tag:blogger.com,1999:blog-31500867.post115704161922016734..comments2023-04-30T08:27:33.546-07:00Comments on Make it Happen: Boeing pulling plug on ConnexionAnonymoushttp://www.blogger.com/profile/17780126315779919153noreply@blogger.comBlogger1125tag:blogger.com,1999:blog-31500867.post-1157045909738952352006-08-31T10:38:00.000-07:002006-08-31T10:38:00.000-07:00Hi James:I have similar thoughts about this, but a...Hi James:<BR/><BR/>I have similar thoughts about this, but a couple of comments on the post.<BR/><BR/>There is no doubt in my mind that there is a need. There is also no doubt that there was sufficient latent demand to generate enough usage to make this service profitable. Common sense says that if you look around the plane cabin and see 70% of passengers with notebooks open, there would be heavy usage of connectivity if it was free. The question is, what pricing and what business model is required to get somewhere in between free, and the outrageously high pricing that Boeing offered the service at.<BR/><BR/>Some problems Boeing had:<BR/><BR/>1. Market research was a farce. it was done with either a pre-conceived idea of what the answers should be, or to act as filler for the press releases. It was not a well-constructed (statistically valid) test instrument.<BR/><BR/>2. Basing this service on satellite technology, the cost structure was going to be high.<BR/><BR/>3. Any realistic market projections would have shown greater than 30% of passengers needed to be using this for the service to make money, yet Boeing made the false assumption that they could get high penetration without a) fixing barriers to usage and b) using a price skimming strateg (which assumes inelastic demand).<BR/><BR/>4. Waiting until costs came down was not a possibility. most of the cost was the result of leasing bandwidth on the satellites + staffing. It cost $500K to retrofit an existing plane, which included ripping apart walls and seats to install cabling, installing a server and an antenna to pick up the satellite signal on the exterior of the plan. I believe that the bulk of this cost was in labor, which would increase over time, offsetting any minor decreases in equipment costs. If they waited, there was a high probability that land-to-air service which is now being established in the US would suck up enough of the available market to make the cost of providing this only for overseas routes cost-prohibitive.<BR/><BR/><BR/>The problem with doing a small test as you suggest was that the up front costs of leasing satellite bandwidth and developing the technology were so high, that they were forced to make an "All In" bet. But unfortunately, they were not in control of which airlines and which planes got outfitted, so they could not guarantee access to the necessary customers.<BR/><BR/>I believe that before McNerney came on the scene, the engineers at Boeing were enamored of the technology, and because they thought it was cool, they started believing their own propaganda. They did not consider the very rational conclusion that at a high price, and without access to power in most seats, they had no chance of reaching the required penetration rate to break even. Nor did they treat it as an emergency when no US carriers signed up for the service, depriving them of access to the bulk of the available market.<BR/><BR/>I attribute these failings largely to Boeing's view that the airlines were their customer, instead of the reality that the passengers were their customers. You can never build a good marketing plan when you don't communicate with real customers, observe their behavior, and use their feedback to improve your products and services.<BR/><BR/>You can see a detailed financial and market analysis of the mistakes and poor assumptions made by Boeing from the beginning at my blog: <BR/><BR/>http://thewaythingsare.typepad.com/antimarketer/2006/08/boeing_booboo.htmlAnonymousnoreply@blogger.com