lundi 14 avril 2014

Follow the flying car 'proof of process' business model to $1 billion?

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Our new Future State column focuses on emerging technology and its potential impact on CIOs and their organizations. In this month's installment, SearchCIO's Executive Editor Linda Tucci writes about the latest of many attempts to mass produce a semi-autonomous flying car. Sophisticated algorithms help, but two government rule changes and a super-conservative business plan might be the real ignition that propels this month's Future State startup into the annals of automotive history.
Linda Tucci Linda Tucci
Carl Dietrich, 36, started saving for his pilot's license when he was eight, working at the local airport cleaning airplanes. The pilot's license was obtained in high school. Then he was off for 12 years to earn a bachelor's, master's and PhD from MIT's department of aeronautics and astronautics. He picked up $30,000 as winner of the 2006 Lemelson-MIT Student Prize for Innovation. Another $10,000 was collected that year when his team's business plan was a runner-up in the MIT $100K Entrepreneurship Competition. The money was enough for Dietrich and a small band of MIT grads to start a company, Terrafugia Corp., move into a garage in Woburn, Mass., and start making flying cars.
Let me clarify. Dietrich's ambition is not just to build a flying car. That's been done, after all, in the 1930s, '40s and '50s. The first patent for a flying car was issued in 1918. According to Dietrich, the 1950's version came closest to shaking up the skies. Built by Moulton "Molt" Taylor, an aeronautical engineer, the Aerocar was certified by the CAA (precursor to the FAA), and Ford Motor Co. consideredputting the vehicle into production with plans to sell 25,000 a year -- small on an automotive scale, but mass production nonetheless. However, federal motor vehicle standards were just coming into being and Taylor's vehicle couldn't meet them, Dietrich said. Another manufacturer offered to tool up production for 1,000 vehicles, provided Taylor could muster deposits for 500, but alas only 278 buyers materialized.
"And that was that. Had the business been scaled more conservatively, we might have a lot of them around today," Dietrich said, at Disrupting Life!, a recent conference put on by the MIT Sloan School of Management.
"Over the next four to five years, I want Terrafugia to become the first company in the world that has made money selling a flying car," he said.

Where we're going we don't need roads

Terrafugia -- Latin for earth (terra) and escape (fugia) -- has already built one flying car, the Transition, and is testing a second-generation prototype, the TF-X. The proof-of-concept Transition took its maiden voyage in 2009. A boxy bug of a vehicle with 27-foot folding wings (the hardest part to build), the two-seater reaches cruising speeds of  about 100 knots, or 116 miles per hour, boasts a range of 410 nautical miles, gets 35 miles per gallon on the road using ordinary premium unleaded gas and at seven feet tall fits into a single car garage. Oh yes, and comes with a base purchase price of $279,000 ($10,000 refundable deposit to reserve a place in production.)
It's technology, timing and regulation. It's that whole puzzle that had to come together in order for this to work, because the flying car is such a big thing.
Carl Dietrich,
CEO, Terrafugia
The sleeker, next-gen hybrid TF-X has the advantage of vertical takeoff, requiring smaller landing zones (for example, a corner of the local shopping mall). Except for landings, when the human eye is still better than machines at detecting sudden changes on the ground, the driver of the TF-X, a four-seater, won't have to do much of anything while airborne except enjoy the scenery, thanks to sophisticated technology under the hood known in general terms as human directed local autonomy (HuDL).
"The operator of the vehicle doesn't need traditional piloting skill or traditional piloting knowledge," Dietrich told me after his talk. Making a flight plan? Adjusting for weather? All that can be done automatically. "The safety limits can be hard-programmed in, which means that the pilot is not going to be able to remove the safety limits if they are feeling anxious. It becomes less subjective."
Plus, the new global surveillance technology (automatic dependent surveillance-broadcast or ADS-B) now being rolled out in the U.S. and elsewhere enables aircraft to transmit their position and velocity themselves. "If you have perfect information about where all the other things to hit are, collision-avoidance becomes trivial," Dietrich said, dismissing a question about flying car congestion. "It's hard for people who aren't pilots to understand how much space there is when you have that third dimension."

Government rule changes clear the runway

Combined, the technology of the flying car breaks down some of the traditional barriers to personal aviation, claims Dietrich -- from the inadvisability of flying in bad weather to the costs of hangar storage and aviation gas to the lack of ground mobility after landing. There's no Hertz counter at most of the 5,000 small public use airports across the country. And, as the world has learned from the events of the past two weeks, the adoption of ADS-B technology and other hard-programmed safety limits can't come soon enough.


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But it was two regulatory changes, one on the product side and one on the customer side, which convinced the MIT team the time was right to push forward on personal aviation. In 2004 the FAA improved the certification process for new products and approved the Sport Pilot certificate for flying lightweight vehicles, a new class of license that costs less and requires less time to obtain than a private pilot's license.
"It's technology, timing and regulation. It's that whole puzzle that had to come together in order for this to work, because the flying car is such a big thing. You're talking about disrupting the whole automotive business, a $2 trillion industry," Dietrich said.
The history of transportation, however, shows that the sort of fundamental change Terrafugia envisions happens over a generation, not in a five-year window. "It isn't going to happen over a venture capital time scale."

'Proof of process' seen as the open sesame to $1 billion

And, indeed, Terrafugia has relied mainly on angel investors and funding from DARPA so far. It will require $20 million more to put Transition into production. The company claims to have $30 million in backlog orders or more than 100,000 people who have written checks, 25% of whom have never been pilots. Aside from the money, the Transition has its detractors, with at least one rather harsh critique concluding the flying car will be very lucky to become the Segway of the light sports aircraft world. You'll hear no such qualms from Dietrich.
"We think of Transition as a proof-of-process product -- a product that proves that our company has the capabilities of designing, certifying and building a profitable flying car even if it is at low volume. Nobody has done that," he said. "And if we can become the first company that has done that, then all of a sudden investing $1 billion to bring the TF-X to marketing is not ridiculous."

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