector have invested in profiting from unsustainable energy sources and business practices (Cohen and Winn, 2007), change is expected from start-ups leveraging renewable energy sources and disruptive technologies (Hockerts and Wüstenhagen, 2010). This conflict in interests has led to rethinking our architecture of energy management (Imbault et al., 2017), and a call for new market approaches and business models (Mengelkamp et al., 2017a).
A promising disruptive information technology currently emerging is blockchain (Münsing, Mather and Moura, 2017). Blockchain is a decentralized, digital transaction technology that
3 enables secured data storage and smart contract execution in peer-to-peer networks (Swan, 2015). Blockchain could serve as a digital platform in the energy sector to create decentralized market systems, provide transparent and accessible applications, or be used for assessments of generation capacity and availability, microgrid management and grid balancing mechanisms (Burger et al., 2016: p. 15).
Disruptive technologies, such as blockchain, can disrupt markets as both a low-end disruption or a new-market disruption (Christensen, Raynor and McDonald, 2015), with either incremental innovation or radical innovation (Freeman and Perez, 1988). The diffusion of such disruptive technologies, their innovations, and their related sustainable business models may contribute to a transition towards more sustainable industry (Schaltegger, Lüdeke-Freund and Hansen, 2016).
Due to the similarity and overlap between disruption and innovation theory, the definitions of disruption and (radical) innovation may however be confused or inadvertently used interchangeably (Latzer, 2009). It is thus important the differences are stressed in order to avoid these confusions (Christensen and Raynor, 2003).
More studies are necessary on the possible pathways of co-evolutionary interplay between incumbents and start-ups (Hockerts and Wüstenhagen, 2010), the related transformation of their business models, and their contribution to a sustainability transformation of the market (Schaltegger, Lüdeke-Freund and Hansen, 2016), as sustainable development requires the diffusion of disruptive technologies and their related sustainable business models throughout the mass market (Bohnsack, Pinkse and Kolk, 2013; Wadin, Ahlgren and Bengtson, 2017). This study will thus focus on “investigating arenas where Davids and Goliaths interact” (Hockerts and Wüstenhagen, 2010: p. 490) and contribute to the literature by answering the following research question:
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“Which co-evolutionary interactions do start-ups utilizing disruptive technologies
have with incumbents for sustainable market transformation?”
Additionally, to clarify the similarities and differences between disruption and radical innovation theory, and in order to avoid confusion of the two definitions due their overlap (Christensen and Raynor, 2003; Latzer, 2009), this paper proposes a disruption and innovation model that is subsequently tested with the following second research question:
“How does blockchain technology fit into the disruption and innovation theory?”
The research is organized as follows. In the next section the existing relevant literature is reviewed in order to establish a theoretical background, to further build upon. Then, in the subsequent section, the research methodology and data analysis are discussed. The section thereafter describes the outcomes based on a multiple case study of the Dutch energy sector, followed by a section that discusses the findings. The final section contains the conclusion, including a discussion of theoretical and managerial implications, this research’s limitations and future research directions.
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2.
Literature Review
In this section the theoretical background of the research is established. This is done by reviewing current literature that examines important concepts and theories concerning this subject.
In this study the terms ‘start-up’, ‘entrant’, and ‘entrepreneurial firms’ are used interchangeably. All these concepts are understood following Bhide’s (2000) definition of entrepreneurial firm, as: “relatively young organizations that have the potential of attaining significant size and
profitability” (p. 29).
2.1 Innovation and Disruption Theory
Two different, but similar, concepts and taxonomies of innovation and technology prevail within the theory: Incremental vs. radical and sustaining vs. disruptive. Both are described and distinguished in this section, after which a model is proposed that illustrates an overview of different possible combinations.
2.1.1 Incremental vs Radical Innovation
Freeman and Perez (1988), proposed a taxonomy by distinguishing four different types of innovation: (1) Incremental innovation; (2) Radical innovation; (3) New technology systems; and (4) Changes in techno-economic paradigms. As especially their topology of incremental and radical innovation has stayed relevant throughout innovation theory only these two are described for the objective of this study.
Incremental innovation is the continuous and incremental improvements of products, processes or technologies. Incremental innovation rates differ between countries and industries, and often occur through improvements by engineers or proposals by users; radical innovations are defined as discontinuous events. They can lead to either fundamental changes compared to their preceding products, processes or technology, or lead to the emergence of entirely new products,
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processes or technologies. Radical innovation typically results from intentional research and development into new innovations and can be of importance as the beginning of new markets.
Since the article by Freeman and Perez (1988), many different definitions for radical innovation can be found in the literature. They often contain similar adjectives to radical, such as discontinuous, architectural or revolutionary, in an attempt to further differentiate the radical innovation concept. However, what almost all these definitions have in common is either discontinuous/fundamental improvement, or the emergence of a new process, product or technology. Similar outcomes have been found for the definition of incremental innovation, where the improvements are step by step (Latzer, 2009).
For the purpose of this study, the following definitions for innovation are thus used: Incremental (continuous) innovations are step-wise improvements linked to existing products, processes, or technologies while radical (discontinuous) innovations are either fundamental improvements, or not linked to current products, processes, or technologies at all.
Incumbents’ vs Entrants’ radical and incremental innovation
Henderson and Clark (1993) found in the photolithographic alignment equipment industry that incumbents were more focused on and invested in incremental innovation, while it was more likely for entrants to prevail in radical innovation. He suggested that since incremental innovation builds upon existing knowledge and capabilities, incumbents have an advantage over entrants. Consequently, this can simultaneously lead to a substantial decrease in the ability of incumbents to exploit radical innovation,
Chandy and Tellis’ study (2000) into the origins of radical innovations within two product classes across 150 years however suggested that incumbents introduced most radical product innovations (75 percent). They thus concluded that the conventional consensus about entrants’ dominance in radical innovations may not always be valid.
