Pricing reflections of FT Hydrogen Summit 2024 and Otis elevators
A white paper on the pricing of green hydrogen based on value-based pricing principles
0.1 - Introduction
One afternoon in September 2019, along with a fellow pricing consultant, I was in the base of the CN Tower. We were there for an absorbing briefing about the Otis elevators used in the tower – a tower standing more than 1,800 feet directly above us. From 1975 to 2007, it was the world’s tallest free-standing structure. Our project was about determining the pricing strategy for new Otis EMS (Elevator Management Software). We needed to learn about how this upgrade might be valuable to the running of the CN Tower as a comparison with other buildings in Toronto and elsewhere in North America.
So, what has this to do with the pricing of green hydrogen?
I had a Digital Pass to the FT Hydrogen Summit 2024 with an intention of writing a review of the summit from my perspective as a pricing consultant. Much of my work is about understanding how companies should price their innovations using a value-based pricing approach. This is about pricing based on the perceived value of their products/services relative to the competition.
A key challenge articulated at the summit was about how to increase adoption of green hydrogen given that it is currently so much more expensive than fossil fuel alternatives. It is unaffordable for governments to pay more than a small fraction of the budget impact for reaching their ambitious green hydrogen targets. This means that producers need to provide a value/price proposition for green hydrogen for which customers are willing to pay, and for this to be done at scale.
And it should be anticipated that the commitment of national governments in supporting specific green hydrogen policies will continue to evolve. As I finish this white paper in January 2025, both the French and German governments have recently collapsed over budget disagreements and the new Trump administration could curtail the IRA Clean Hydrogen Tax Credit.
As I started to think about this white paper, something in my mind triggered me to think about elevators. Specifically, I thought about how I might illustrate my points by writing about the value/price evolution of Otis elevators and how this has led to such an extraordinary impact on the modern world. This approach also helped clarify my own thoughts and the points I should make.
So, the goal of this article is to outline three crucial concepts which can help in the pricing strategy of green hydrogen. For each concept I describe how Otis elevators can be used as an analogue.
0.2 - About the FT Hydrogen Summit 2024
Before getting into the pricing story, let me briefly describe the summit along with what I liked about it and a couple of suggestions for the future.
The FT’s 4th Hydrogen Summit was held on 12 June 2024 at the Marriott Hotel Grosvenor Square London. Attendance could be in-person or virtually with a Digital Pass. The format of the day comprised 8 40-minute panel discussions of experts along with 1 40-minute keynote interview and 3 20-minute keynote interviews. These sessions were moderated by FT staff who also took questions from attendees from the floor and online.
o?? I live in Montreal, and I did not need to get up at 4am EST to attend the first sessions.
o?? I have been able to rewatch the sessions multiple times in the development of this article and to better identify specific experts and organizations for follow-up review of their online materials.
o?? Specifically, I learnt about Michael Liebreich’s podcast, Cleaningup, which he co-hosts with Bryony Worthington. I have now listened to quite a few of their interviews. I highly recommend it for good faith, vigorous discussions with climate leaders. I have now listened to many episodes as it has become my go-to Spotify podcast whilst driving.
With the interview with Eva Schmid in mind, one suggestion I have for the next summit set for 24 June 2025, is to include relevant government decision-makers and policy-makers as experts for the panel discussions. This could include perspectives about what is happening in the US under the Trump administration.
Another suggestion I have, and a key point I speak about in this white paper, is for experts to discuss the safety of green hydrogen.
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CONCEPT 1 - CUSTOMERS WANT THE BEST VALUE NOT JUST THE BEST PRICE
1.0 - Preamble
At the heart of pricing is value. It’s about understanding what your best potential customers would value about your innovation and how this translates into Willingness to Pay.
In this section I am going to address 5 foundational elements of value-based pricing as they apply to green hydrogen and then follow with how these elements have played out with Otis elevators.
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1.1 - Green Hydrogen
Safety (#1)
The first thing to think about is safety. A working assumption amongst pricing consultants is that if an innovation is not safe it has no value.
The safety of green hydrogen was not covered in much detail at the summit, with just a few passing mentions (described below).
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?Current use cases (#2)
In terms of understanding value, the next thing to think about is efficacy. Which use cases currently show the most promise for green hydrogen? There were a number discussed at the summit; below are three which received multiple mentions.
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Chicken and Egg (#3)
In the first panel discussion of the day about ‘Can the current trajectory of hydrogen deployment meet 2030 net-zero commitments?’ many of the panelists referred to the ‘chicken and egg’ difficulty of doing so.
Simon Earnshaw (European Production & Supply Chain Director, Air Products) spoke about the ‘chicken and egg’ challenge of developing hydrogen supply where the demand is uncertain. Both Olivia Breese (CEO, Region Europe, Orsted) and Sundus Cordelia Ramli (CCO, Topsoe) elaborated on this point and spoke about their being many ‘chickens and eggs’ given that elements to do with production, policy, infrastructure and offtake need to be developed together.
Some use cases are less challenged by ‘chickens and eggs’ than others. In her keynote interview, Astrid Poupart-Lafarge observed that “the first movers that we've seen in green hydrogen are actually the industries that are used to hydrogen. You have many players over the world that are dealing with hydrogen for decades; typically, the players in oil and gas, in petrochemical, in industrial gases.”
Yet the main take-away should be that green hydrogen is being developed as part of a new market landscape where we should anticipate that the importance of use cases will evolve over time.
These new use cases will be developed in response to experience and progress made around the use of green hydrogen. One example is with Jet Aviation where the size and shape of hydrogen demand for this use case will depend on the evolution of the aviation technologies developed by customers such as Airbus (who will likely need to take even more care to establish safety given that the use of hydrogen was disastrous for the R-101 and Hindenburg, leading to the end of airships in the 1930s). There is the opportunity for green hydrogen providers to take leadership positions in meeting the needs of these new use cases. Crucially from a value/price perspective, those companies who do become leaders for important new use cases would likely have pricing power for their services.
We should keep in mind that the context of this changing landscape is the urgent need for tackling climate change, that both green hydrogen and electrification are expected to have integrated roles in addressing this challenge, and that advanced economies of the world are vying for technical leadership with these new technologies.
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Eggs in one basket (#4)
Continuing with the egg theme, in the panel discussion about ‘Heating with hydrogen – a new path to decarbonising homes’, James Watson spoke about the need to avoid putting all our ‘eggs in one basket’. He made the case that hydrogen has a role to play in co-existence with electrical home heating to improve system resilience. He also said that it can be cheaper, and enhance consumer choice, to have both hydrogen and electricity available compared to an electricity-only approach.
The value of new innovations, and how they displace or co-exist with other technologies, is typically uncertain and only becomes apparent with real world usage over the course of time. Much depends on how new technologies are valued by emerging customer segments and how those still using existing technologies are impacted by the new market environment. This is often not intuitively obvious. Remember, ‘the customer’ does not exist – there are different types of customer!
