Boeing loses Connexion

    Posted by martin on August 18, 2006

Boeing announced that it will shut down its inflight Internet service Connexion, which allowed passengers on a number of airlines to surf the Web during flights (via CNN).

Boeing says the market for the service didn’t materialize. Scoble thinks that 30 bucks was too expensive for two hours of service. I think it probably failed for a different reason: space.

I tried Connexion during a Lufthansa flight to Germany last year. The connection worked perfectly and it was a fast surfing experience. The problem was that I was sitting in economy class and had absolutely no room to actually work on the computer. It is one thing to use a laptop on a plane to watch a DVD. But it is almost impossible to actually type on the keyboard and get stuff done even if the guy in front of you hasn’t yet lowered his seat dangerously close to your crotch. I basically had to put the laptop monitor on my legs and put the keyboard against my belly. It looked more like I was playing accordion than working on a computer.

A look at an overview of airline seat dimensions shows that there are very few airlines who offer a little bit of comfort for economy class passengers. As long as there is no room to actually properly use a computer for work, and make onboard Internet usage useful and fun, it doesn’t really matter how expensive the service is or how much trouble airlines have to go through to install a service like Connexion. To make a service like this work, it is not enough to win over the business class.

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August 18th, 2006
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Comment Number:
1
Written by:
Paul
Posted on:
August 31, 2006 at 1:00 pm

Hi Martin:

Totally agree about the lack of space issue, although it was only one barrier to take up.

The problems Boeing had in making this fly were:

1) Flawed market research. They constructed invalid research instruments and got bad data out of them. As a result, they believed they would get extremely high usage of the service at a price many times higher than what most of the market (not the premium business-class users, but the average schmoes sitting by the toilets) would be prepared to pay.

2) Their assumptions and cost structure required more than 30% of passengers on every flight and 10x as many flights as were equipped to access the service. Given that no US carriers signed up, Boeing didn’t even have access to enough available market to make these numbers work, and they never got above single digits in average usage per flight.

3) All the other barriers to usage including space, power, security restrictions, lack of tech support on flights (do you think flight attendants are able to help less sophisticated users, or people who need to change some settings to get this to work?), competition for my time, desire to be disconnected from the world, etc. Did I mention that the price was too high?

But, you are absolutely right about the space. I sat in cattle class on a Lufthansa flight once, and they really squeeze you. They aren’t alone in not having enough space, but Lufthansa was Connexion’s premier adopter.

Unfortunately, even if they fixed the little barriers like space and power, their business model made no sense, and this service was doomed out of the gate. It had no chance of making money as far as a financial analyst could project into the future. To see a detailed financial and marketing analysis of why, visit:

http://thewaythingsare.typepad.com/antimarketer/2006/08/boeing_booboo.html

Comment Number:
2
Written by:
Martin
Posted on:
August 31, 2006 at 4:26 pm

Thanks for your comment, Paul. I agree that space wasn’t the only issue. Just the one that stood out for me as quite obvious after having used the service myself. I read your post and you did an interesting analysis of the issue. How in the world could they expect more than 30% of passengers on every flight to use their service? You’d think maybe small startups would make these types of business model mistakes because of a lack of resources (or lack of clue). But Boeing?

Comment Number:
3
Written by:
Paul
Posted on:
September 1, 2006 at 10:36 am

How could they have drunk their own Koolaid and believed this would be such a stunning success?

I think the answer to that is culture, and the time when these ideas were conceived.

re: culture

Boeing is used to being the dominant supplier in their industry, at least until they had a competitor who was as equally government-supported as they are in Airbus. Connexion is still on Air Force One, and they are negotiating how this can be supported going forward, and I think they had a) a full expectation that the letters of intent for 1,500 outfitted planes from domestic carriers were the equivalent of a binding contract, and b) that the Pentagon would also chip in significant funding to subsidize the service, because that’s where Boeing has always gotten a lot of their money.

So, they know how to be a B2B supplier and a defense industry contractor, but Boeing had absolutely no experience in consumer markets or telecom and didn’t understand basic principles of marketing to those kinds of people - i.e. direct to end-user. Their marketing strength was in knowing which committee members on Capitol Hill to wine and dine, and in being able to call the CEOs of any airline and get them on the phone. Moreover, they are a very strong engineering-driven culture, so they would have thought the technology was cool, and had absolute faith in their techs to deliver.

Since they never had to deal with “real” market competition, the notion of understanding customer needs and having to fight it out for market share would have been very foreign to them.

re: time the ideas were conceived

This is right after the dotcom boom, and just before 9/11 when the announcement was made that they had secured Delta, United and American’s commitment to install on 1,500 planes. In the late 90s, they saw, like we all did, tons of flimsy ideas get funded on the notion that there was such a thing as a “new economy” that didn’t need customers and profits to succeed.

Dotcom was over, but the idea for this and initial proof of concept would have had to be hatched during the go-go years. While the dotcom dust was still clearing, Boeing had something the build-it-in-your-garage guys didn’t. Namely almost unlimited deep pockets, a huge and highly talented engineering staff and the ability to meet payroll.

And, anyone could look around and see that while the NASDAQ had crashed and people had stopped talking about the “new economy”, everyone still carried their laptops around, and half or more of every flight was filled with people tapping on keyboards.

So, for these two reasons, Boeing would have had sufficient big-company hubris to miss the obvious.

Also, it’s pretty easy to prognosticate after the service failed what mistakes were made all along the way and why it had no chance, but I’ve been caught up in the moment myself and I can see how people can convince themselves that they are right and I think most of us, once we’ve done that, have a strong tendency to reject evidence to the contrary. You would need a very strong and respected manager near the top of the organization with a skeptical eye and a willingness to stand alone against his peers and ask where the emperor’s clothes are, to have fixed the problems early, or nixed the idea altogether.

Don’t get me wrong though. I’m a big guy, and while I’m part of the new new economy (web 2.0?), space issues on most flights where I haven’t managed to get upgraded would stop me from opening my PC. If that stopped only 10 or 20% of potential users — remember, they needed almost everyone who was a possible user to get online, on 10x as many flights as were currently outfitted — that alone could cost service viability.

I found it interesting as I scanned other sources that you and I were the only ones identifying space as a major issue. If they had only sought out our consulting expertise, and paid us each $50M, they could have saved $900M in shareholders’ money!