Soil Analysis: A Real-Time Game

Soil analysis is at the foundation of farmers’ ability to increase their profits and to reduce their costs. In addition, farms will have to find innovative ways to increase food production due to the rising world population. Currently to test and collect soil it takes the farmer a significant amount of time, precision, effort, and the ability to analyze results while mitigating human error that is critical to their farm’s performance. To discuss the topic and explore solutions, this report looks at company reports, research papers, university journals, state statistics, government, and venture capital reports.

Teralytic is solving the farmer’s problems of time, precision, human error, and intense effort through the utilization of in-field sensors and an easy to comprehend app that gives the farmer access to live data on demand. If Teralytic is successful and soil testers in-field become the mainstream way to analyze soil, it will disrupt the entire soil testing and analysis market. Incumbents such as Waypoint Analytical will become obsolete, completely decimating the need for soil analysis labs for routine soil analysis testing. IntroductionSoil analysis is a major player in the global agricultural testing market which is “valued at USD 4. 56 billion in 2017” and is expected to grow to “6. 9 billion by 2022. Increases in population and soil deterioration due to climate change put pressure on farmers to produce more food while reducing costs and cause farmers to demand timely and accurate soil analysis which is influencing the growth of the “rapid technology segment” in the agricultural testing market. This leads to a rapidly evolving market that incumbents will have to adapt to before companies disrupt them.

Market

The market for soil analysis may be growing, however there is still intense competition. The first primary dimension of competition is speed of data delivery. Multiple companies have invested resources into mobile or web applications in order to decrease the delivery time of the farmer’s results. The second primary dimension of competition is quality. Soil Analysis companies advertise the number of tests that they can do and the accurate recommendations they can give. Traditionally, companies have been focused on the main competition dimension of quality. This is known by multiple companies, such as Waypoint Analysis merging smaller labs into one company to provide high quality and in depth results to farmers. However, there has been a recent shift and farmers are valuing the competition dimension of speed due to the increased awareness of soil analysis and the economic benefits farmers gain from high speed results. Thus, the increased emphasis on speed will shift the major players in the market to companies who can adapt and meet consumer expectations. This leads to the current business model, see exhibit 1, of Waypoint Analytical, a major incumbent, having vulnerabilities to disruption. One vulnerability of the current business model for soil analysis is the model’s reliance on farmers to take accurate soil samples. Farmers have to complete a multiple step process to collect soil samples that is time intensive and need to be done accurately that is prone to human error. The business model is also vulnerable because soil is analysed off site at the labs. This requires the farmer to mail the samples to the labs, then the lab has to test the samples, and finally the results are either mailed back or uploaded which takes valuable time.

The third vulnerability is the bottleneck that is created for the industry and for Waypoint Analytics. For the industry the bottleneck is created at the testing labs. Current equipment and technicians can only test a certain amount of samples per day and during popular testing times that can create a backlog of orders. For Waypoint Analytics, the bottleneck is created at farm during the step of drying the soil in order to send it to the labs. Soil has to be air dried, and the recommendation is to dry it for three days spread out in a thin layer as long as the soil isn’t extremely saturated.

As implied by Waypoint Analytical website, the fundamental value proposition for waypoint is to provide high quality results, seamless data transfer & short turnaround times at a competitive price. This value proposition implies that Waypoint infers that farmers consider the cost for soil analysis and short turnaround time as a key decision criteria while comparing alternatives. The emergent venture, Teralytics, is accelerating the industries change in preference towards speed of data delivery. They hope that farmers will accept this change in the form of in-field soil sensors and the use of a mobile/web application. To do so they have to gain the trust of farmers that their quality is just as good as the competitions. In addition, that their value creation outweighs the upfront cost of adopting their system.