7 While Ansari and Krop (2012) again suggest that radical innovations often unseat incumbents in the industry and can even turn them obsolete, their research also shows that while facing radical innovations, incumbents can survive or even prosper through several practices, such as: Setting up organizational forms and structures that can sustain radical innovation, and negotiating productive collaborations with new-entrants. Thus, according to the literature, while entrants usually exploit radical innovation, leveraging radical innovation is also possible for incumbents.
2.1.2 Sustaining vs Disruptive Technologies
Disruptive technology theory was first conceptualized by Bower and Christensen (1995). They describe disruptive technology as new technologies that do not initially meet the needs of mainstream customers, but eventually fully or partially replace the older technology. The technological changes are however typically not difficult or fundamentally new but hold two important characteristics: (1) They often initially attract customers outside of the mainstream, because of different performance attributes. (2) The performance attributes of the technology advance so rapidly that it can later invade the traditional mainstream market. At this point, these customers will also want the technology (Bower and Christensen, 1995). Consequently, disruptive technology can alter an entire industry, or trigger the emergence of a completely new one, as it can both solve the problem in a different and novel way or for a completely different group of people (Christensen, 1997).
The opposite to disruptive technology is sustaining technology, which targets the mainstream, often high-end customers, by growing current technologies and increasing their performance attributes, typically through enhanced functionality or extended capacity. (Christensen, 1997; Christensen and Raynor, 2003). It does however not matter if the performance is increased through an incremental step in the technology or a through a break-through surpassing all competitors.
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Christensen and Raynor (2003) later extended the term from disruptive technology to disruptive innovation, thus including not just technologies but also products and business models. In the same article they defined two kinds of disruption: (1) Low-end disruption; and (2) New-market disruption.
Low-end disruption occurs at the low end of the current market, where firms start off targeting ‘less attractive’ consumers through low-cost models, and eventually take over the mainstream segments through improvements as well. New-market disruption usually create a novel need in consumers, through affordability and simplicity. Firms that foster the new-market disruption and improve the underlying technology may eventually be able to convince consumers to switch from the old market into their newly created market.
Danneels’ (2004) study offered a critique and research agenda on the theory of disruptive technology. Among other things, he found inconsistencies in the definition of disruptive technology, addressed the predictive use of the theory, and explained the success of incumbents. According to his research the definition suggested by Christensen (1997; 2003) leaves multiple questions, thus he proposes the following definition: “A disruptive technology is a technology that
changes the bases of competition by changing the performance metrics along which firms compete” (p. 249).
In Markides (2006) study, focused on the notion that it is a mistake to use the disruptive technology theory by Christensen et al. (1997; 2003) to explain all kinds of disruptive innovations, he proposes that there is a need for better theory of disruptive innovation. He suggests that business model innovation and radical product innovations are, although similar to Christensen’s disruptive innovation, different kinds of innovation. He demonstrates that while both business-model innovation and radical product innovations are disruptive, the implications for managers
9 are fundamentally different, and the challenges they impose on incumbents differ greatly as well. Thus, they should be treated as separate phenomena.
Christensen, Raynor and McDonald (2015) evaluate the theory of disruptive technology (now addressed as disruptive innovation) in their article, as they found that its core concepts have been widely misinterpreted and/or misapplied. They define disruption as “a process whereby a smaller
company with fewer resources is able to successfully challenge established incumbent businesses”.
Disruption is possible when an incumbent is focused on the mainstream customer, and entrants can target the overlooked segments, gaining traction through often cheaper and more-suitable functionality. As incumbents tend not to respond, the entrepreneurial firm can move upmarket, and start to deliver the quality required by the mainstream customer. Disruption occurs when mass adoption of the entrant’s product by the mainstream customer starts.
Incumbents’ vs Entrants’ Sustaining and Disruptive Technology
In most of the previously mentioned literature it is emphasized that in existing markets, entrants are typically the disruptors, while incumbents are the ones being disrupted. However, Daneels (2004) found contradictions to the Christensen’s statements (1997; 2003) that that incumbents tend to fail when they are up against disruptive technology, and suggests that while incumbents typically falter when faced with disruptive technology, some do not.
2.1.3 Innovation and Disruption Similarities and Differences
The relative novel disruptive and sustaining technology literature builds upon the innovation theory, and adds another scale of classification and differentiation (Latzer, 2009). However, as there are some similarities and overlap, it is important the differences are stressed so the definitions are not confused or used interchangeably (Christensen and Raynor, 2003).
In order to clarify the similarities and differences, the following explanations are proposed: A new-market disrupting technology enables the emergence of a new new-market through radical innovation.
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While a low-end disrupting technology can enable either stepwise improvements (incremental innovation) or fundamental improvements (radical innovation) to an existing market, eventually replacing the sustaining technology. For a sustaining technology, radical innovation may be enabled by, for example, a break-through in the technology. Thus, the basic relation between the incremental vs. radical classification and the sustaining vs. disruptive classification is that multiple different combinations of the definitions are possible (Latzer, 2009).
In an attempt to depict and simplify these propositions, and its similarities and differences, Figure 1 displays a model featuring the suggested possible combinations of disrupting and sustaining technology, and incremental and radical innovation.
Figure 1:3D Technology Disruption and Innovation Model: Adapted model from Christensen, Raynor and McDonald (2015), based on Freeman and Perez (1988), and Christensen and Raynor (2003)
11 As described by Christensen and Raynor (2003), an incumbent’s sustaining technology focuses on improving current technologies through gradually increasing its performance measures, typically by enhancing functionality or extending capacity stepwise (incremental innovation). It is however possible that, when a break-through in the current technology occurs, a sustaining technology is improved fundamentally (radical innovation).
