Boeing boo-boo

Marketing Stupidity Results in Colossal Failure of Boeing Connexion Service

On July 17, 2006, Boeing announced the discontinuation of its in-flight "hi-speed" internet service.  A quick analysis of the business model shows that this dodo bird was doomed to extinction before it took its first flight.

Why it had no chance - by the numbers

. . .

In this 3-part series, we dissect the failure of Boeing's inflight satellite-based internet service, Connexion by Boeing.

In Part 1, we examine the faulty analysis that resulted in a business model that was impossible to execute. The type of innovation represented by the Connexion service, and how the business model came to be is typical of large-company thinking, and why disruptive innovation so rarely comes from incumbent industry players. . . . read the article

In Part 2 of this series, we look at the marketing mistakes and myopia that contributed to the colossal failure. This follows from the observation in Part 1 that the laboratory-designed business model Connexion was built upon was untested before scaling to business unit size, even though it used fabricated assumptions about the market and faulty business analysis. . . . read the article

Part 3 of our three-part series concludes the discussion of how a seriously flawed business model and massive marketing mistakes inevitably led to nearly $1 billion in losses before shutting down the project. We ask what could have been done differently, and what lessons should be learned. . . . read the article

Comments

[James V. Reagan]

Very well summarized, Paul, much more than mine :)

To me that the market research was the simple, least risky piece of this. What shocks me is their surprise on the adoption. That should have been well known, almost within their control with price points. Their investment strategy, even at high costs, should have reflected such assumptions.

Shaking my head... :)

[Paul]

Thanks James.

Regarding adoption, I don't think it is hard to get to the adoption level needed to make this business work. The problem is that you need a completely different approach to the marketing the service, and you have to ensure that you get market access.

How to solve these problems?

>Marketing the service

How widely used would telephones be in this country if you paid for each and every call? Hard to guess? Not really.

Look at the UK where they pay for landline service with a monthly flat fee, just a little lower than the average US rate for basic service, but then have to pay a charge per minute for every call placed. The average monthly charge for talk time in 2000 was the equivalent of $43 USD above the monthly price to have a phone, which at the rate per minute equates to a little more than 30 minutes of calls in total per month per line. Significantly less than American usage for sure. (My wife can spend 6 or 7 times that much time on the phone in a single day).

Moreover, the most recent figures from OFCOM (UK equivalent of FCC) show that only 91% of people have a landline at all. Yet, cell phone use in the UK which is priced more like our service rates is almost universal, and much more heavily used than landlines.

So, the solution to reaching the masses is price affordably (as low as possible) with a flat monthly subscription, and then market directly to them (i.e. disintermediate the middlemen).

>Ensuring access to the customers

The biggest impediment to getting volume, even more than price, was the fact that only .4% of flights had the service installed. The biggest market of all, the US, had no carriers offering it. This is a strategic problem that Boeing should have found a way to solve.

Think about it this way -- it cost $500K per plane to retrofit with the necessary equipment. To pay for all 1,500 US-based planes that the majors originally commited to have the service available on would have cost $750M. Over 6 years, Boeing dropped over $1B, but had no access to US customers (not just the biggest market, but the ones most likely to use the service as well). They would have fared much better in building a market, and been less dependent on the airlines had they decided to underwrite the cost to install all the equipment themselves. Then they could dictate the best routes (cross country and overseas first, 767s and 777s), control branding, run TV ads, get aggressive on pricing, etc. Do you think any carriers would have refused to allow them to do this, and risk having anyone who wanted to use the internet choose one of the other carriers?

For an investment of less than the expected loss next year, they could have paid for equipment on all the highest traffic -- and most likely to make a profit -- routes in the US. Moreover, since this investment would be capitalized over several years, it would have had only marginal negative impact on the profit/loss in 2007, and might even have generated enough revenue to start going the other direction.

I agree with your conclusion. How does a company with all the smarts and resources that Boeing has stick their heads so firmly in the sand and lay such a big ostrich egg?

I'm shaking my head too. And, I didn't need any market research to figure all this out.

[Joe]

All boil down to is the cost of satellite...

We have an air-to-air link solution. Of course, these aircraft boeing made, at 30,000ft high, has a line-of-sight of horizon of 300miles in radius... (in other word, from aircraft to aircraft, the range is 600miles)

Please allow introduction of our patented solution, Project BCA (Broadband over Commercial Airlines) uses commercial aircraft as repeater platform to deliver signals to "last mile".

BCA is not just for in-flight applications. BCA aim mostly users on ground. where the money is...

Imagine, the phone call from LA to NY is picked up by jetBlue airway, route to Southwest, then American, then finally delivered to someone in NY?

We are building a small scale prototype for demo as of now. Pleaes comment and offer your help
www.teleavionics.com for more

Joe on behalf of BCA
310-832-4911