David Friedman used to be the king marketer at Boeing's now-defunct satellite-based connectivity service Connexion. As VP, marketing and direct sales Friedman was responsible for product management, service evolution, pricing, distribution, sales, and promotional activities. Through his efforts, nearly 500,000 customers had the opportunity to use Connexion's service in the first two years of operation and satisfaction levels were greater than 90%.
A few months ago I had the very good fortune to speak with Friedman, who is now the executive vice-president and chief marketing officer for ATX Group, which provides telematics and information services to automobile manufacturers. It was an enlightening conversation to say the least.
First off, Friedman made clear that he no longer represents Boeing so his comments here are completely his own. But while Friedman has been out of the aviation industry for two years, he stays in touch with what is going on. His comments are particularly apropos in light of yesterday's conversation about whether passengers will pay outright for in-flight connectivity when the same high-speed services are free or virtually free on the ground. Here is Part 1 of a two-part blog based on our conversation.
One of the big challenges associated with offering Ku-band-based connectivity - the likes of which was offered by Boeing - versus the air-to-ground (ATG)-based offering provided by Aircell is cost. "The equipment Aircell is putting on board is about $100,000, whereas Connexion was reported as $600,000 on up by the press at the time. I cannot give you the actual [Connexion cost] number. But half a million is a very safe number. Connexion was larger. It weighed a lot more. And the equipment used on the plane is different."
With such a hefty price-tag for Connexion, airlines were reluctant to pay for installations.
"We [initially] offered to give it away as a trial for free but the airlines said, 'If this is successful, you want us to pay for all these antennas?' They were concerned that if customers were demanding it, it would put them [the airline] in a tenuous situation in terms of customer relations.
"So you have the cost of the system and cost of the infrastructure. You can offset that through a variety of ways, such as advertising. But sponsorship and advertising and direct fees is not enough! People believe, by the way, that they should have Internet for free because they are used to having Wi-Fi for free. Then couple that with the issue of power outlets. If an airline doesn't have enough power outlets on the plane, how are they going to charge a flat fee?"
"What we did in Connexion was we set up our pricing for two hour blocks. We were able to set up a system in the plane and on the ground that said if you only have a battery that lasts two hours and you don't have power, then the best thing to do is to buy it in the one hour or two hour or 30min grouping so we had little cards. We specifically set up that pricing so we can adapt to what the customers wanted."
Friedman says Connexion had upwards of 500,000 users after two years. "It wasn't insignificant and our loyalty rates were extraordinarily high - I think around 90-plus percent. If you used it once, you wanted to use it again. The problem was we only had 200 planes equipped and to cover that cost, you needed a dramatic increase in the number of planes. They did have to pay for the installation. Lufthansa made a commitment. But if you look at the keys to success, you had to get American and United and we just couldn't get those planes to commit (after 9/11 and the SARS scare). So you had a fundamental issue relative to timing. Timing is half the battle in any kind of business."