A similar narrative is true for the low-end disruption Christen and Raynor (2003) described. Through step by step improvements (incremental innovation) of their technology, entrants are eventually able to take over the mainstream segment, and disrupt the incumbent and its market. When the low-end disruption technology of the entrant improves fundamentally, the innovation is radical.
New-market disruptions typically leverage technologies to create a new market, which differs through affordability and simplicity compared to the ‘old’ market (Christensen and Raynor, 2003). As the new-market disruption technology is not linked to current technology, the innovation occurring is radical (Freeman and Perez, 1988; Latzer, 2009). As entrant’s new-market disruption can both solve the ‘problem’ in a different and novel way or for a completely different group of people (Christensen, 1997), they may eventually be able to convince consumers to switch from the old market into their newly created market (Christensen and Raynor, 2003).
2.2 Business Model Theory
The business model has received substantial academic and practitioner attention over the last two decades (Zott, Amit and Massa, 2011), and is nowadays still an area of lively discussion and inquiry (Massa, Tucci and Afuah, 2017). This section discusses the business model concept, business model innovation, sustainable business models, and the co-evolution of disruptive technologies and related sustainable business model through start-up and incumbent interactions for sustainable transformation.
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2.2.1 The Business Model Concept
Business models and business model innovation have been thoroughly examined in the academic literature (Chesbrough, 2010). But, the exact definition of a business model is still seen as difficult to identify (Teece, 2010), as business models are often quite complex (Zot and Amit, 2010), and there exist a multitude of differing suggested conceptualizations (Zott, Amit and Massa, 2011). Massa, Tucci and Afuah (2017) define the business model at a very generic and intuitive level, as a concept describing an organization and how that organization operates in realizing its goals.
The comprehensive review of academic literature by Zott et al. (2011), revealed several insights. They indicate that overall, academics do not agree on what a business model exactly entails hindering collective progress. Their research also showed that business model theory develops mainly in three primary interest ‘silos’: E-business and IT usage in firms, strategic issues, and innovation and technology management. However, they also found that despite these silos there were four emerging themes within the literature and suggest that those themes could help unify the development of business model theory: “(1) the business model is emerging as a new unit of
analysis; (2) business models emphasize a system-level, holistic approach to explaining how firms “do business”; (3) firm activities play an important role in the various conceptualizations of business models that have been proposed; and (4) business models seek to explain how value is created, not just how it is captured.” (p. 1).
In their assessment of business model studies, Massa, Tucci and Afuah (2017), divide the literature into three basic interpretations of the business model. According to the first interpretations, a business model is an attribute of an organization. In the second interpretation, it is a cognitive or linguistic schema. Lastly, following the third interpretation, it is a formal conceptualization describing the activities of a company. According to them, a possible solution to this interpretation problem, is to “more explicitly acknowledge the existence of these interpretations
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and explain which interpretation is assumed in each study” (p 49). Thus, for the purpose of this
study, the interpretation will be used of a business model being an attribute of a company.
Bjorkdahl (2009) suggests that applying a suitable business model can strengthen the value of a disruptive innovation, increase its market attractiveness, and contribute to gaining a competitive advantage. A suitable or ‘right’ business model is however not easily identified, especially when working with emerging or disruptive technologies (Teece, 2010). In this case, finding the appropriate business model requires a process of iterative experimentation and alteration (Chesbrough, 2010). Thus, it could be said that a business model evolves over time (Sosna, Trevinyo-Rodríguez and Velamuri, 2010).
2.2.2 Business Model Innovation
According to Rosenbloom and Spencer (1996), when firms take technology to market they can sometimes utilize business models they are already familiar with. However, often the technological or market opportunities for new technologies do not fit with a firm’s already identified business models. To be able to deliver value from the technology, the firm must find the right business model for its venture.
Chesbrough and Rosenbloom (2002) similarly found that incumbent firms often fail to exploit new technologies when these require business models deviating from the firm’s current business model. This is because incumbents typically have trouble creating and employing new business models and are hence not able to create value from their technological innovation. Start-ups are however usually less constrained by their current business model, and are hence better equipped to leverage technological innovations requiring novel business model approaches.
For start-ups, the designing of their business model is thus an important issue. Two critical themes of business model design linked to the performance of start-ups were identified: Business models being either efficiency-centered or novelty-centered (Zott and Amit, 2007).
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Efficiency-centered business model design is employed by firms whose business model is focused on reducing transaction costs (increasing transaction efficiency). Firms with a business model aimed at new ways (innovations in methods) of transactions, such as “connecting previously
unconnected parties, linking transaction participants in new ways, or designing new transaction mechanisms” (p. 182), employ novelty-centered business model design.
Both kinds of business model design are neither mutually exclusive nor orthogonal. The results of their study indicated that especially novelty-centered business model design is important to the performance of start-ups. It was also found that start-ups’ efforts to create business models that combine both designs may be counterproductive. Lastly, the research showed that that firms are also able to innovate through collaborating with their partners, suppliers, and customers (Zott and Amit, 2007).
Chesbrough’s study (2010) proposes that business model innovation is of vital importance, but also very difficult to realize. According to his study (new) technology has no objective value, but to obtain its inherent economic value, the technology needs to be commercialized through a business model (also see Chesbrough and Rosenbloom, 2002). He suggests that a “mediocre
technology pursued within a great business model may be more valuable than a great technology exploited via a mediocre business model”, underlining the importance of a suitable business
model. Business model innovation is essential to find suitable business models, but business model experimentation – necessary for innovation – faces significant barriers. It is possible that the most suitable business model is recognized, but its development faces resistance due to conflict with the current business model (Amit and Zott, 2001; Christensen, 1997; Christensen and Raynor, 2003), or that firms may not have a clue what the right business model should be at all (Chesbrough and Rosenbloom, 2002; Chesbrough 2010).