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Willingness to Pay (#5)
As Kirk Jackisch explains in a 3-minute video about ‘How to Define Financial Value in Pricing’ (YouTube) to achieve a strong Willingness to Pay in a B2B environment, and even in a B2C environment, business leaders need to ensure “it is well understood what our value proposition is, and we have sufficiently communicated it such that the customer understands why it is in their best interests to pay that higher price”.
With new innovations, such as with green hydrogen, it can be extremely helpful to develop a financial value calculator which would allow customers to make a reasonable estimate of their ROI from acquiring this new innovation. Green hydrogen is different from other forms of hydrogen, and it is imperative to price according to that value. How this might be done is the subject of the concluding section in this white paper.
1.2 - Otis Elevators
Safety (#1)
Rudimentary elevators, in the form of various hoisting devices, date back thousands of years. In ancient Rome, elevators were used to bring animals into the Colosseum.
How Elisha Otis started the modern elevator industry was with his invention of the elevator brake that made his elevator ‘safe’. In dramatic fashion he demonstrated his new safety elevator at the New York Crystal Palace Exhibition of 1854. Elisha Otis took the elevator some way up an open-sided shaft and then had the hosting cable cut with an axe. The audience could see that Elisha Otis was perfectly safe as the elevator held fast and did not fall to the ground.
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Current use cases (#2)
In the 1850s, the initial use case for the new safety elevator was for moving goods vertically within factories and other industrial settings. Before the safety brake, elevators were considered too dangerous for people to ride in.
The first installation of a passenger service using the Otis elevator was in 1857, in New York City. These new elevators became highly valued, with increasing number of customers willing to pay the high price. In 1870, at a cost of nearly $30,000, Otis installed two steam elevators in the nine-story Equitable Life Assurance Building in New York, then the tallest building in the city.
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Chicken and Egg (#3)
Elisha Otis did not design his safety elevator for use in tall buildings as tall buildings did not exist in the 1850s.
It was a time of great technical progress in many fields, such as the use of iron in building construction. Advanced economies of the world were competing with each other for leadership with new technologies. This combination of circumstances led customers of Otis to plan for higher and higher buildings, enabled by elevators. In the decades that followed the original safety elevator, the Otis company continued to innovate their elevator technology to be able to meet this demand. Since elevators were a requirement for these taller buildings, Otis had strong pricing power!
In 1887, Gustave Eiffel was in the midst of building his eponymous tower and “there was one thing which was costing much more than expected, one thing they couldn’t do without – the elevators” (28m). Otis, which had been commissioned to install passenger elevators in the Washington Monument the year before, won a contract to provide the most difficult-to-build elevators for the Eiffel Tower. This further enhanced their technical leadership and proved valuable for the long-term success of the company. Subsequently, Otis elevators were installed in other flagship structures - notably the Chrysler Building in 1930 and the CN Tower in 1975.
I love the historical connection to think of the fairly direct line from the 1887 contract between Eiffel and Otis, to our meeting at the CN Tower to discuss Otis elevators in 2019; 132 years later.
Eggs in one basket (#4)
Whilst elevators have reduced the need for stairs, they have not replaced them.
To this day most residential homes, including many tenements, do not have elevators. However, they are impacted by a market environment where customers can choose to live in buildings with elevators.
Multi-story buildings with elevators are required through building codes to have stairs for use in case of emergency. Having stairs as an option also provides user-choice; many of my colleagues at our Toronto office have got in the habit of taking the stairs for some exercise during the day. One colleague has climbed the stairs of the CN Tower a few times, which is possible during two annual fund-raising climbs they host each year. It is a climb of 1,776 steps!
Both the stairs and the elevators are used by visitors to the Eiffel Tower as far as the second level. For safety reasons, there is no public access to the stairs from the second level to the top.
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Willingness to Pay (#5)
In 1884, two engineers, Maurice Koechlin and Emile Nouguier, presented their idea of “300-Meter Tall Pylon” to Gustave Eiffel. The pylon idea changed considerably before Eiffel approved it. Key modifications were based on a vision that it would be a leisure facility for visitors to pay to use – and the original design presented by Koechlin and Nouguier did not even have a staircase (9m).
In round numbers and according to Monsieur Eiffel’s figures, the Eiffel Tower cost 7.8 million francs to build of which 400,000 francs were for the Otis elevators (for both the Otis contract and worker costs for installing the Otis elevators). The total budget cost for all the elevators was 1.5 million francs (Bertrand Lemoine, The Eiffel Tower, p. 8).
Elevators were expected to be the main means of ascent and descent, especially for the top level. Eiffel’s commercial plan for the tower, at least initially, was based on admissions revenue. The pricing for entry to the Eiffel Tower was the same for people choosing to use the stairs or via elevator at:
Admission was half-price on Sundays.
Whether or not this was the intent, this price structure is well geared to provide an ROI (Return on Investment) on the elevator investment. It captures the value of using the elevator for the top level compared to the few visitors who might have paid this price if stairs were the only option.
The Eiffel Tower was a commercial success during the 1889 Paris Exposition attracting nearly 2 million paying visitors. Yet the Eiffel Tower would not likely have happened at all without government support, which is the subject of the next section.
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CONCEPT 2 – “THE GOVERNMENT’ CAN BE A CRUCIAL INITIAL CUSTOMER FOR MAJOR INNOVATIONS
2.0 - Preamble
Developing major innovations carry many risks. Governments can play a crucial role in mitigating those risks, allowing private companies to focus on managing project execution, undertaking the process cost-effectively and creating customer value and financial value.
In this section I am going to address the role of government for the green hydrogen projects as well as describe the use case of the Eiffel Tower from the perspective of Otis elevators.
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2.1 - Green Hydrogen
Government as a key initial customer for Green Hydrogen projects
In the panel discussion about ‘Unlocking private capital to stimulate investment across the hydrogen value chain’, when asked about this challenge Olivier Mussat responded that “it's about managing risk, and unfortunately, we've seen many projects which are taking many, many risks.” ?To help manage these risks, the panel discussed the important role that governments have in terms of regulation and subsidies to support the emerging hydrogen sector.
Olivier Mussat used the example of Tesla to argue that this was not unusual for a new industry: “I mean even Tesla was heavily subsidized. Let's be honest. It's Elon Musk! No, it's the US Government. He was just very smart in how he used all of his US Government's help.” ?Certainly, the US government was a key initial customer for Elon Musk and Tesla. As part of a US Department of Energy Program encouraging companies to make electric or fuel-efficient cars, Tesla was awarded an interest-bearing loan of $465 million in 2009, which they repaid with interest in 2013 (Elon Musk by Walter Isaacson, p.193). Tesla was also supported by SpaceX contracts with the government. In 2003, SpaceX won their first contract with the Pentagon for $3.5 million (p. 121) and in December 2008 from NASA for $1.6 billion (p. 189) at a time when Tesla was close to bankruptcy. SpaceX continues to win government contracts whilst also building their commercial ventures, principally with Starlink.