If Teralytic is successful in disrupting the market, Waypoint Analytical will have to adapt their current marketing plan. Currently, Waypoint Analytical markets to farmers as the fast turn-around company for soil analysis. However, compared to Teralytics sensors, a twenty four hour turn around on data is slow compared to a fifteen minute turn around Teralytics provides. To change their marketing strategy, they would to market that they provide the highest quality data with more in-depth soil analysis options and better, ‘expert’, recommendation that Teralytic’s sensors could not provide. IncumbentLeading firms in the soil testing industry such as Waypoint Analytical create and monetize value for its customers by establishing themselves as the most reliable and timely providers of soil test data. According to the Waypoint Analytical website, their focus lies in leveraging their proprietary software and hardware system and provide a service to achieve 98. 5% on-time performance. Over the last decade it has achieved a growth of 12% per year on average and it has partly attributed this growth to acquiring several laboratories. With eight agricultural laboratories strategically located across the country, it has deployed resources with respect to technology, data and user resources. According to Agritech Tomorrow these resources correspond to their strategy to provide fast turnaround time (as low as one day), quality results, highly-trained agronomists, and a great customer service.

Acquiring the labs is a signal that they have invested and allocated a relatively large and irreversible commitment of resources that locks them in the current process of gathering soil data from farmers. This is an evidence indicating that the option to reallocate strategic resources would take a significant amount of capital. Waypoint Analytical’s strong position in the market and their capacity to produce high quality soil tests at a high utilization can be attributed to its strategy of acquiring various labs. These labs work together to lower the utilization rate and higher the service rate. Based on the information provided in the website of Waypoint, the labs include various physical locations including “California, Carolinas, Florida, Illinois, Iowa, Louisiana, Mississippi, Pennsylvania, Tennessee and Virginia”. In addition, Waypoint has a reduced lead time due to their technical advantages and size compared to others in the industry. “The typical turnaround-time for results is 3 to 4 business days from time of sample receipt except during April and May when it may take 1 to 2 weeks due to heavy sample load. ” “UConn” and Waypoint on the other hand provides test results within a day.

Currently in the soil analysis industry resources are planned and controlled in order for companies to make huge investments in the soil testing equipment, the training highly skilled laboratory operators, and the delivery of the reports. Currently, Waypoint Analytical is able to lead in the industry because they own a large number of labs in multiple states. Teralytic undermines the established resource acquisition and utilization patterns because they operate through in field soil analysis sensors that utilize cloud computing that allow effective soil data in real time. This eliminates the need for costly investments in equipment, laboratories, and skilled workers. Instead, Teralytic puts their investment in their delivery system, sensors and artificial intelligence. The primary implication to the allocation of resources is customer satisfaction. Waypoint Analytical focuses their resources on the quality and breathe of their tests, implying that the customers in this industry care the most about having detailed and trusted results. On the other hand, Teralytic focuses their resources on data collection, implying that the customers in the industry care the most about reducing the time spent collecting samples while decreasing human error which will be discussed in more detail below. DisruptorTeralytic is a disruptor that focuses on the target market that is made up of farmers ages 18-45 who have familiarity with technology. In addition, they grow crops that are mostly reliant on basic soil analysis, are sensitive to small changes in soil composition and have high fertilizer costs. Geographic location will focus on the states of Iowa, Illinois, Nevada, Minnesota due to their high production of crops such as corn.