15 Business model innovation, and thus finding the suitable business model, can be done through combining business model experimentation, identifying internal leaders for business model change, and making sure the organizational culture embraces the new model (Chesbrough, 2010). Path-dependencies
In the previous section is has become clear that there is a distinct difference between how incumbent firms and start-ups can create value from aligning their business models to their new technology. This is due to the degree the different kinds of firms are constrained by path-dependent behavior.
Path-dependency suggest that past behavior will guide future behavior, and implies inflexibility and stability in decision-making patterns over time. Due to historical practices and self-reinforcing mechanisms, organizations tend to become dependent on following a specific path. (Sydow, Schreyögg and Koch, 2009)
These path-dependencies cause incumbents to try to align their new technologies to their current business models, as they are constrained by certain barriers (Sosna et al., 2010; Chesbrough, 2010) and self-reinforcing mechanisms – sticking to established decision-making rules, using internal complementary assets, and meeting the expectations of existing customers (Sydow et al., 2010 as cited in Bohnsack, Pinkse and Kolk, 2014) – drive incumbents to not diverge from current business models too much (Chesbrough and Rosenbloom, 2002; Sydow et al., 2010). The research done by Bohnsack et al. (2014) also indicated that path-dependency has a considerable but distinct impact on the business model evolution of incumbents and start-ups, as they believe incumbents tend to focus on efficiency-centered business model design (Zott and Amit, 2007), while the focus of start-ups is primarily on novelty-centered business model design (Zott and Amit, 2007).
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In conclusion, start-ups are less prone to path-dependencies as they are not constrained to aligning new technologies to their current business model. Start-ups are more flexible in pursuing and evaluating alternative business models and can thus develop radically new models relatively easy (Chesbrough and Rosenbloom, 2002; Sosna et al, 2010). Thus, as both kind of companies have a different perspective on developing their business models, interactions between start-ups and incumbents may be of essence for the diffusion of disruptive technologies and their related business models industry (Schaltegger, Lüdeke-Freund and Hansen, 2016).
2.2.3 Sustainable Business Models
Sustainable development has been defined as “development that meets the needs of the present
without compromising the ability of future generations to meet their needs.” (p. 41) and thus calls
for the integration of environmental and social issues into the development decisions (Brundtland Commission, 1987). Business model innovation is probably the most applicable method to establish such a significant switch in the purpose and value creation of business, necessary for the transformation towards a sustainable economy (Bocken et al., 2014).
In order to construe the sustainable business model concept, Boons and Lüdeke-Freund (2013) propose examples of basic normative requirements for each of the business model’s elements: (1) The value proposition, has to create both environmental and social value in addition to economic value, through their products and services; (2) The business infrastructure, requires the integration of sustainable supply chain management principles; (3) The customer interface, has to facilitate intimate customers- and other actors relationships, so accountability for production and consumption systems are established; and (4) The financial model, has to evenly allocate economic costs and benefits among the involved stakeholders.
While the literature on sustainable business models is still regarded as vague and fuzzy (Boons and Lüdeke-Freund, 2013: p. 13), two recurring key aspects can be highlighted. First, avoiding or
17 mitigation of the destruction of value must be incorporated into a sustainable business model. Second, as with sustainable development, sustainable business models necessitate a broader understanding of value, which includes the integration of social and environmental value (Roome and Louche, 2016).
Built upon some of the above described discussions, Schaltegger, Lüdeke-Freund and Hansen (2016) propose a general definition of sustainable business models:
“A business model for sustainability helps describing, analyzing, managing and
communicating (i) a company’s sustainable value proposition to its customers and all other stakeholders, (ii) how it creates and delivers this value, (iii) and how it captures economic value while maintaining or regenerating natural, social and economic capital beyond its organizational boundaries.” (p. 268)
This will also be regarded as the definition of sustainable business model in this study. Sustainable Business Model Co-Evolution
According to the research of Hockerts and Wüstenhagen (2010), both start-ups and market incumbents have a different and specific role in transforming industries towards sustainable development. Typically, start-ups employ disruptive sustainability innovation and pursue sustainable-oriented opportunities when an industry's transformation towards sustainability emerges. The (possible) success of these sustainability focused start-ups attracts incumbents, which due to their larger pool of resources can further stimulate the market’s sustainability transformation through business model-mimicry and mainstream distribution access. This co-evolution, due to interplay between start-ups and incumbents, leads to better results of sustainable development in the industry than their separate efforts. Supporting this conceptualization, Bohnsack, Pinkse and Kolk, (2013) found that in the electric vehicle industry,
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start-ups were the main source of new (elements of) business models, which later diffused into the industry, through adoption of incumbents.
Further research however indicates that this “Small versus Big” dichotomy may suffer from a limited view. There are examples of small companies, or start-ups, growing into mass market players, but other developments than this growth, or mimicry of a sustainable start-ups’ principles by an incumbent, are possible as well (Schaltegger, Lüdeke-Freund and Hansen, 2016). Large incumbents can also engage in sustainable practices on their own initiative, while sustainable business models’ market share can grow through four forms of retention: (1) Growth of start-up market share; (2) Replication of the business model, usually by other new entrants; (3) Mergers
and acquisitions by large incumbents; or (4) Mimicry of business model (characteristics), typically
by incumbents. This retention supports the diffusion of sustainable business models in the mass market, and thus contribute to its sustainability transformation through co-evolutionary interaction between start-ups and incumbents. Schaltegger, Lüdeke-Freund and Hansen (2016) also proposed the theoretical market model depicted in Figure 2 on the next page, which shows how niche players with high sustainability quality and low market share (on the left), and mass market players with low sustainability quality and high market share (on the bottom), have to adapt their business models in order to achieve a sustainable transformation of the market.