At the FT Hydrogen Summit, there were a couple of case studies which demonstrated how government bodies can be key direct customers for hydrogen projects.
These case studies showed that for individual green hydrogen projects, government bodies can be reliable customers who could commit to offtake agreements.
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Government cannot come close to funding all Green Hydrogen projects
Yet there are a limited number of hydrogen projects that can be funded directly by governments. Rather, other government policy tools are being developed to support the scale-up of green hydrogen.
In the panel discussion about ‘Can hydrogen-based fuels compete with other sustainable fuels to decarbonise hard-to-electrify sectors?’, Alexander Voigt said that he was “very happy” with the way the regulatory quota system being used in Europe was working for them. This approach “is helping an industry to scale”. In the same panel session, Marco Raffinetti (CEO, Hyphen Hydrogen Energy) spoke about the importance of scaling-up hydrogen production with governments working together internationally in partnership based on regulation. He was concerned about the unintended consequences of IRA subsidies in slowing down the energy transition internationally by distorting resources to the US. In her keynote interview, Astrid Poupart-Lafarge described how she had spoken to the Minister of Industry of China, who has a big mandate to decarbonize industry in the country, and that this is being done by regulation.
There was some discussion about how government support for current hydrogen projects might be reduced or even eliminated over time. As Miguel Angel Lopez Borrego (CEO, ThyssenKrupp) commented in the panel discussion about ‘Scaling up the infrastructure to transport and store hydrogen globally’, with respect to green steel “We have been getting the support from the government, and I think that's one of the very important topics that we need to talk about is how much and how long do we need to have support from governments to give life to real projects?”
Irrespective of the details of government support, companies that are pitching for green hydrogen projects value clarity around how they will be paid. In this regard, Olivia Breese spoke about how helpful it was for subsidies to be tied to project milestones. “There are known mechanisms which can be used to give developers certainty that if they get their project to a certain point of development, they will receive a known subsidy.”
The German Green Hydrogen strategy is an ongoing policy cycle which supports decisions made around Willingness to Pay
Throughout the summit, discussions were coloured by the comments made by Michael Liebreich in his keynote presentation when he spoke about the unrealistic lofty goals set by political leaders from amongst the estimated 56 countries that have hydrogen strategies given the costs involved. ?In his opinion, “we need to reset because the direction we're going is not going to deliver the aspirations of those 56 hydrogen strategies.”
Michael Liebreich followed up this theme in the 11 September 2024 episode of Cleaning Up about The Great Hydrogen Reset – Is it Germany’s Turn? Ep 176. His guest was Eva Schmid (Director of Hydrogen and Synthetic Energy Carriers at DENA, the German Energy Agency).
Eva Schmid discussed the various measures that are being taken with the German Green Hydrogen strategy. This support is in areas such as the infrastructure core grid “to take some risk, because it’s a risk that the market won’t take (69m)”; and a budget allocation of €4 billion to support hydrogen or electricity projects based on the most efficient way to reduce carbon emissions.
They are currently working through the specifications of the tender documents for green hydrogen projects. Intentionally, this strategy is an ongoing policy cycle which is updated to take account of what is learned from technology experience, inputs from ongoing policy debate, and also allowing for flexibility given the unknowability of how the future will unfold.
Michael Liebreich presented his arguments about the high costs of green hydrogen, involving enormous budgetary impact, in a way which frames these costs as ultimately to be born by the German government. “The German hydrogen strategy needs 3 million tons, so that's 135 billion euros, and you've got up to 4. How can you square this?”
In response, Eva Schmid spoke about reframing this issue in terms of Willingness to Pay (at 35 minutes, 50 minutes and 73 minutes). This is about market signals determining where green hydrogen would be used. It is about green hydrogen usage decisions being made according to value/price. It is ultimately about the costs of green hydrogen being covered by the value it delivers, as organized by the private sector.
Michael Liebreich and Eva Schmid make extensive points about the costs of green hydrogen which may be found from 49:47 (ML: “Let me come back to the costs...”) through to 1:00:37 (ES: “… I guess there will be a price to pay for the green molecules.”). A transcript of the interview is also available which can be found in the tab beside the Show Notes.
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Government and Private Sector roles in managing risk
Given the framework that Eva Schmid described, what does this mean for the role of governments in supporting innovation and risk taking in the private sector? How can this best happen when governments are not going to be able to afford to pay based on ‘price per unit’ but in terms of fixed budgets; and when the private sector is looking to scale and ‘copy paste’ projects to reach profitability?
Here are 6 types of support that government can offer in reducing investment risk:
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The support of governments allows private sector companies to focus on managing their 3 core risks:
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2.2 - Otis Elevators
Government support
Set a vision with a timeline (#1) In mid-1884, the French Government announced their plan to have an Exposition Universelle to be held in Paris in 1889, to mark the centenary of the French Revolution. Their vision was for it “to show France as a global leader, with science and technology amongst the best in the world” (9m).The project would be organized through a government Commission headed by the trade minister, Edouard Lockroy.
Listen to the private sector as to what technologies are being developed in order to include appropriate criteria in tender documents (#2) Innovative private companies would likely be well aware that the planned 1889 Paris Exposition was a tremendous opportunity to show-case their new technologies at this World’s Fair. For Eiffel this meant selling the idea that the flagship structure should be made of iron, which would demonstrate their engineering leadership with this material.
Leading French architects had already made use of iron in the design of new buildings; notably with the grand public works undertaken at the behest of Emperor Napolean III during the 1850s and 1860s. In this period immediately before the age of elevators, these architects were thinking about how large numbers of people could best get up and down their prestigious new buildings.? Charles Garnier designed the magnificent grand staircase of the Palais Garnier as a central feature of the new Paris Opera. Architects Hector Lefuel and then Edmond Guillaume, designed six new staircases in the Louvre, including “the Escalier Daru, the enormous stairway that still leads the visitor from the antiquities in the Galerie Daru, on the ground floor, up to the Winged Victory of Samothrace and then to the Galerie d’Apollon on the left and the Salon Carré and Grand Galerie on the right” (James Gardner, The Louvre, p. 300).
In the 1860s, a pioneering usage of iron was in the construction of église Saint-Augustin de Paris, where the cast-iron frame made possible an imposingly high building without the need for thick walls or outside buttresses. This showed that the use of iron would more easily allow buildings to be made higher. Cathedrals and churches have been the tallest buildings in European cities since the Middle Ages; and where the congregation expects to stay on the ground floor. Yet if the potential now was for buildings to be higher, designed for secular uses, how would people get up and down? By the 1880s, the Otis company was actively addressing this opportunity with elevators and was alert to Eiffel’s plans for the planned 1889 Paris Exposition.
From late 1884 Eiffel socialized his proposed iron tower within professional circles and met with Edouard Lockroy early in 1886 to lobby him about his design. Monsieur Lockroy was persuaded and when the tender document was announced on 2 May 1886, it set the specifications for the flagship structure according to Eiffel’s plan, including that it be made of iron.
