Arka lights lecture 6 revenue model

ARKA LightsHigh Performance LED Technology

Higher lumen intensity with a longer life enabled by novel thermal dissipation technology.

Direct replacement of current high lumen incandescent bulbs with LEDs without light quality/output compromises.

Offer a PAR 38 LED lamp integrating our novel thermal dissipation technology module that can be used in different LED product families

1

The Product

• Our target product was a Par38 replacement LED lamp.

• Our new product hypothesis is a low-cost, high performance, flexible thermal management module

– Based on our enhanced heat-pipe technology

Par38 LED Lamp Modular Thermal System

2

PIVOT!

Specifiers and Customers say “We are willing to wait 5 to 7 years for the price to fall before we adopt this technology on a

wide scale. ”

OEM Customers say “If you bring us a modular thermal system that provides better cooling at lower cost, we would

definitely want to work with you. ”

3

Old Hypothesis

Pros• Margin and Revenue -potentially higher, based on

sale of lampsCons• Lead time to revenues – 4 - 5 years• Market – Distributors, OEMs, Institutional

Customers• Customer relationships– Lots of intermediaries,

barriers to adoption of new products, lot of saboteurs

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Rationale for New Hypothesis

Pros

• Lead time to revenues – 1-2 years

• Market - OEMs

• Customer relationships – Direct contact with OEMs, OEMs more receptive to new technology. Leverage their channels to get product to market

Cons

• Margins and Revenue – possibly lower, based on licensing and design

5

Week 4 Canvas

Module

6

Interviews

• Contacted 7 people (Institutional buyers, regulators, distributors) –

– Pat Beaumont (University of Rochester)

– Ron Pierce (Wesco)

– Jim Chodak (University of Rochester)

– Kevin Shaw

– Witold Bujack (Sustainability Manager, RIT)

– Brian Lips (Database Manger, DSIRE.com)

– Henry Chu (Halogen Lighting)

• Takeaways

– LED products today primarily used in outdoor applications (reinforced by St. John)

– Cost is perceived as prohibitive and customers are willing to wait for prices to fall.

– If at current prices, payback of investment is possible in <4 years, adoption will take place earlier.

– NYSERDA and NYPA incentives increase adoption rate. Must find way to leverage incentives to drive earlier market adoption

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Next steps

• Prototype Development (See appendix for details)

• Initiate conversations with possible manufacturing partners

• Talk to heat pipe manufacturers – understand cost breakdown, customer interactions

• Talk to the competition (other thermal module manufacturers) – analyze customers, profiles, revenues, products.

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Additional Information

Appendix: Marketing and Product, Certification

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PRODUCT DEVELOPMENT – Prototype demo Milestones

STEPS OPERATION STATUS

1 Demonstrate that enhanced surface is superior (from a heat transfer perspective) to straight copper

2 Demonstrate that the heat transfer performance of the enhanced-surface heat pipe exceeds that of conventional heat pipes

In progress

3 Assemble an LED chip onto an enhanced heat pipe (a) for the same driving current, the

junction temp of the LED is lower in the case of the enhanced heat pipe

(b) for the same junction temp, the enhanced heat pipe-based LED produces more light

In progress

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Marketing Progress

• Created a basic product design and focused on a particular product (Par38 replacement lamps) in the LED indoor lamps product family.

• Validated technology and its impact on final product• Identified relevant channel and working on validating channel

hypothesis • Creation of Tech Intro Deck for use in discussions with OEMS and

distributors• Validated value proposition of both hypotheses in talks with

customers, OEMs, Distributors and SpecifiersTo do:• Create working prototype, engage with and develop ‘solutions’ for

OEMs that they can license from us. • Create website and other sales material for OEM marketing

process.

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Purchase Decision

Project Owner

Architects

Electrical Engineers

Lighting Vendors

Contractors

Contractors have the greatest influence on the Purchase Decision

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Channel

ArkaLights

OEMsOEM’s

customers

The channel in the new hypothesis makes the channel to Arka Light’s final customer (OEMs) has reduced in size. Arka Light’s will provide thermal module system designs and products to OEMs that can use these in the assembly of LED lamps. Thus, • OEM purchases modules for optics, electrical, mechanical and thermal

management,• OEM assembles/integrates and sells to distribution channel comprising large

distributors, independent lighting reps and direct sales, • These distributors then sell LED lamps to ‘institutional customers’.

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Market Size Assumptions

• PAR38 - >350,000,000 sockets in US.Assume total annual sales = 350 million socketsAssume LED is 5% = 17.5 million sockets

• With wide-scale adoption of our product with different OEMs, we assume that we can tap into the market.

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Potential Revenue Sources

• Licensing Revenue

• Prototype development services revenue

• Revenue from possible future iterations of our systems(expanding into LED product families)

• Design of heat pipe based thermal solutions (“Become heat-pipe guys”)

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Cost and Revenue

• Cost of demand creation:Development team : 4 FTE * $100K = $400K/yearMarketing: 1 FTESales: 3 FTE: fraction of revenue?Operations: 0.2 * people cost

• Customer acquisition cost is high because of development and certification costs.

• Time to first revenues is ~2 years. Subsequent sales can be much faster ~6 months to 9 months

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Revenue

• Product will replace existing revenues (it will replace current thermal dissipation components)

• Adoption will be constrained by demonstration of performance-benefit, addressing reliability, getting industry certifications and the inherently long sell cycle in this industry.

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Lifetime value

• Assuming either building components or final lamp, Customer Lifetime Value is high.

• The technology can be cross-sold across different product groups.

• We focus on product development, prototyping and commercialization assistance over multiple-generations of each product within each OEM.

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Communication/Opinion Leaders

• Trade Magazines: Lux Magazine, LED Magazine, Wired, LED Journal

• Trade Shows: Lightfair International Tradeshow, International Lighting Fair,

• Agencies invested in technology: Department of Energy, NYSERDA

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Channels – Old

Component Suppliers

OEMS Distributors ContractorsFacility

Managers/Owners

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Certifications

• Certifications can be used as an aspect of marketing

• They are an important factor that contributes to the decision making process.

• Certifications were requested and mentioned in interviews with a number of final consumers (institutions)

• They will also be important when consumers are applying for incentives from energy efficiency organizations

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Certification

Organizations & Overview

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Design Lights Consortium

• Is a collaboration of energy utility and energy efficiency organizations that is working towards increasing the awareness about energy efficient lighting.

• It has 33 members. • It provides certification to solid state lighting

fixtures. • DLC certification in LED products occurs if there is

no Energy Certification in that category• Might not be of immediate interest (Par 38

replacement lamps are covered by Energy Star)

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Certification - LED

• Only certifies product categories not certified by Energy Star.

• DLC certification only covers commercial products.

• $500 charge per fixture certified. • Product families are created if manufacturers

seeking certification can request the addition of product families if their product does not fit under existing categories.

• Independent Lab and 3rd party tests are required for certification

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Energy Star

• Provides certification for products that are energy efficient.

• Is administered by EPA and DOE

• Is globally recognized

• Used for residential and commercial products

• Certifies Par38

• Certification can be used on Product for marketing purposes.

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Certification - LED

• Testing required by approved 3rd Party Labs.

• Par38s are certified

• Once ready to certify, create account, submit product information and tests.

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Underwriters Laboratory

• Provides UL certification, testing for Energy Star, FCC and other services.

• Offers different services based on certifications required. (CV, LED photometric, NVLAP)

• Offers schemes that allow certification across the world.

• UL standards for LED here.

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