What Delta’s Amazon deal signifies for ancillary merchandising and digital entertainment

Note: This article appeared as the inaugural article for IFExpress.com’s “Speaker’s Corner”

Though I have worked in travel technology, strategy, and finance for years, I’m also a consumer and have enjoyed commenting, as you can see from other articles in this site, hoping to identify ways in which airlines, WiFi providers, and other partners can create a better – and more profitable – passenger experience.

In late 2009, mobile technology, fierce competition in digital media and entertainment markets, and airline WiFi installation trends seemed to present opportunity as they converged.

At the time, I encouraged the air industry to take an approach with a few basic elements:

1)       Use mobile technology and digital entertainment to drive ancillary revenue in a departure from the traditional IFE value chain

2)       Position passenger markets as a customer acquisition channel for strong consumer digital entertainment brands and to deliver a more compelling experience

3)       “Think outside the flight” with mobile and location merchandising to expand revenue opportunity

Now Delta, Amazon, and Gogo are following this model and proving that the 60-70 million passengers domestic airlines carry each month are recognized as a potentially large customer acquisition battleground in the cutthroat digital media and entertainment industry fight for “living room share.”

So for the travel industry, this is not just IFEC anymore – and thinking in the context of the broader Digital Media industry could be constructive.

What’s so special?

To start, it’s good to acknowledge Delta and Gogo for adapting to deliver a more compelling passenger experience, and a marriage of Delta, one of the world’s largest airlines, and Amazon, the world’s largest online retailer and disruptive force in the book and entertainment industries, is noteworthy.

Delta “pre-flight” homepage and in-flight page with Amazon merchandising

Also noteworthy? Delivering a better passenger experience and driving ancillary revenue are not mutually exclusive.

First, note Amazon’s presence on Delta’s web homepage – positioned as “Your Pre-Flight Destination…for…books, music, and travel essentials”.

Next, note the free Amazon access dominant on the Delta-Gogo home screenshot and Groupon’s placement to target deals based on the destination.

What is being recognized is that airlines offer – at least for a snapshot in time – the holy grail of merchandising. They know exactly when travelers are thinking about what they’re going to do on their flight, where they’re going, and what they have always been high impulse-buy consumers of – books, movies, music, destination services, and more.

What is not yet seen is a dedicated channel for Amazon Video, and while Amazon has a prominent retail presence on Delta’s sites, the reality is Amazon doesn’t need airlines to drive its retail business – it needs customers for its digital entertainment businesses to compete against Apple, Netflix, Xbox Live, etc.

Retail is the Trojan Horse, and I’d imagine we will see Amazon Video as in-flight streaming and seat-back technology improves and/or a new revenue sharing model with studios is formed.

Back in late 2009 / early 2010

At the time, I shared the approach and data to the right with Amazon’s video business and several airlines.

Even before the iPad launched, one could see a developing convergence of trends when juxtaposing forecasts for airline WiFi installs, digital entertainment growth, and iPad, Kindle, Netflix, etc install bases.

Airlines looked to be a significant potential customer acquisition channel for digital media firms, and providing digital entertainment to travelers’ own mobile devices seemed to hold a lot of potential.

However, Amazon was still unconvinced of the real airline user base and Aircell’s technology, airlines were focused on baggage fees, Aircell did not have a consumer internet core competency, and the concept remained a concept.

Early 2011

With WiFi installs having accelerated, what continued to seem lacking was focus on the passenger experience in the face of airline baggage fees and a regrettable “flying mall” approach promoted by short-sighted on-board retail technology vendors pushing the use of flight attendants to hawk merchandise in the aisles.

The final straw for me was the worst commercial I’ve ever seen – SkyMall blaring “Shopping while you fly, it’s the fun way to buy!” on the monitors of a United flight at 1am.

This prompted a January, 2011, follow-up article:

Delta - Amazon Captivating experience pic

Today

Now, we’re seeing WiFi tailored to airline brands, complemented by Gogo’s rebranding, and improving with strong consumer brands. It hasn’t always been pretty, but airlines and Gogo deserve credit for adapting in a tough, high capital investment, early-stage shift in the IFEC industry.

Also? Those iPad, Kindle, and other digital media forecasts have proven to be drastic underestimates, creating even fiercer competition – and prompting a firm like Amazon to look again.

Note that when thinking about Amazon, online retail is likely the first thing to come to mind, especially given its position on the Delta-Gogo page. The trusted retail brand could be a productive revenue-share for Delta.

But to be clear, Amazon does not need airlines for its retail business. It needs customers to grow its digital entertainment and Kindle eBook and tablet businesses against Apple, Netflix, Microsoft, and others – and to create more leverage with studios and book publishers.

So for airlines, what could continue to develop? Perhaps a few things:

1)       Importantly for revenue, “think outside the flight.” Passively hoping travelers wait until they get on board or up to 10,000 feet caps the market by conceding consumer purchases to everyday services like Xbox Live, Google’s Android market, and iTunes without any benefit to airlines.

Amazon’s placement on Delta’s homepage – not just the in-flight screen – indicates this is occurring. Mobile marketing in the roundtrip pre-flight and in-flight “60-hour cycle” below is a great opportunity.

Airline Wifi article II shot 60-hr cycle

2)       Further disruption of the old IFE value chain to cut inefficient costs, even as airlines invest in further upgrading premium cabin systems. Renting iPads and advancing seat-back systems to adapt to mobile devices seems a good step; though installing more seat-back systems is an interesting debate, too.

3)       Though airlines do not set WiFi pricing (though I assume heavily influence it), hopefully Gogo’s economic model will continue to evolve such that pricing can trend lower without sacrificing margin.

What matters are results, of course, but keep your passenger experience fingers crossed and enjoy the fascinating multi-industry and technology dynamics. If you have any different thoughts, feel free to share…

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One response

  1. […] Delta’s Amazon partnership and gate experience with OTG at various airports are other great examples of engaging the customer in the pre-flight and airport experience. […]

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