It would also require the use of elevators.
Provide planning support (#3)
Over two years after he first unveiled his plans for the tower, on 8 January 1887 the Commission awarded Gustave Eiffel the contract to build it. The contract also stipulated that it required completion by 31 March 1889 - a very short time to undertake such a major project.
During the construction of the tower much of Eiffel’s attention was concerned with the elevators. When Monsieur Eiffel later reviewed the tower in his two-volume work La tour de trois cent mètres, published in 1900, fully 83 pages were dedicated to descriptions of the elevators (Betrand Lemoine, The Eiffel Tower, p. 7).
Given that the raison d’être of the tower was to demonstrate the technical achievements of the French Republic, the priority was to use French companies to supply the elevators. This work was split into three parts. Technically the simplest elevator was the one provided by Edoux to run vertically from the second level to the top level. It was the same general type of elevator installed at the Trocadero during the previous decade, which had to be adapted to manage the 525 feet of rise with the Eiffel Tower. Another French company - Roux, Combaluzier and Lepape – provided an elevator system to the first level that was installed on the east and west piers. These elevators were of a novel, and never to be repeated, design which involved pushing the elevator cars up the curvature of the tower legs. No French company was willing to supply an elevator to the second level, and so the Commission and Eiffel turned to America. Otis were awarded this contract in July 1887, less than two years before it needed to be completed. The Otis elevators were to be installed on the north and south piers.
Whilst this race was on to build the tower, Eiffel also had to consider an Artists Protest, published in Le Temps on 14 February 1887. When Eiffel took the opportunity to respond, he would have known that the Commission was behind him. Indeed, Edouard Lockroy wrote a letter in support of the tower. Over time this protest faded, and the judgement of history is that The Eiffel Tower has been an enormous success. Yet we might also reflect on disruptive impacts.
One of those who signed the Artists Protest was Charles Garnier. Although no mention was made of the critical technology of elevators in the Artists Protest, was he thinking about the disruption of elevators to his work as an architect? Did he think he would never design a grand staircase again?
James Gardner, the art historian, draws our attention to how elevators have been disruptive to the discipline of great stairway design:
“We rarely think of architects as great stairway designers, and modern architecture, with its omnipresent elevators, has been the death of this once vital discipline. With few exceptions, such as Leonardo da Vinci’s great spiral staircase at Chambord and Louis Le Vau’s now demolished Escalier des Ambassadeurs at Versailles, we tend to dismiss these glorious and essential elements as nothing more than a means of circulation. But such indifference does a grave disservice to the architects of the Louvre in general and to Lefuel in specific. Throughout the nineteenth century, during the glory days of Beaux-Arts classicism, the grand stairway stood at the conceptual core of a building, something to which everything else was subordinated. To mount or descend one of these stairways was a privilege, and one felt somehow ennobled in the act.” (James Gardner, The Louvre, p. 271).
Provide a guarantee of safety (#4)
The safety of the elevators was a major concern of the Commission who worked closely with Otis elevators with a “demand for perfect safety” (p. 26).?
For the completion of the Eiffel Tower on 31 March 1889, Gustave Eiffel led a group of government officials and members of the press to the top of the tower. This was a celebration of the tower and an endorsement of the safety of the tower. They made the entire journey up the stairs as the elevators still had to undergo extensive safety testing; due to be done in April.
The 1889 Paris Exposition ran from 6 May to 31 October 1889, and the Eiffel Tower was open to the public from 15 May onwards. Those first visitors would have to climb by stairs as the elevators were not available for public use for another eleven days.
Set a fixed level of financial support tied to project milestones (#5)
The Commission agreed to pay 500,000 francs as milestone payments for each of the three levels of the tower for a total of 1,500,000 francs.
The net result of the arrangement was very cost-effective for the government. The government had the Eiffel Tower built to their timeline for a fixed subsidy of 1.5 million francs; a budget which was 23% of the estimated cost of 6.5 million francs when the construction contract was signed, and just 19% of the actual cost of 7.8 million francs.
Set commercial terms that are appropriate to allow private sector companies make a reasonable rate of return for their investments (#6)
As part of the contract, the Commission granted a 20-year lease to Eiffel for the commercial exploitation of the tower. The lease was set to begin from the completion of the tower, through the 1889 Paris Exposition and then for a further two decades.
According to this original agreement, the plan for the Eiffel tower was that it would be dismantled in 1909 when its ownership would revert to the City of Paris.
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Private Sector risks
Risk of project execution (#1)
Both Eiffel and Otis took critical project execution risks in for the unique challenge of completing the Eiffel Tower. One critical day for Eiffel was 7 December 1887, the day that the four girders on the first floor came together (Bertrand Lemoine, The Eiffel Tower, p. 10). It was a success. By using sand boxes, Eiffel was able to bring these girders together to an accuracy of one millimeter by progressively lowering each of them.
Otis was put under tremendous pressure to develop the elevators using their expertise and under the exacting demands of the Commission and Eiffel. It was just as well that they were prepared. Soon after Otis became aware of Eiffel’s plans, they started planning how the elevators might be designed. This was revealed later in a published interview with W. Frank Hall, Otis’ Paris representative (p24):
“Yes,” said Mr. Hall, “this is the first elevator of its kind. Our people for thirty-eight years have been doing this work, and have constructed thousands of elevators vertically, and many on an incline, but never one to strike a radius of 160 feet for a distance of over 50 feet. It has required a great amount of preparatory study, and we have worked on it for three years.”
“That was before you got the contract?”
“Quite so, but we knew that, although the French authorities were very reluctant to give away this piece of work, they would be bound to come to us, and so we were preparing for it.”
Risk of managing the process cost-effectively (#2)
By taking on the contract, Eiffel exposed himself to a substantial outlay investment before he could expect any return. During the construction process, Eiffel would need to manage supplier costs and labour disputes. In December 1888, Eiffel created a stock company with capital of 5 million francs to cover the remaining financing. Half of this money was put up by Eiffel from his own funds with the remaining half covered by a consortium of three banks (Bertrand Lemoine, The Eiffel Tower, p. 8).
During the tense working relationship that developed in the construction of the elevators, Otis exposed itself to not being paid. At one point to do with a project delay, and before an agreement could be reached, Eiffel refused all payment to Otis (p28),
Creating both customer value and financial value (#3)
The Eiffel Tower was a rapid commercial success and Eiffel then became more concerned about its long-term future. For the 1900 Paris Exposition (which included the first Paris Olympics), substantial renovations were made to the Eiffel Tower including the replacement of the Roux and Combaluzier elevators by hydraulic elevators built by Fives-Lille. Elevators from Fives-Lille were also used to replace those from Otis by 1912 (Bertrand Lemoine, The Eiffel Tower, p. 10). The future viability of the Eiffel Tower was assured after a permanent radio was installed in 1906, and the lease was renewed “on 1 January 1910 for another 66 years” (Bertrand Lemoine, The Eiffel Tower, p. 10).
