Could the new Android market and cutthroat digital media industry ground the new Gogo before take-off, and what can airlines do?

September 14th, 2011

Over the last 18-20 months or so, we have been following developments in the airline ancillary merchandising space and published recommendations on how airlines and their WiFi service providers, Aircell and Row44, could capitalize on the explosive growth in digital media – video, eBooks, games, and music – and mobile technology to transform the traditional models of in-flight entertainment (IFE).

Ideally, the airline industry would recognize the opportunity in this era of baggage fees and other penalty charges to deliver a compelling consumer experience and to drive revenue.

Progress has been slow, focusing on plane WiFi installations, communications technology, and holding on to the original model of trying to have travelers pay for WiFi service, going against broader consumer trends.

The good news is we are now seeing a transformation of Gogo’s and airlines’ approach and a positive step for consumer experience that also could be, depending on how well they execute, economically beneficial. Gogo has done an admirable job in aggregating airline passengers to create a potentially effective channel and opportunity, and Row44 seems to have an updated focus on consumer content experience.

However, it seems their plans – as publicized to this point anyway – may risk not getting off the ground as much as anticipated if they and airlines do not continue to take steps to compete in a fast-moving digital media industry.

That’s right – the broader Digital Media Industry.

This is not just In-Flight Entertainment and Connectivity (IFEC) anymore, and to truly capitalize on the technology and capital investments made in Gogo’s (and Row44’s, and OnAir’s) capabilities, a new, less-myopic mindset is needed.

The game for IFEC has changed, and passively hoping travelers wait until they get on board or up to 10,000 feet to use in-flight systems caps the market.

As demonstrated originally in a January, 2010 presentation, “What can Digital Entertainment, WiFi, and Mobile Mean for Airlines?” Google, Apple, Microsoft, Amazon, Netflix and others were engaging in fierce competition to be top-of-mind for consumers and capture “living room share” via mobile and home devices.

The competition continues to rage – with the brand-new Android market (shown right and below), Google’s $12.5 Billion Motorola acquisition taking square aim at the iPad, today’s Microsoft announcement that Xbox Live will be fully integrated into Windows 8 along with Windows Phones, and Amazon’s soon-to-come tablet to build on its Kindle dominance, among other things.

In more detail, Android now owns about 42% of the smartphone market, iPhone owns about 27%, and Microsoft is investing heavily to gain share, while RIM (Blackberry) is falling rapidly (comScore Jul-11).

When combined with the iPad / tablet / Kindle market, roughly 85% – or more – of travelers carrying smart mobile devices (phones, tablets, eBook readers) – and laptops – will have comprehensive digital media libraries ready for download or streaming on their everyday devices, at any time, right at their fingertips.

Together, they could effectively lower the ceiling on Gogo’s and Row44′s new services, since they would be, in essence, competing while offering the same, or less, content that consumers can easily obtain any time before the flight attendants tell them to turn off their devices.

Just a few months ago, this was not the case (with exception of iTunes). Just a few years ago, IFE truly was just siloed IFE. Consumers could bring their portable DVD and music players, but could not access full entertainment libraries, with virtually unlimited choice, on demand.

So what can airlines and Gogo / Row44 do?

Certainly, they have a natural hedge. Business travelers will have their companies pay for WiFi. A segment of fliers will still pay for WiFi for the general web and use their own subscription or download services like Netflix. Some will wait and purchase movies or eBooks in flight.

But in a December, 2010 paper titled “Part II – Can Airlines Power Ancillary Revenue with Digital Media and WiFi?”, we encouraged airlines, Gogo, and Row44 to create a more compelling and branded consumer experience, stop thinking of travelers as “captives,” and market through a “60-hour cycle” to shift their models and grow the market.

The newly-launched Gogo is great progress, but there continue to be three necessary elements for airlines to capture meaningful wallet share in a capital-intensive venture against highly competitive forces:

1) Airlines must use their main advantage – knowledge of the itinerary – and merchandise digital media content aggressively throughout the “60-hour cycle” (below).

Using the itinerary, airlines have roughly 22-25 round-trip mobile touchpoints to market to high-intent, high-impulse-buy travelers and merchandise digital entertainment and destination product exclusive to travelers. The ability to watch movies for up to 24 hours after the flight simply matches the competition and today’s growing expectation of digital media; it is not an advantage.

2) It could be even more important now to merchandise traditional early-window movie content and other digital entertainment in compelling ways travelers could not access in everyday life

By this we mean true Merchandising. One of the differentiating, though expensive, factors airlines did enjoy in traditional IFE was early-window movie content. That seems to have disappeared with Gogo’s plans, removing a key advantage airlines may actually have over Google, Apple, and Amazon and Netflix, as studios desperately want to avoid what Apple did to the music industry and limit or refuse early-window content to them.

Instead, airlines could investigate opportunities with the movie industry’s own Ultraviolet service (www.uvvu.com), which could perhaps not only enable sourcing of early-window content, but also deliver higher margins by eliminating traditional middlemen in-flight content services. Whether sourcing early-window movie content for streaming distribution is cost effective or unreasonably expensive is a big question, but the opportunity for differentiation is there.

In addition, airline-only promotional deals, such as new-release eBook package deals (buy one Stephen King eBook, get an exclusive airline-only preview of his upcoming new release), offer an experience both exclusive and incremental to what travelers can get themselves. Fearful of Amazon and with Borders going bankrupt, publishers may be open to opportunities to reach consumers in other ways.

3) Continue the effort to integrate other web and travel services, but make sure they’re compelling and even exclusive to travelers

Gogo’s and Row44’s plans to integrate potential services on a “platform” beyond digital entertainment were initially weak (Skytown Center or SkyMall-online, anyone?), but have progressed, such as deals or potential initiatives with Gilt, People magazine, the interesting potential of MondoWindow, destination promotions with Groupon or others, shopping services, and more. These complement the entertainment offering, though a primary revenue stream should be centered on the entertainment categories – if, again, executed well – and Gogo, et al, must continue to drive traffic (in the form of UV’s) to attract partners to a customer acquisition model.

So to summarize, digital entertainment and “living room share” are lightning rods for competition and capital investment today, and while Gogo certainly seems to be working toward a better solution than its original model, there are still major steps necessary to capture “in-flight share” of a large potential market, and the industry needs to think differently (including being more discretionary in spending on seat-back systems).

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