Tag Archives: APEX

A model for Airline mobile, WiFi, digital entertainment, and “think outside the flight” continues to unfold

Looking at airline WiFi and passenger experience, it’s great to see technology from Gogo and other providers continue to improve and see airlines introduce variants along the lines of a model we introduced in late 2009 after thinking how a convergence of a handful of dynamic industries might occur: mobile technology, IFE, airline WiFi, and respective digital video/movie, book, game and music markets.

The key elements were:

1)       Use mobile technology and digital entertainment to drive ancillary revenue and disrupt the traditional cost-center IFE value chain

2)       Position passenger markets as a customer acquisition channel for strong consumer digital entertainment brands fighting a battle for “living room share” rather than try to sell content directly

3)       Deliver a more compelling online experience focusing on site experiences travelers engage in everyday life rather than a “walled garden” of tired brands like Skymall and HSN dominating portals such as “Skytown Center”

4)       “Think outside the flight” – own the itinerary to drive mobile engagement, capitalize more on explosive growth in digital media, and deliver relevant merchandising throughout the traveler’s “60-hour cycle”, not just on the plane

Since then, I’ve enjoyed seeing many airlines and connectivity partners download or view the model and talked with some directly, and it’s great to see these elements gradually unfold in various ways, albeit in fits and starts, with even better things to come.

For #1, this is clear now, but before we’d heard of the iPad and the mainstreaming of Netflix, Amazon Video, etc, it was a bit tougher to envision.

Now we’re seeing various models, either directly via new technology from traditional seat-back vendors, via Gogo (or comparable connectivity vendors), or via iPad rentals. It does remain to be seen whether airlines and Gogo can execute on promised technology improvements (Gogo’s announced GTO service), and if the model of selling content directly will drive WiFi adoption or result in significant ancillary revenue, but passengers clearly are enjoying greater options.

DISH_screen_shot[1]

However, #2 could still offer more upside, of which a great example has now emerged in Southwest’s new service with the Dish Network, which provides free live TV in exchange for the passenger’s viewing of a short video for Dish Network and likely earns Southwest referral revenue greater than trying to sell movies.

Customer acquisition is critical in the battle among providers like Amazon, Netflix, Apple, Microsoft, Comcast, and movie studios themselves (via their Ultraviolet services), and as I suggested originally, the opportunity to feed customers to these firms fighting for “living room share” is tremendous.

Virgin Australia mobile IFE app

For #3, as we encouraged in “Part II: Can Airlines Power Ancillary Revenue with Digital Media and Wifi?“, the site experiences of Gogo and others are better, emphasizing brands consumers engage with on an everyday basis. Remember, Aircell’s (Gogo) and Row44’s original core competencies were telecommunications technology, and the consumer experience competency will continue to grow.

For #4, Virgin Australia’s new approach of “thinking outside the flight” to market its mobile flight app through the “60 hour cycle” using its knowledge of the customer’s itinerary is a great way not only to engage passengers, but also capture WiFi and digital entertainment revenue before passengers download it from own digital media services, a potential missed opportunity I’ve written about before…

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.

And as the annual APEX conference unfolds, during which Virgin America and Gogo plan to introduce their new service together, it will be interesting to see how airlines and their partners continue to develop new and creative variations on this model to deliver a better passenger experience and drive more ancillary revenue.

Gogo’s IPO – questions investors should consider

Gogo is pricing its IPO today (Update: it launches at $17 per share) after shelving its original plans.

Since I introduced new potential passenger experience and IFEC economic models in late 2009 that could capitalize on the coming growth in digital media and mobile technology, leverage the “60-hour cycle” of passenger engagement opportunity, and encourage airlines to “think outside the flight”, about 70 airlines and others with vested IFEC interests (Gogo, Panasonic, Amazon, etc) have talked with us or viewed them to inform their own strategies.

What can digital entertainment mean for airlines Jan 2010 cover

Progress has been good, and credit airlines and Gogo for improving a previously customer-challenged experience (when’s the last time you saw SkyMall online?) The “Think outside the flight” ecosystem has improved as well, with iPads at airport gates, food-ordering capability, etc.

But financial investors should consider a few key things:

1) Gogo’s penetration strategy in cutting deals with most domestic airlines has worked brilliantly, but the model is still based on paid WiFi, countering larger consumer trends toward free WiFi.

2) Employers may still be showing willingness to pay, but what is the elasticity of that pricing and demand?

3) How much of Gogo’s revenue growth is result of increased passenger demand per flight, or just additional plane installs?

4) Gogo’s product does not provide capacity for what passengers really want – streaming video and uninterrupted internet service

5) This is caused by constraints inherent in Gogo’s ATG model, which airlines adopted primarily because installation took only one night and cost half of Row 44’s satellite install cost (even though Gogo financed much of it).

6) Raising capital to upgrade to larger-bandwidth satellite connectivity and more global coverage is a great product idea…Gogo economic model challenges 2

7) However, investors should consider when the continuous capital investment cycle will ever allow the product to command pricing necessary to deliver a healthy marginal profit, or whether it will result in a marginal loss (see graph to right)

8) Is IPO capital actually going to fund capital investment for an unproven long-term profitability model or return capital to earlier equity investors and management?

9) In conjunction, since Gogo also just took out a $11o+ Million line of credit, it will be prudent to watch its capital structure over time

10) Will product suppliers – namely entertainment industry content owners – will provide attractive enough margins given the battles they’re engaging in with Netflix, Amazon, etc? My original model suggested customer acquisition relationships with the new digital media firms as they compete for share, so going it alone in dealing with Hollywood may not work

11) Will (or When will) the consolidated airlines, if Gogo’s profitability becomes attractive enough, decide to take a larger piece for themselves?

So it’s certainly interesting, and Gogo and its partner airlines have done a great job trying to deliver a better passenger experience, but the investor viewpoint may require a different lens.

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.

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