David and Goliath

In my microeconomics classes in college, our professors called this by a fancier name – nonlinear pricing. Doesn’t have the same ring to it as bundling, does it? Here’s the basic idea.

 

These telecom companies have evolved over the years, slowly adding service offerings to their portfolios. Now they range from phone service to internet to television to home security, all of which are basically dependent on the same wiring that connects to businesses and homes in their regions. And these companies want to convince you to buy all these services.

 

Let’s say you call up your local telecom provider wanting to set up internet access at your new apartment. They’ll quote you a monthly price for that internet, at say $80 per month. They’ll quickly say, however, that you can get that price down to $60 per month for internet if you bundle it with television, which normally costs $70 but can be bundled at a $60 rate as well. If you add in phone and security services, the price for each comes down even further!

 

Even though you could pay a lower “per unit” price for these services by bundling them, you quickly see that the company ends up getting a higher total monthly payment out of you. Since the marginal cost of providing these extra services is low (i.e. it doesn’t cost them much more to send and receive additional signals through the wires that are already connected to your home), the company loves this result. If you actually want all those extra services, you might be happy to bundle them. Or, maybe you just stick with your $80 per month internet, and that’s cool too.

 

There’s another company that could get in on this bundling action, and if they do it, will be a huge win for the environment. That company? Tesla.

 

When you hear that name, I bet most of you immediately think of Elon Musk on stage with shiny electric vehicles behind him. Don’t forget though – Tesla also offers photovoltaics and batteries for domestic energy production. So what do solar panels, batteries and cars have in common?

 

The answer is energy. Think about the energy that you use each day. Utility-generated electricity, gasoline-fueled mobility, and heat from natural gas are probably the largest sources, and each is powered by fossil fuels. If you wanted to “cut the cord” on these energy needs, how could you possibly do it? Entire industries have been created to keep your lives running on what they provide.

 

But when you bundle together Tesla’s product offerings, you can eliminate your reliance on all three of these energy needs, all at once. THAT is the brilliance of Tesla. Their products are fundamentally designed to be integrated. Solar roof shingles or panels capture the sun’s energy, storing it in Powerwalls and Tesla cars for use in the home and on the road. I don’t think Tesla is offering bundled discounts for the range of their products yet, but I’m sure it is coming.

 

The big picture is that Tesla is not just competing with General Motors, Toyota and Ford. They are competing with the entire fossil fuel industry. This is a David and Goliath story for sure. And do you remember how that competition ended up? I sure do!