Since their installation of those initial elevators in the Eiffel Tower, the Otis company has continued to innovate and provide customer and financial value. At the 1900 Paris Exposition, Otis launched their new step elevator, which they called an escalator. Intentionally or not, in the French environment of this World’s Fair, this naming implicitly suggested to customers that Otis’ new ‘escalator’ be an alternative to an escalier, the French word for staircase. In the 1980s, Otis returned to the Eiffel Tower for the entire lift system using their duolift elevators.
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CONCEPT 3 – BE CREATIVE IN THINKING ABOUT VALUE AND FINANCIAL VALUE
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3.0 - Preamble
Amongst my pricing colleagues, there are two books which are considered essential reading when working on the value/price of innovation.
The first is The Innovator’s Dilemma by Clayton Christensen. His central thesis is that there is a substantially different approach required by companies to continue developing sustaining technologies compared to introducing disruptive technologies. The dilemma companies face is about which of these two different types of technologies they should develop given how difficult it is for one organization to pursue both approaches. Characteristics of disruptive technologies include:
This second is The Challenger Sale by Matthew Dixon and Brent Adamson. This book is about how successful salespeople are those who challenge their customers by “taking control of the conversation”. The podcast - Insights From the History of Pricing and Mindfulness with Paul Hunt – provides a description about how the challenger sale can be used in discussions around value and price (at 9m).
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3.1 - Green Hydrogen
Identifying target customers
With a disruptive innovation, such as green hydrogen, it is essential to determine the right target customers. In his The Innovator’s Dilemma, Clayton Christensen wrote about how leading firms can be ‘held captive by their customers’ (p 41). These customers are interested in incremental improvements to the current offering rather than disruptive innovation. This suggests that existing hydrogen customers, such as in oil and gas, may consider green hydrogen and blue hydrogen to be somewhat similar commodities. In contrast, customers for the newer use cases (integration within an electrical grid powered by wind and solar, for diesel displacement, green fertiliser) may see much more value in green rather than blue hydrogen.
Although green hydrogen producers operate in a B2B environment, they should also look beyond their immediate customers to consider how this innovation helps people and consumers. This awareness helps in the long-term strategic direction of the value they deliver. Alexander Voigt drew attention to this point when he spoke about Amazon, that “their customers want CO2 free transportation. … I think that people are much more decisive of what is good for them and what is good for the planet, and what needs to be done.”
The story of the two green apples
In his interview with Eva Schmid, Michael Liebreich asked this question - “It (green hydrogen) would have to be competitive with blue hydrogen or competitive with grey hydrogen because if it is not, it is going to require subsidies and support forever, even at the top of the ladder. Unless green hydrogen is cheaper than the other ways of doing it, why would anybody do it?” (45m20s)
The simple answer is that customers will pay for perceived value, and the value of green hydrogen is around the process of producing it into a certain form rather than in terms of the output as expressed in ‘tons of hydrogen’.
This means that customers would pay more for ‘a ton of green hydrogen’ than ‘a ton of blue hydrogen’ if it were considered ‘better’. And perhaps customers would pay ‘much more’ if the green hydrogen were ‘much better’ than blue hydrogen. In some use cases green hydrogen might be the only viable hydrogen option, which would place it in a strong value/price position.
In his keynote presentation to the Professional Pricing Society in 2011, Paul Hunt spoke about the importance of assigning value to two products which, on the face of it, look identical (see 2-minute video; People Want The Best Value, Not The Best Price’: YouTube). “Have you ever been in a meeting where all you hear people talking about is price, price, price. And you know that the discussion should be about value, value, value. And yet the discussion goes on and on. That’s when I pull out the story about the two green apples.”
‘The story of the two green apples’, which we often use in our pricing workshops, follows 3 steps.
There is opportunity to develop a value driven hydrogen market since, as Eva Schmid was keen to point out in this interview the technology of producing green hydrogen is “completely different” from producing blue hydrogen (43m).
Financial Value Quantification
The focus of this section is to cover reasons why customers might be Willing to Pay more for green hydrogen compared to blue hydrogen. My suggestions cover 5 broad areas - emissions reduction, resilience, clean air at production site, customer efficiencies and enabling new technologies. These are my a priori value hypotheses of the broad areas for exploration.
For a specific project they would need to be tested through qualitative research amongst target customers. This primary research would include a five-step approach – 1) screener to identify appropriate respondents and collect profile data that can be used to pre-populate the financial value calculator for that specific respondent, 2) product profile, 3) economic expectations based on literature, 4) financial value calculator and 5) willingness to pay. The financial value calculator should include perhaps 3 to 6 quantitative value drivers for use in a customer discussion to justify ‘hard ROI’. Other financial value drivers would be described more qualitatively, and to be thought more in terms of ‘soft ROI’.
Whilst society would benefit from the emissions reduction from green hydrogen adoption, this might not be the main reason that customers pay for it. This suggests that for organizations working to avert the climate crisis, rather than setting themselves the challenge of “How do we get people to change their behaviours to act on climate change?”, instead they should be focused on “How do we get people to use clean technologies (whatever their reasons might be)?”
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Designing the price offer to capture value
Ensuring that price be thoughtfully designed for a specific customer type and use case is critically important to capture the value of green hydrogen.
And there are many different ways that price can be presented to customers. What price metric is appropriate? Do you want customers to think about installation and service costs separately, or as part of a total cost of ownership? Are customers more concerned with total budget impact or in terms of cost per unit? How much does the cost of the green hydrogen impact the total cost of the finished product?
During the Hydrogen Summit there were a couple of occasions when the price of green hydrogen was framed in different ways.
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The critical importance of communicating the value/pricing story
In their interview, Michael Liebreich and Eva Schmid agree that green hydrogen will be ‘expensive’; and in a response to a question after his keynote presentation at the FT Hydrogen Summit, Michael Liebreich also said that “I like cheap hydrogen. I like cheap, clean hydrogen.” ?
Michael Liebreich articulates a fundamental challenge to which every green hydrogen producer needs to respond. It is critically important that green hydrogen companies communicate the financial value of their green hydrogen offering; especially in a market environment where it is considered ‘high price’. This value communication would be for a specific use case, or use cases, to their high value customers. This value should also go beyond financial value to address some fundamental human goal, or goals. Is it about helping people know that climate change is being addressed, about safety and security, about clean air, about convenience, about future technologies – or a combination of these or something else?
And any representative of a green hydrogen company must know the same value/price story for their company.
“A failure to understand value … will result in a disconnect between what product teams are building, what pricing teams are pricing, what marketing is communicating, and what sales teams are selling, leading to fewer profitable sales and poorer financial performance.” – Dr. Thomas Nagle, as quoted by Todd Snelgrove, (15m).
To bring it back to Otis elevators, when Elisha Otis invented a brake to the hoisting devices they used in their furniture business, he thought about how he might best communicate this value to potential customers. He did not assume that customers could work it out for themselves. With his vivid demonstration at the 1854 New York Exhibition customers could see how this invention made this new Otis elevator safe. They could also start calculating the financial value in terms of employee safety without disruptions and breakages.
