Alphabet Energy Case Solution

Which market(s) should Alphabet target was a critical question for Scullin, and hence, a situational analysis with respect to each opportunity is presented as follows:

1. Automotive

Thermoelectric generators presented a potential opportunity within this market as they had the ability to increase fuel economy by converting engine waste heat to electricity. A typical automobile only converted 30% fuel into propulsion. The technology could make cars 10% more fuel-efficient; however, the market presented lower margins (around $1 per watt) but had a large scale in terms of the new vehicle market in the U.S. and abroad. Global automotive sales were expected to reach 50 million vehicles by 2010. Further, the market required a small size of the thermoelectric system, which meant that the company would have to scale up quickly for mass production.

Another challenge that came with this market were the OEMs which restricted the potential of this market in following aspects: they were risk-averse and cost-conscious, longer sales cycle (5 to 7 years), partnership required with suppliers which would add on to transaction costs due to markups and loss of direct customer feedback. The advantages that the market presented were modular production, gross margin of 8%, which could be even higher with a superior product.

2. Aerospace & Defense

This presented a pioneering and potentially huge market for the application of thermodynamics with a multitude of applications. Gross margins within the sector exceeded 80%; however, each niche within the sector had specific engineering requirements. Much focus was placed on performance and weight rather than payback. The challenges it presented included: longer economic cycles and the Alphabet's corporate culture fit with this industry.