Alliances between start-ups and large firms have also been observed to be of influence on the learning and diffusion of sustainable technologies by incumbents, through joint technology and/or business model innovation (Wadin, Ahlgren and Bengtsson, 2017). Compared to companies innovating by themselves, alliances allow to achieve innovation faster, with more flexibility, and with lower risks and costs (Li, Qian and Qian, 2013). Partnerships are also included in the network model of Wirtz (2016), which is one of the strategic components of the business model, and have been shown to positively impact the value creation of a company (Wirtz, 2016).
19 As sustainable technologies and their related business models are disseminated during joint innovation alliances, such partnerships will also contribute to the sustainable transformation of mass markets (Wadin, Ahlgren and Bengtsson, 2017).
This section has illustrated how different start-up and incumbent interactions – competition, interactional market-mechanisms, and alliances for joint innovation – influence the co-evolution and subsequent diffusion of technologies and sustainable business models throughout an industry. Which consequently contributes to sustainable development of the sector, as the mass-market goes through a sustainably-oriented transformation. As this is neither an expansive nor detailed list of interactions, additional or differing types of these interactions may emerge from further research. This notion also applies to the diffusion of disruptive technologies and related business models, with sustainability-related opportunities and potentials (such as blockchain, as described in the following section) through co-evolutionary start-up and incumbent interactions.
Figure 2: Sustainability Transformation Potential for Sustainable Entrepreneurship and Necessary Directions of Business Model Innovation (Schaltegger, Lüdeke-Freund and Hansen, 2016)
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2.3 Blockchain Theory
Blockchain is an emerging information technology (Münsing, Mather and Moura, 2017), with possibly disrupting effects in many different sectors (Burger et al., 2016). It is an often-recurring object of research, and its basic mechanism and relevant studies are discussed in this section.
2.3.1 Blockchain Technology
Sikorski, Houghton and Kraft (2017) describe Blockchain as “A type of distributed, electronic
database (ledger) which can hold any information (e.g. records, events, transactions) and can set rules on how this information is updated. It continually grows as blocks (files with data e.g. transactions) are appended and linked (chained) to the previous block”.
Blockchain was first developed as the foundation for the cryptocurrency “Bitcoin” in the financial sector (Swan, 2015). The decentralized virtual currency works on a peer-to-peer network using proof-of-work to record a public history of transactions (ledger) that is consecutively saved to many - potentially all - Bitcoin users’ computers and is always live trackable on the Internet (Nakamoto, 2009).
Blockchain is however not only related to the monetary sphere, as it is an informational and processual technology (Pilkington, 2016). There are many other high impact opportunities outside of bitcoin for applications with blockchain as a solution, possibly even more interesting than cryptocurrencies (Huumo et al., 2016).
A blockchain based platform can additionally be set up as both an open access public network, with subsequently censorship-resistant data, or as an authorized access private network, for example as an alternative internal network between partners (Burger et al., 2016).
Swan (2015) also describes blockchain being usable as a registry, inventory and exchange system, to record, track, monitor and transact assets on a global scale. Indicating that blockchain is
21 applicable in a multitude of areas such as finance, legal, energy, banking, etc. with both hard assets and soft/intangible assets.
Recently, ‘smart contracts’ were introduced into the technology. Smart contract are mechanisms that allow autonomous execution of code on the blockchain following pre-defined conditions, usually used for triggering an external action (Burger et al., 2016; Burgwinkel et al., 2016). Smart contracts have consequently allowed for decentralized based transactions through autonomous matching of distributed providers and customers. This integration has led to more and new applications emerging based on the core functionality of blockchain, the decentralized storage of (transaction) data.
Blockchain technology may now combine a distributed, shared ledger, a decentralized consensus system, smart contracts, and a cryptographic security mechanism, to resolve interest conflicts and provide information symmetry to all market participants, enabling a fully decentralized market platform (Beck et al., 2016). Encompassing both trusted cooperation in a distributed system without centralized regulation (Yuan and Wang, 2016), as well as the cost-efficient transactions of the biggest or the smallest quantities (Beck et al., 2016).
Blockchain is thus consequently a possibly disruptive technology, since it may change the way transactions are done: As the underlying system moves away from a centralized structure (dependent on intermediaries) towards a decentralized system, linking producers and consumers directly. Furthermore, as blockchain has been found to be applicable for transaction ledgers extending beyond the financial sector (Peters and Panayi, 2016), banks, trading platforms, energy companies and other third-party intermediaries could become unnecessary, as blockchain enables peer to peer transactions. (Burger et al., 2016).
Iansiti and Lakhani (2017) however argue that blockchain is not a disruptive technology, but a foundational technology: A technology with an enormous impact that could potentially lead to a
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new foundation for the current economic and social systems. In contrast to disruptive technology, which exploits a lower-cost solution to overtake incumbent quickly, the integration and adoption of blockchain is comparable to that of TCP/IP, gradual and steady, and may take decades. A framework is developed that maps novelty and complexity against innovation (Appendix A), which leads to four quadrants: (1) Single use; (2) Localization; (3) Substitution; and (4) Transformation.