Over the following 170 years, Otis has continued to innovate to meet customer demands as part of the Eiffel Tower and other landmark buildings, and with commercial skyscrapers, escalators and the Panaroma EMS system. Otis is now, in 2024, the largest elevator company in the world with a market capitalization of $40 billion. Underlying the remarkable success of Otis is the value they delivered to people by enabling the fundamental human desire for panoramic and scenic views - which is the subject of the final section of this white paper.
3.2 - Otis Elevators
?The fundamental human desire for panoramic and scenic views
I am going to make the case that a key reason for the success of Otis elevators has been to do with how it has helped meet the fundamental human desire for panoramic and scenic views. People appreciate looking down from ‘on high’ at a panorama, and they also like to ‘look up’ at a nearby landmark. Otis has enabled this desire in way that created financial value to their direct customers by allowing end customers to experience such scenic views in a safe and convenient way.
The seven hills of Rome
In his first volume of History of the Decline and Fall of the Roman Empire published in 1776, Edward Gibbon introduced the reader to the extent of the Roman Empire at the time of Trajan; emperor from AD98 to 117.
He wrote about the ‘seven hills of Rome’ in the context of many vanquished neighbours: “The middle part of the (Italian) peninsula that composes the duchy of Tuscany and the ecclesiastical state, was the ancient seat of the Etruscans and Umbrians; to the former of whom Italy was indebted for the first rudiments of civilized life. The Tiber rolled at the foot of the seven hills of Rome, and the country of the Sabines, the Latins and the Volsci, from that river to the frontiers of Naples, was the theatre of her infant victories.” (Gibbon, Decline and Fall, Vol 1 p. 46)
Gibbon also wrote about Trajan’s successful campaign against the Dacians: “the most warlike of men, who dwelt beyond the Danube, and who, during the reign of Domitian, had insulted with impunity the majesty of Rome… Decebalus, the Dacian king, approved himself a rival not unworthy of Trajan; nor did he despair of his own and the public fortune, till, by the confession of his enemies, he had exhausted every resource both of valour and policy.” (Gibbon, Decline and Fall, Vol 1 p. 34)
At first glance it seems curious that Rome is so known for its seven hills when all these early civilizations were located on hills. Indeed, the hills of Rome were amongst the least physically impressive of these early civilizations.
The Etruscans, Umbrians, Sabines, the Latins and the Volsci all lived in hilltop settlements. Sarmizegetusa, the capital of the Dacians, was a hilltop fortress at an elevation of 1,200 m. By comparison in Rome, “the Palatine hill rises (just) 32 m above the present city (51 m above sea level)” and the Capitoline hill reaches 48 m above sea level (Claridge, Rome, p. 125 & p. 259).
The key to understanding what made the hills of Rome so notable was in how the Romans developed their expertise at water management. This enabled people to live on the marshy land along the Tiber who would then look up at the nearby hills. By having the majority of people live on this low-lying land, Roman society reserved these hills for special buildings and the elite. And the society of the elites who lived and worked on these hills would have a panoramic view to the city below. It is this contrast between higher and lower ground which gives the special meaning to the seven hills of Rome.
There is evidence of settlement on the hills of Rome from the Bronze Age (C14-13 BC), from pottery found on excavations on the Capitoline hill (Claridge, Rome, p. 259).
During the end of the Period of the Kings and the start of the Republic (C6-C5 BC), the Romans made a massive investment to reclaim the marshy land by the Tiber with the creation of the Cloaca Maxima sewer system. This improved drainage around the Roman Forum, and a larger area of flat open grassland which became known as the Campus Martius (Field of Mars). This was initially a place where the Romans could co-ordinate their military endeavours – where in March, at the start of the annual campaign cycle, citizens would become soldiers. By C2 BC, the extraordinary military success of Rome, notably against Carthage and Greece, had brought wealth into the city and enormous numbers of people. This population growth was accelerated by the systematic way that the Romans used their military campaigns to recruit new soldiers. ‘There was one obligation that the Romans imposed on all those who came under their control: namely to make troops for the Roman armies.” (SPQR, Mary Beard, p. 163). At this time the population of Rome was around 1 million; mostly living on the new low-lying areas. With human settlement, the ground level of Campus Martius rose over time with the threat of flooding reduced but not eliminated. “The general ground level on the Campus rose at least 4 m in the course of the last three centuries BC and the C1 AD, during which seventeen major floods are recorded (there were probably many more).” (Claridge, Rome, p. 202)
In the same period that the Romans were making their major investments in the Cloaca Maxima, they were also investing in the most important temple of Rome - the Temple of Jupiter Optimus Maximus. Dedicated in 509 BC, this immense structure was built on the top of the Capitoline hill and would tower over the city (with the Roman Forum to be located on one side) – from where we have the word ‘capitol’. Nearby, the Palatine Hill would become an area for where the elites, and in time the emperors, would live – and this has given us the word ‘palace’.
For the Romans, the distinction between the hills and low-lying areas of Rome carried enormous significance. The origin myth of Romulus and Remus would enhance the distinction between the flooded areas around the Tiber and the status of the hills, especially the Palatine hill (Gregory Aldrete, Floods of the Tiber in Ancient Rome, p. 10 Kindle). The Servian Wall, built in C4 BC helped ‘set in stone’ the seven hills that were used to characterize Rome.
The population of Rome plummeted after the fall of the Western Roman Empire in 476 AD. The Rome that Gibbon would have known in C18 AD would have had a population of around 150,000, mostly located in the Campus Martius which “is the one part of Rome which continued to be quite densely inhabited after C9 AD, becoming the centre of the late medieval and Renaissance city” (Claridge, Rome, p. 197). Although the temple of Jupiter Optimus Maximus no longer existed and the Palace of Domitian on the Palatine was in ruins, there was space to see the landscape of the city and the notion of the seven hills of Rome still seems to have been powerful. An antique map of Ancient Rome by W. B. Clarke published in 1830 highlights the importance of the seven hills.
Rome now has a population of over 2 million and, in this more crowded city, the idea of the seven hills of Rome seems to have lost most of its significance. Visitors to Rome looking at a tourist map are shown the city at different sites without special reference to the hills. Instead, we now seem to be encouraged to think of Rome through the ages as ‘the Eternal City’ (Paul Roberts, Ancient Rome in Fifty Monuments, p. 12).
Property value/price in Ancient Rome
For the huge numbers of people living in ancient Rome (C2 BC to C4 AD) there was little choice in type of accommodation. Apart from a few very wealthy inhabitants who lived in detached ‘domus’ houses, the vast majority would live in tenement buildings, known as insula (singular) or insulae (plural).