Teralytic creates value for this target market by allowing a farmer to track in real-time their field’s soil moisture, salinity, soil temperature, pH, nitrate, potassium, and phosphorus utilizing in-field sensors and a mobile or web application that gives them data that is easy to read accompanied by AI recommendations. The farmer can select from three probe sizes which they can install in their fields. The probes connect to a central network for up to ten miles where their data is collected, stored, and analyzed every fifteen minutes. Not only is the data collected compared to the individual farm’s but to previous research done by public institutions such as governments and universities. The farmer can access the data through a mobile or web application that is user friendly, gives recommendations and alerts, and stores historical data from the probes. For a farmer to utilize Teralytic, they offer a higher cost per probe, but a lower cost per data sample. For a farmer to use Teralytic’s probes they have to pay $1, 400 subscription plus $500 per probe per year. Compared to the $20 Waypoint Analytical charges, in addition to the cost of shipping, for their equivalent testing of soil for a single sample. However, if a farmer tried to get soil data on a weekly basis, it would cost them $1, 040 per soil sample per year for the lab tests alone, as opposed to the $500 Teralytic charges. With every new technology come new trade-offs that must be considered when thinking about adopting a new product. For Teralytic, the first trade-off is data for privacy. Part of Teralytic’s system is to upload information to their cloud system in order to receive AI recommendations. Farmers are currently concerned with the cloud system because companies are not being fully transparent regarding who can access their data. To gain the farmers’ trust Teralytic is part of Ag Data Transparent, a non-profit organization that certifies that a company follows a set of core principles to protect farmers and their information, however farmers still have to give up some privacy for access to data. The second trade-off is the loss of detail in soil information in exchange for saved time. Teralytic doesn’t provide as specialized soil analysis as Waypoint Analytical, but it does analyze the most frequently tested soil qualities. Currently, there are many steps required for farmers to take accurate samples that occur through multiple days and Teralytics eliminates this lead time

Given the current market position of Teralytic, these tradeoffs support their competitive market position of speed and accessibility of data. There may be trade-offs when it comes to privacy for farmer’s data collection, however in return the farmer receives data that is easy to access that also includes public data and recommendations as well. This only benefits Teralytics that operates in a market that competes on the speed of data delivery and quality of analysis and recommendations. External factors to the market create an ideal environment for Teralytic to succeed. This leads to the major economic factor driving farmers to use Teralytics which is the ability to monitor soil in order to use less fertilizer. “Maintaining real-time soil health data is one of the most effective ways to reduce fertilizer input”. Fertilizer cost about 20% of the production cost for growing crops. Farmers have been able to increase nutrient efficiency in their crops up to 20% thanks to the use of real-time soil health data. Fertilizer costs hundreds of dollars per ton and fluctuates with the market so it is key for the farmer to stay on budget. In 2017 the cost of fertilizer for an acre of corn was $120, running a 2, 000 acre corn farm would cost $240, 000 in fertilizer. According to their current pricing, Teralytic would charge $26, 500 a year for the required sensors in the same farm, costing only $13. 25 per acre covered. If farmers achieve the previously stated 20% efficiency increase it would reduce fertilizer cost per acre from $120 to $96, effectively paying back the cost of the real time sensors (Schnitkey). The major environmental driver behind Teralytic is climate change. Climate change has a negative effect on soil quality over time. Soil treatment is a key factor in determining its resilience to climate change which will have an impact on crop yields. Tools to read soil conditions, historical data, and pinpoint the need of soil in crops in real time will prove to be a powerful asset for a farmer to react quickly to this changing, uncharted data. The major social driver behind Teralytic is the rising population, by one estimate there will be 9. 7 billion people in the world by 2050, straining our current food production system. Producing high quality food in large quantities will become even more important and supporting a healthy soil is key in doing so. So far, Teralytic has raised $2. 25M in funding since August 2017, the company is valued at $8. 74M. Venture capital firm 01 Ventures provided the seed money seven days after the request from Teralytic was announced. Now Teralytic is among the top 100th percentile of growing companies in PitchBook with a weekly growth rate of 6. 83%.

Conclusion

If Teralytic is successful and in-field probes are widely adopted by farmers the entire soil analysis industry will be disrupted. In addition, Teralytic is flexible and competitively priced that it can expand into other industries, such as golf courses, that would further take away market share from incumbents in the industry. Soil analytics labs such as Waypoint Analytical, who focused their business model around an irreversible commitment of resources, are not flexible enough to adapt quickly to a disruption in the industry. Given the pressing external market conditions, such as climate change and population growth, the future of soil analysis is headed towards farmers getting immediate results and recommendations without having to head to the field. In addition, the immense collection of data from these probes might eventually lead to the use of big data to predict soil conditions on farms before the samples are even taken out of the ground.