Yet, it could be argued that the disruptive innovation mentioned by Iansiti and Lakhani (2017) is new-market disruption, and not low-end disruption, as their study only focuses on blockchain leading to the creation of new markets or even as a new system-foundation, and does not mention the possible incremental improvements due to blockchain at all. In this view, foundational innovation would be an extension of new-market disruptive innovation, as it creates a fully new ecosystem instead of a new market. Thus, following this interpretation, the transformation quadrant can be seen as a foundational innovation while the three other quadrants can be described as a new-market disruptive innovation.
Following the innovation and business model theories described in the previous section, blockchain can be labeled as a disruptive technology and either a radical or incremental innovation. Thus, start-ups focused on employing blockchain, must typically find the suitable or right business model to fit their technology through business model innovation or evolution.
2.3.2 Blockchain in the Energy Sector
As previously mentioned, blockchain is a potentially disruptive technology for the energy sector, and its possible applications and potentials in the industry have been a frequently researched topic in recent years.
In April 2016, a world’s first was achieved when in Brooklyn, New York, an energy trading transaction using blockchain took place within the Brooklyn Microgrid Project. Through a smart
23 contract on the Ethereum blockchain, the owner of a solar roof panel sold a few kilowatt hours to a neighbor (Burgwinkel et al., 2016; Mengelkamp et al., 2017a).
While Blockchain is not a sustainable technology by itself, it’s application and related business models can have a huge impact on the (renewable) energy market (Mengelkamp et al., 2017b). One of the applications would be providing a decentralized supply and transaction system for energy markets (Burger et al., 2016). Specifically, for the energy market, one of the key advantages Blockchain offers is a transparent, decentralized and secure system that allows both the continuous and real-time tracing of even the smallest energy transactions, as well as a log for all executed transactions (Sikorski, Houghton and Kraft, 2017).
Utilizing blockchain in the energy sector was first mentioned in 2014, when Mihayloy et al. (2014) introduced a mechanism based on a virtual currency. Aitzhan and Svetonic’s (2016) study focused more upon privacy, while Etemad and Lahouti (2016) researched state estimations. Additionally, current implementation of small-scale electricity markets (microgrids) in private blockchain setups have been researched in case studies (Green and Newman, 2017; Mengelkamp, 2017a), while others explored conceptualizations and possible applications for blockchain in the energy sector (Mengelkamp et al., 2017b; Sikorski, Houghton and Kraft, 2017)
In the first research on blockchain in the energy sector, Mihaylov et al. (2014) suggested a cryptocurrency, called NRGcoin, to the energy trading paradigm. The underlying mechanism creates a microeconomic ecosystem allowing prosumers (producers who also consume) to trade locally produced renewable energy at competitive prices, valued according to (near) real time local production and consumption.
More focused on the privacy and security of blockchain, Aitzhan and Svetinovic (2016) introduce proof-of-concept for a token-based, private, decentralized energy trading system using blockchain technology, which enabled peer-to-peer transactions of energy. According to their
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research, blockchain technology would allow the implementation of a decentralized energy trading system, with a possible higher degree of privacy and security than in current centralized energy transaction systems.
In the case study by Green and Newman (2017), it was found that in Perth, Australia, residential building managers and local communities were able to become citizen utilities through a local decentralized marketplace, built on blockchain, providing their groups of households with solar power and profits from the excess. Similar results were found in the case study done by Mengelkamp et al. (2017a), who suggest that consumers and prosumers can trade self-produced energy in a peer-to-peer fashion through a decentralized blockchain-based microgrid energy market, without the need for central intermediaries. Additionally, they presented a market design framework containing 7 essential components for microgrid energy market design.
Sikorski et al. (2017) present a scenario where a blockchain system is used to develop a small-scale machine-to-machine electricity market including two electricity producers and one consumer in a proof-of-concept implementation in the context of the chemical industry. This is achieved through the producers issuing exchange offers in a data stream. The consumer analyzes the offers and attempts to meet its energy consumption at a minimum cost. Accepted offers are executed as an atomic swap.
The paper by Mengelkamp et al. (2017b) extended previous ideas by presenting a comprehensive concept, market design and simulation for a local energy market between 100 residential households with a private blockchain as its IT foundation. Their conceptualization enables consumers and prosumers to trade their generated renewable energy directly within their community through a local marketplace - without the need of a third-party intermediary - and to balance their generation and consumption in a decentralized manner.
25 The research by Rückeshäuser’s (2017) on the typology of distributed ledger-based (such as blockchain) business models, has revealed five different types of distributed ledger-based business models. The business model most suitable for blockchain based start-ups in the energy sector would be the: “Application Provider”, which are businesses where the value creating can happen before, during and after the transaction, with a transaction-based revenue stream.
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3.
Methodology
The previous section discussed relevant literature to establish the theoretical background on which this study is based. This chapter defines the research methods used in order to answer the research questions. First, the research design is described, after which the research setting – the Dutch energy sector – is explained. Subsequently, the case selection and description are outlined, followed by an account of the data collection, and ending with the analysis approach. This section provides the foundation for discussing and analyzing the finding in the next chapter.
3.1 Research Design
A qualitative multiple case study research design is used to explore how five start-ups that are active in the energy sector and utilize blockchain technology, interact with incumbents in their industry. Additionally, the disruptive effect of blockchain technology and its innovation in their sector is examined. The study is mostly of inductive and explorative nature, as relationship-patterns are recognized among constructs, after which findings are developed (Eisenhardt & Graebner, 2007). First, an overview of the individual cases is described, followed by searching for and identifying patterns within and among the cases, which are then used to answer the research questions. A deductive approach is also used on theories of the co-evolution of sustainable business models, establishing guidelines for the interviews and coding process.