“The Regionary Catalogues of the C4 AD distinguish only two kinds of housing in the city, domus and insula, of which there were only 1,790 of the former compared with 44,300 of the latter.? … Insula can be broadly interpreted as a multi-storey apartment block accommodating several families or single individuals, the natural response to enormous influxes of population in the C2 BC,” (Claridge, Rome, p. 58)
Where Romans did have choice was in which floor they would live within an insula, with the best accommodation on the lowest levels. “The basic logic was always that the lower down in the building you lived, the more spacious and expensive your accommodation was, and the higher up in the building, the cheaper, pokier and more dangerous, with no facilities for cooking or washing and no means of escape in the (frequent) event of a fire.” (Mary Beard, SPQR, p. 447)
Insulae were built in response to the need to house many people in a constrained land area. No tall insulae were constructed in the city of Pompeii, which had a low population density. In comparison, Rome was by the far the largest city in the world where the pressure on the vast majority was intense.
In C1 AD, “over a million people lived there (in Rome), crammed into a few square miles …The property market in Rome was an exercise in exploitation. ‘Nowhere does a squalid room cost more.’ The rent charged on the tenement blocks that furnished most of the plebs with the accommodation was graded with a ruthlessly exacting precision. The higher the floors, the likelier tenants were to find their rooms shaking as wagons rumbled below, or collapsing in the event of an earthquake, or cut off from the street by fire. The crash of falling buildings was one of the most distinctive sounds of the city.” (Tom Holland, Pax, p. 310).
There were some efforts by emperors Augustus, Nero and Trajan to regulate the construction of insulae to make them safer. Trajan’s reign saw the massive development of Ostia as the port to Rome which included a highly planned complex of insulae in the vicinity of the new hexagonal port basin. Trajan introduced a height limit for insulae at 60 Roman feet. Since 10 Roman feet was the height of a floor, this meant that it was forbidden to build an insula higher than 6 floors.
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Property value/price in C19 AD Paris, before elevators
At the start of the Second Empire in 1852, Emperor Napoleon III laid out his grand vision for Paris. His most extensive public works program, known as Haussmann’s Renovation, was in transforming central Paris into a city of wide boulevards lined by smart apartments of a standard design. This is the Paris that is widely known today and how it used to be is vividly brought to life by the work of impressionist painters Pierre-Auguste Renoir with Les Grands Boulevard (1875) and Gustave Caillebotte with Rue de Paris, temps de pluie (1877) and L’Homme au balcon, boulevard Haussmann (1880).
The Haussmann apartments were typically six floors high. For Parisians of the 1860s, the choice was not between building types but between floors. Unlike the Roman insulae, Haussmann apartments were not likely to collapse or catch fire, yet they still required effort to climb to the higher floors. Given this, the Haussmann apartments were designed for the lower floors to be more valuable according to a set pattern. Notice that classic ‘6 floor’ Haussmann apartments have 7 levels with the sixth floor and mezzanine being ‘half-size’.
I was reminded of how interconnected the world is whilst writing this white paper. One of my favourite local cafes is run by an Egyptian family and I noticed on the wall a photo of a distinctively Haussmann looking apartment from Cairo. On investigation I discovered that downtown Cairo was built in the 1860s on the direction of Khedive Ismail to imitate Haussmann apartments.
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Impact of elevators on property value/price in Paris
1870 was a watershed year for Paris, Otis elevators and the modern urban landscape.
In Paris, this is the year that Baron Haussman was dismissed by Napoleon III; that the Third Republic was proclaimed after Napoleon III was captured by the Germans at the Battle of Sedan; that the political turmoil of these times lead to an uprising in the city (again) the following year with the short-lived creation of the Paris Commune and destruction of the Tuileries Palace. For Otis elevators, this is the year that they installed elevators in the Equitable Life Building, demonstrating in a compelling way that end customers could experience scenic views from the top of buildings in a safe and convenient way. In the major capitals of the world, any building developed after 1870 would have been designed with the technology of elevators in mind. It also meant the end of the noble floor as being anything more than an historical curiosity.
The Haussmann apartments were primarily in private ownership, and after 1870, these owners faced the choice of whether or not to install elevators in their apartments. This created a market where Parisians now had a choice in where to live between apartments with and without elevators.
Property owners could choose to invest in the installation of elevators in Haussmann apartments as this made these buildings more valuable. It enabled residents to enjoy the views from the higher floors without the effort of climbing the stairs. ?The wealthiest residents of Paris would now tend to choose the fifth floor of apartments with elevators, the highest floor with comfortable rooms. In modern Paris, as a results of elevators “an apartment on the fifth level of a Parisian Haussmannian building is now priced roughly 20% more than the second floor, which is considered the noble floor” (Amazing Architecture, 2024).
What is not so intuitively obvious is what happened to Haussmann apartments which remained without elevators. Property owners who chose not to install elevators now had properties which had become less valuable. Their wealthiest residents abandoned the noble floor on these properties in favour of the higher floors of those apartments with elevators. The apartments without elevators would now be relatively more appealing to younger people without families who do not mind climbing the stairs to enjoy the views from the higher floors. One can imagine that increasing numbers of younger people going up and down the stairs of these apartments could make lower floor apartments more noisy and less appealing. Gone are the days when the rich on the noble floor could tell the servants living on higher floors to be quiet or take an alternative staircase! A 2023 article about “How Floor Level Affects Paris Apartment Prices discussed a study which “shows that in buildings without an elevator, the most expensive apartments are typically located on the fourth floor, rather than the top floor. This is because the fourth floor offers a balance of accessibility and privacy, without the inconvenience of climbing all the stairs right to the top.”
One challenge for retrofitting elevators in the original Haussmann apartments was with how to manage the lack of standardization in floor height. Specifically, each floor would need to be at the same height, or higher than the elevator car. Given the lower height of the first floor and sixth floors some of these buildings have retrofit elevators which ?“start one floor up or end one floor before the top”.
After graduating, I lived for a year in Paris in a 6-floor apartment building which has distinctive Haussmann style elements. My apartment was just south of the 14th arrondissement on Ave Paul Vaillant Couturier in Gentilly. Paul Vaillant-Couturier was a founder of the French Communist Party who died too young in 1937, and I believe that this apartment block was built around this time.
There are 6 levels to the building with the first level comprising a convenience store (now ‘Votre Marché Gentilly’) and an apartment for the concierge. Each window of the five floors above that have individual balconies with wrought iron railings. The second level has decorative brickwork indicative of it being the noble floor. To a lesser extent, the sixth level has some distinctive designs, presumably to signify it being the floor of the chambre de bonne. My bedroom had a working fireplace.
Yet there is one crucial element which is different from the original Haussmann form, and this is to do with the standardization of apartment size between floors. All the floors above the first level are of the same height. The first floor appears to be a bit taller than the other floors but does not have a ground floor and mezzanine level. Even though this apartment building does not have an elevator, it was created in a world after 1870 where the technology of elevators was available and multi-story buildings would be built to meet the key requirement of minimum floor heights.
