It is without a doubt that the chemical sector is looking to increase its overall sustainability, with efforts by both innovators and incumbents. From the innovation community, bio-based chemicals have been a main focal point for many startups while multinational chemical corporations have also invested heavily in this area.
Despite the billions of dollars of investments being made into a wide range of companies with different conversion processes, the business model for these companies is largely the same. Many have approached commercialization by scaling-up production, from lab to pilot to ultimately reaching commercial-scale production in the million-gallon range. The common consensus is that production cost remains relatively high, and most are currently targeting high-value products in the meantime. Regardless of the final end product, the business model is still fixated on high-volume production at a cost-competitive level.
The benefits of bio-based alternatives are unarguably more sustainable than petrochemical-based chemicals. That said, to practice sustainability in its fullest extent, overall reduction in chemical production and usage should also be factored into consideration. However, such concept directly challenges the traditional quantity-driven revenue model.
We have seen the adoption of a service-oriented business model in other cleantech sectors, from solar to building efficiency software, where the fundamental business model shift has allowed these innovators to create additional value rather than focusing exclusively on just selling products.
The same initiative is not a foreign one for the chemical sector, chemicals-as-a-service (as we are calling it) has been explored by the United Nations Industrial Development Organization (UNIDO), which launched its Global Chemical Leasing Programme in 2004 to promote a change in business model towards the delivery of chemical services. The fundamental idea here is to establish a revenue model based on the benefits of the chemical usage instead of the volume of the chemicals. Since the inception of the program, several pilot projects have been carried out by chemical incumbents in areas such as water purification and industrial lubrication.
Tying this concept back to our world of startups, can the innovators adopt a similar business model shift? As production costs for bio-based chemicals continue to reach competitive levels, perhaps the chemicals-as-a-service model will be the next innovation area for our innovators to leverage to disrupt this legacy sector.
Share with us your thoughts on the chemicals-as-a-service model, and better yet, join us at our upcoming Cleantech Forum Europe on May 14-16 in Antwerp, Belgium to learn more about the latest innovations in sustainable chemistry.