A multiple case study method was selected, as sustainable development and the co-evolutionary interactions are bound to their context (Roome and Louche, 2016), and this approach allows to research phenomena in their real-life context (Yin, 2003). Case comparison allows theoretical ideas to emerge, which is fundamental to the building of theories and allows replication (Eisenhardt, 1989; Yin, 2003). The exploration and comparison of more than one case also helps to increase the reliability of findings (Langley et al., 2013). Lastly, a mono method study, of only (face-to-face) semi-structured interviews is conducted.
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3.2 Research Setting
The Dutch energy sector was chosen as focal point for this study, as in the last years various, usually sustainability-oriented and possibly disrupting, blockchain start-ups have emerged within different areas of this industry. Additionally, incumbents in the market have also been developing new sustainable blockchain based business models, in collaboration or competition with new entrants. The existence of co-evolutionary interactions between start-ups and incumbents, leading to the diffusion of disruptive technologies and corresponding (sustainable) business models throughout the energy sector, thus creates a suitable environment for this research.
Examples of the emerging sustainable blockchain technology business models in the energy sector are found in areas such as: peer-to-peer micro-grids (Mengelkamp et al., 2017), decentralized energy transactions (Munsing, Mather and Moura, 2017), and energy grid distribution management (Horta, Kofman and Menga, 2017), among others.
3.3 Data Collection
Through purposeful intensity sampling (Patton, 2002) the cases were selected. They were chosen, as mentioned above, as they are especially suitable for this research (Eisenhardt and Graebner, 2007). Data is acquired through one semi-structured interviews of approximately 45 minutes at five different companies. The interviewees were selected using homogeneous sampling, selecting individuals of similar positions and/or knowledge (see Table 1; or Appendix B for a full overview) in order to explore the cases in depth on the focused issue (Patton, 1990): co-evolutionary interactions. Semi-structured interviews are the chosen method, as its flexibility allows for a systemic exploration of respondents’ ideas and perceptions concerning complex topics and issues (Bryman, 2012), and it is beneficial to the comprehensiveness of the data (Patton, 2002).
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Table 1
List of interviews
Case Business Model Interviewee’s Function
Solarplaza Facilitator Project Manager Future Grid
Clearwatts Platform
(Independent Data Platform) Co-Founder
HanzeNet Platform
(Decentralized Energy Market) Co-Founder
Vandebron Platform
(Grid Flexibility Aggregator) Head of Electric Mobility
Power To Share Platform
(Energy Information Exchange) Co-Founder
The five cases were chosen based on their activity in the Dutch energy sector, their utilization of, or familiarity with blockchain, and their interactions with incumbents in the sector. Bhide’s definition of entrepreneurial firm (2000) was used as selection criteria for start-ups: “relatively
young organizations that have the potential of attaining significant size and profitability” (p. 29).
After the identified companies agreed to participate, secondary sources and materials on the companies – such as their website, reports, and other publicly available information – were used to establish insights into the companies, in order to help understand their context, establish an appropriate interview protocol (see Appendix C and D), and conduct useful interviews. All interview were recorded for increased transparency (Shenton, 2004), transcribed and subsequently coded and analyzed. During the interview notes were made, and anonymity and data privacy were assured, if requested. Due to confidentially, transcriptions are not added as appendix. All transcriptions and analysis data are however available upon request.
3.3.1 Case Description
This section shortly describes the different cases and the business model the firms employ. This information was gathered from both primary interview data and data from secondary sources.
29 Solarplaza
Solarplaza is a company that organizes solar energy related conferences and trade mission. In February 2018 they organized the Blockchain2Business conference, where they functioned as a facilitator aiming to make blockchain work in the energy field by connecting the right players. Solarplaza does not utilize blockchain technology itself, but provides interesting insights and examples due to its facilitating role for blockchain in the sector.
Clearwatts
The start-up Clearwatts aims to create an independent data platform to connect different actors in the energy sector. They want to bring in energy data providers and connect their stand-alone databases, in order to establish one distributed database for all relevant data, built upon blockchain technology. Based on this platform, Clearwatts is currently developing a transaction administration service for incumbents.
HanzeNet
HanzeNet is a start-up that focuses on the creation of a peer-to-peer based decentralized energy market for energy production, storage, consumption and grid capacity. They collaborate with the incumbent energy supplier Greenchoice, in order to facilitate self-regulating energy neutral neighborhoods, villages and cities, and stimulate residents to be self-sufficient by generating and sharing energy together. Blockchain technology is used for a reliable local administration.
Vandebron
Vandebron is a Dutch energy supplier that has created a smart energy platform for grid flexibility in collaboration with TenneT, the Dutch national high-voltage grid operator. Vandebron aggregates electric vehicles for ‘smart loading’ on their blockchain based platform, enabling them to offer grid flexibility.
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Power To Share
The start-up Power To Share is a blockchain based energy information exchange. They enable energy providers, companies, and consumers to access the energy market through advanced apps such as peer-to-peer energy trading and sharing. Advanced energy information services like mandate management, source of origin and usage analytics are also implemented in the platform.
3.3.2 Coding Process
After collection and transcribing all data, the data was coded using the qualitative data analysis tool NVivo 12. A deductive and inductive approach were combined for the coding process, which consists out of three steps: First, a deductive method was chosen in order to create a starting point for the theory building research (Eisenhardt, 1989), where a priori codes were deducted from the literature and secondary data. Second, while coding, new codes were added according to selective codes (open coding), and in subsequent interviews similar codes were merged or separated. The last step involved axial coding, creating categories and sub-categories structures, and establishing connections between them (Yin, 2009).
The coding process resulted in a total of fifty codes, which were combined into twenty-six subordinate categories, and aggregated into six superordinate categories. An overview of the codes can be found in Appendix E.