My rent in my shared fourth floor apartment was extremely inexpensive. I was young and did not mind at all using the stairs on a day-to-day basis, although I do remember the effort of bringing up my heavy suitcase when I first moved in. I liked using that convenience store, for milk, pastries and coffee in the morning, and for tins of lentils and sausages with red wine at the end of the day when I arrived back from my work as an English teacher. I hope that the annoyance felt towards me by Madame in the concierge did not last too long! She angrily stopped me once when I brought my bicycle into the building and another time when I had my arms bundled with branches for firewood. Fortunately, I did manage to avoid her when I hosted a party of university friends over the new year.
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Impact of elevators on property value/price in New York
A bird’s eye view of New York in 1870, created by Currier & Ives, shows Manhattan as a crowded city. We can see it to be full of low-level multi-story buildings, along with a small number of parks and church spires. With the introduction of elevators, this landscape would soon no longer exist. In a couple of generations, New York would have the skyline of skyscrapers with which we are familiar today. The Colonnade Row in mid-town and Fraunces Tavern in downtown are a couple of buildings that have survived this transformation, where the style of building design is so different to the regularity of the adjacent buildings of the elevator age.
There was no concept of a noble floor in the new residential buildings of New York. In a world where elevator technology was available, the lower floors of buildings lost special value. I would suggest that the standardization of floor levels within a gridiron street plan makes it more natural to start the ground-level floor as ‘floor 1’ in the US, compared to sometimes being termed the ‘ground floor’ in Europe.
Not all the modern buildings would have elevators. During the 1920s New York surpassed London as the world’s most populous city.? Many of the low-rise residential buildings built around this time were ‘walk-ups’ which catered for lower income workers and their families. Presumably to protect these residents, in 1929 it became illegal to construct a new building of over 6 floors in New York without an elevator. This is the same year that work started on the building of the Chrysler Building to surpass the Eiffel Tower as the world’s tallest man made structure.
Nowadays, the walk-ups cater for younger and more budget-conscious residents (but even for these groups climbing to a 7th floor can be a stretch). This is the world of the TV sitcom, Friends, where a group of 20-somethings live in a 6-floor walk-up in Manhattan. They are too loud for Mr Heckles who lived on the floor below and struggle up the stairs with a new sofa.
Like ancient Rome, in Manhattan there has been tremendous population pressure in a constrained space which incentivized the construction of tall buildings. Like ancient Rome, it is not allowed to have walk-up residential buildings higher than six floors. And rather like the emperors on the Palatine looking down over the city of Rome, elevators have enabled modern wealthy elites to enjoy panoramic views over New York from their penthouse palaces.
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The joy of looking up
For many visitors, part of the appeal of visiting New York is to look up at the skyscrapers. Last summer my colleague, Ben Garden, commented on LinkedIn that he “couldn't pass up this view of the CN Tower glowing in the golden light.”
Perhaps we are not so very different from the ancient Romans who would look up at the Temple of Jupiter Optimus Maximus or the ancient Egyptians who would look up at the pyramids.
In his response to the artists protest in 1887, Gustave Eiffel wrote of the value of his proposed tower in comparison with the Egyptian pyramids:
“Will you support the idea that it was via their artistic value that the pyramids so strongly sparked the imagination of men? […] Who has not returned from seeing them, filled with irresistible admiration? And what is the source of this admiration if not the immensity of such an effort and the grandeur of its end result? The tower will be the tallest edifice that man has ever erected. […] And why would what is admirable in Egypt become hideous and ridiculous in Paris?”
Eiffel surely succeeded with his vision. The Eiffel Tower has now become part of how Parisians see their city; used in the logos of Paris St. Germain FC and for the 2024 Olympics.
The Eiffel Tower is also part of the visitor experience to Paris. According to one American tourist: “I made it my tradition every evening of my stay to close out each day on the boat by looking out to the Eiffel Tower — one rare constant in this turbulent and shifting world.”
This joy of looking up at modern buildings has been made possible by elevators.
SELECTED BIBLIOGRAPHY
Aldrete, Gregory S., Floods of the Tiber in Ancient Rome, 2006
Beard, Mary, SPQR, 2015
Christensen, Clayton M, The Innovator’s Dilemma, 1997
Claridge, Amanda, Rome: An Oxford Archaeological Guide, 2nd Ed, 2010
Cleaning Up Podcast
Dixon, Matthew and Adamson, Brent, The Challenger Sale, 2011
Gibbon, Edward, The History of the Decline and Fall of the Roman Empire, Vol. 1, 1776
Holland, Tom, PAX: War and Peace in Rome’s Golden Age, 2023
Lemoine, Bertrand, The Eiffel Tower, 2021
Roberts, Paul, Ancient Rome in Fifty Monuments, 2024
Speaker, analyst, advisor, investor in the future economy. Host of Cleaning Up, podcast on leadership in an age of climate change. Managing partner, Ecopragma Capital.
1 周A nice piece, and great to "meet" a dedicated fan! Your piece certainly made me think, but mainly about why the analogy between elevators and green hydrogen fails, rather than about the conclusions you draw. But first, you are quite right about safety. If safety is compromised, there's no point discussing pricing. That is why the fact that the industry - in particular the gas heating industry - is silent or deliberately misleading about safety is so troubling. Did anyone at the FT Hydrogen Summit explain that the safety protocol approved by HSE for the Hydrogen Village trials involved knocking a 10cm x 10cm hole in the wall of every room with a hydrogen appliance? Did anyone explain that safety for the Dutch home heating trials has been placed 100% in the hands of the gas network, with no regulatory oversight? Did anyone at the Summit discuss the fact that the blast radius for a hydrogen pipeline explosion is 1km vs 400m for a natural gas pipeline? Did anyone discuss the implications of Seveso regulations for storing hydrogen? Of course not: the marketing, business and public policy types leading the hydrogen hype don't understand the issues, and think discussing risk and safety in public would be bad for business. 1/2
Speaker, analyst, advisor, investor in the future economy. Host of Cleaning Up, podcast on leadership in an age of climate change. Managing partner, Ecopragma Capital.
1 周2/2 Regarding your read-across from Otis elevators. Yes, green hydrogen should sell at a premium to grey or blue. However, pricing is also driven by availability of alternatives. Not only is there an alternative in every use case below Row A on the #HydrogenLadder, but even for Row A there is the option of CO2 removal or, shock horror, continuing to emit and be damned. Also, you appear to have accepted the industry narrative that green hydrogen must eventually become competitive (or cheap enough that its value-based price covers its higher cost). But green hydrogen is not like PV or batteries. 40% of its cost is electricity. Surplus power will be available no more than 15% of the time, so 85% of the time you have to pay for power or idle your plant. Another 40% of the cost of green hydrogen is construction plus chemical and electrical engineering. So green hydrogen is going to remain around $3/kg more expensive than grey. Just for the 100MTpa of current demand, your green premium has to cover $300bn per year forever. And that's just production: it also has to cover extra costs in transport, storage, distribution & usage. Bottom line: green hydrogen doesn't have a pricing problem, it has a vast and enduring cost problem.