Boeing Pulls Plug on Broadband in the Sky

Guess what? People don't really want to use broadband Internet on airplanes.

As a result, Boeing cancelled its Connexion service today (don't expect that link to last!) and took a $320M charge following six years of R&D etc., with CEO CEO Jim McNerney saying, "Regrettably, the market for this service has not materialized as had been expected."

The WSJ said the 560-employee unit had annual revenue less than $25M despite $1B in investment.

Details on Connexion:

• WiFi service for laptops with throughput of 150-200 kbps;
• Launched on Lufthansa in May, 2004, expanded to 10 other airlines;
• Single hour for $10;
• $27 flat rate for an entire flight.

Om Malik says beware the gap between early adopters or tech reviewers and  mainstream users, asking: "Is it a case of don’t trust the early adopters?"

It's possible that there is another angle here to draw some lessons from Boeing's mistakes.
My view: Don't trust what people say; trust what they do.

Market research said there was a big market for this service, with In-Stat saying 44% of those surveyed said that they would be interested in Wi-Fi on airplanes.

But user actions suggest otherwise.  As an example, apart from a brief spurt during the dotcom bubble, onboard airline telephone systems are often idle, which lead Verizon to cancel its Airfone service.

If you watch people on airplanes, you might gather that these activities are highly valued and popular, but might not rate in surveys:

• Snooze;
• Booze;
• Eat;
• Watch movie;
• Listen to iPod;
• Daydream;
• Read.

Note the mushrooming of portable DVD player and DVD movie rental kiosks at airports.

Looking at the Connexion service through the lense of our Disruption Scorecard, the service would score two poor grades which were warning signs:

• Instead of planning to learn, management bet the farm on what it thought was a sure strategy;
• The service tried to change customer behavior instead of helping customers do what they are already doing;

** Other Views/Late Additions **

Robert Scoble says battery power was the problem. But he also observes that even tech-enthusiast Microsoft managers didn't use the service on long US-Copenhagen flights: "I was suprised to learn that they enjoyed the 10 hours 'off the grid' where their employees and managers couldn’t talk with them."

The Disruption Group's site includes a CEO Guide to the Benefits of Disruption (pdf) and other tools for managing disruption.

Clayton Christensen's firm Innosight takes a look back at a different aspect of Boeing's efforts to innovate, the "Dreamliner" project, "a risky bet for the high end of the market...Boeing still has to fight against Airbus for every deal, which means providing deep discounts to carriers."

Ed Brill says he liked the Connexion service and blames low takeup by US airlines for the failure. "After a week in a city where every coffee shop, motel, diner, and Chinese take-out has WiFi, it's mind-boggling to me that Boeing found this business unworkable (though admittedly, in almost all those places, it's free...)"

Engadget says business travellers will be upset and many such comments are posted there, including complaints on price and the lack of power to seats.

Airline consultants IAG say Boeing over-engineered the system and lacked commitment, backpedalling early on when the service didn't show explosive growth:  "The system was created and built by engineers lost in technology...Boeing handed the world a solution only the Pentagon could afford – but the Pentagon was not buying."

Comments

[James V. Reagan]

Completely agree on watching what customers do vs. what they say. Surveys are very dangerous when it comes to new ideas and innovations. 44% were interested. But how was the question asked? Did it include price? Did it ask frequency? Did it segment the respondents into target market segments, say business travelers vs. mothers with three kids?

I think Wifi is a market need in this space. Evidence? Blackberries and the number of laptops I see open on airplans - every row has one open.

So, what's the problem? Boeing didn't deliver a disruptive innovation!

Disruptive innovations tend to be win-win in both cost and functionality. In this case, their implementation costs were way out of wack, driving their pricing strategy way out of wack.

I agree with Andy's assessments on the marketing side, as well. I never used it... but then again, I don't know if any of the 100 flights I've been on in the last 18 months ever had it.

[Paul]

Mike:

I don't think this one is about disruption, because there was nothing to disrupt. It was a new service, not a competitive threat to something that came before (although using a Skype VOIP phone through your PC through Connexion would certainly disrupt overpriced airline phone service.

There are lots of business ideas that succeed every day that are not disruptive. In my view, this was about drinking your own Koolaid -- they started with faulty market research, saddled themselves with an unwieldy cost structure, and created a business model based on a price skimming strategy (to extract premium prices from the top end of the market) when they needed huge volumes of users (they needed 400x as many users as they had just to approach break even) which implies exactly the opposite pricing strategy, to run a viable service.

I call that stupidity with a capital S.

To Mr. Abramson's comment about the CEO, McNerny only came on board at Boeing a year ago, and was not part of the original folly. After a cold look at the numbers, he made the only sensible business decision. Boeing's culture was not well-equipped to market to end-consumers, and in fact, numerous press releases and internal articles talk about the airlines being their customer.

Can't make a silk purse out of a sow's ear, as they say, and McNerney to his credit, realized that and tried to sell off the division before deciding to close it down.

[vinnie mirchandani]

My 2c - the biggest potential market for any technology - the US was locked out to Boeing because our airlines did not offer it...how can you survive without that market?

see

http://dealarchitect.typepad.com/deal_architect/2006/08/the_customers_w.html

[Andy Abramson]

As someone who has used the Boeing Conexxion Service on the last three trips to Europe this past year or so, in both directions I could not have been happier with it, but I'm not the average business executive, let alone the irregular tourist.

1. The service works. Is it perfect, no, but once aloft the service performed as well as a 512k DSL connection.

2. I could make VoIP calls with my headset.

3. I got off the plane and was mostly current on all my emails. No deluge when I logged on at the airport with my BlackBerry. In twelve hours I could receive up to 300 inbound emails.

4. The workload I have to manage didn't fall behind.

5. I was able to stay in touch with colleagues, friends and family in real time.

6. I was able to keep up on breaking news and more importantly see what was up with my flights, hotels, cars etc., confirm restaurant reservations, etc. all while enroute via phone or email. Those are things that work gets in the way of doing sometimes.

Now for the reasons people don't use it.

1. In seat power or the lack of and it not always working or even being available.
2. Too high priced.
3. Most don't have to be online.
4. Lack of Business Class that's more than a bigger seat.
5. Nowhere to print out things.
6. Lack of headsets that cancel out noise.
7. Very poor marketing. When you buy a ticket on a flight that should have it, they don't tell you they will have it. So you're not prepared. No advisory on how to get the best out of the service. No tips, no tricks...

This is a typical example of what is plaguing business today. The idea of selling in, vs. selling through.

What we did for Nokia with the NSeries Blogger Relations program, and continue to do, is about supporting selling through of a new product or service. Boeing didn't do that, though some airlines did try on their own with cute girls at the gates handing out "one hour sample cards." That was too little, too late.

Boeing did a great job of selling in the service, but their lack of understanding consumer behavior, not business behavior is what did them in.

The CEO should either take a course in Consumer Behavior, or learn the difference between B2B and B2B2C....there was a ton of potential, but like the basketball player in the ghetto, potential means, hasn't done it yet. And for Boeing, and their investors, their board and their leadership, it puts them back in the business ghetto, not the the palace they think they live in.