3.4 Data Analysis
A within-case and cross-case analysis method was used to analyze the cases and uncover results (Eisenhardt, 1989). A cross-case analysis can be used to go beyond the initially discovered patterns, and may serve as an opportunity to see systematic patterns and interrelationships among the cases (Miles & Huberman, 1994). The analysis is done using NVivo 12, which provides a possibility to search for patterns through comparison within and between cases, and contained five individual cases and different codes, derived from the data.
31 Each case was first analyzed individually to identify its business model, its technology’s disruptive effect and innovation, its types of interactions, and other characteristics. Then, a cross-case analysis was used to analyze patterns across the cases, through searching for similarities and differences between the five cases. A Framework Matrix of NVivo 12 was used to classify the data into tables, to be able to analyze and understand the data and interactions involved, and identify patterns within the data.
The theoretical market model by Schaltegger, Lüdeke-Freund and Hansen (2016), combined with the main types of co-evolutionary interactions between start-ups and incumbents - competition (Hockerts and Wüstenhangen, 2010), retention through interactional market-mechanisms (Schaltegger, Lüdeke-Freund and Hansen, 2016), or alliances and partnerships (Wadin, Ahlgren and Bengtsson, 2017) – were used as framework to answer the first research question. While the disrupting effect and innovation of blockchain technology is analyzed in order to answer the second research question and test the proposed technology disruption and innovation model (Figure 1).
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4.
Results
This section presents the findings based on the previously described analysis and research methods. First an overview of case data will be shown, followed by the findings on co-evolutionary interactions between start-ups and incumbents in the sector. Then, the findings on how blockchain in the energy sector fits within the disruption and innovation theory are shown, and used to test the proposed disruption and innovation model in Figure 1. In the subsequent chapter these results are discussed, and the research questions are answered.
4.1 Co-Evolutionary Interactions
Through a within- and cross-case analysis, the views of start-ups on the existing types of co-evolutionary interactions between start-ups using blockchain technology and incumbents in the energy sector were studied and compared. Two overarching orientations of interactions came up during the interviews: Competition-oriented interactions, and partnership-oriented interactions, in which a total of six different types of interactions emerged.
4.1.1 Competition-Oriented Interactions
Support for two types of competition-oriented interactions emerged from the analysis. Possible mergers and acquisitions of start-ups by incumbents was mentioned by Solarplaza’s respondent, while potential mimicry of start-ups’ business model (characteristics) by incumbents was discussed by the interviewee from Vandebron.
Mergers and Acquisitions
Mergers and acquisitions (M&A) are the legal, organizational, and/or financial integration of external companies into an organization. Incumbents may try increasing their competitiveness through M&A if they lack the needed capabilities inhouse, through friendly or hostile takeovers, or by setting up joint ventures (Schaltegger, Lüdeke-Freund and Hansen, 2016).
33 In the case of blockchain start-ups in the energy sector being acquired by incumbents, this is seen as a potentially widespread phenomenon, as stated by the respondent from Solarplaza on this subject: “… when they [incumbents] see that start-ups start eating up their business, they have
the 30 million lying around to acquire them. Those companies won’t let themselves be disrupted by start-ups (…) so I think you will see a lot of acquisitions then.”
On the same topic the respondent later added: “It is of course an interplay. You start with all these
small start-ups, then you’ll have a shake-out of bad business models (…) And once they really see potential, they’ll want to have it inhouse.”
Mergers and acquisitions of blockchain start-ups by incumbents in the energy sector could thus potentially become prevalent. It is expected that when start-ups become somewhat successful or show potential, incumbents will (aim to) acquire them.
Mimicry
When incumbents copy or modify business models or business model characteristics, this approach is called mimicry. Mimicry copies can both be similar or easily distinguishable from the original innovation, and can be based on either the same technology/process or a different one (Schaltegger, Lüdeke-Freund and Hansen, 2016).
Incumbents may for example mimic a start-up’s business model or some of its characteristics, as illustrated by Vandebron’s respondent: “I think that a lot of different business models will emerge,
towards customers and towards companies. So we’ve now said that from everything we earn, seventy five percent of it, we will pay out to the customers (…) but you can of course come up with all kinds of things (…) There are a lot of business models [on different customer value
propositions] conceivable, how the money that is earned, how that can be deployed for customers
of a company. So I think, that in this way, there is going to be a lot of competition on different methods to utilize this, the revenue.”
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Incumbents mimicking start-ups is seen thus as a potential co-evolutionary interaction in the energy sector; incumbents may be able to copy start-up business model characteristics by for example primarily modifying the customer value proposition.
Analysis of the interview data indicates that while M&A and mimicry are both discussed as possibilities for the diffusion of technology and business models, they do not currently occur in the market yet. The replication of business models by incumbents (Schaltegger et al., 2016) was not mentioned.
4.1.2 Partnership-Oriented Interactions
In the energy sector, start-ups using blockchain technology establishing partnerships with incumbents seems prevalent over competing with them. According to the interviewee from HanzeNet, start-ups may choose to establish partnerships because: “… a start-up doesn’t have
any customers, and a start-ups doesn’t have any money either. So, you start looking for partners, which are usually incumbents, who are interested in such a business model, and who possess funding, customers, and distribution.”
The already researched partnership between start-ups and incumbents for joint innovation (Wadin, Ahlgren and Bengtsson, 2017), is revealed to be widespread throughout the energy sector. Three novel types of partnerships however emerged from the interview analysis as well: Service-based partnerships, Affiliating and funding, and coaching and support partnerships. Service
Service partnerships are established when a company (the service partner) provides a service such as accounting, marketing, R&D or administration for another firm (Linton, n.d.). In the case of start-ups interacting with incumbents, it is possible for both kind of firms to be the service partner.
