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Change before you have to – Samsonite luggage and teleportation

One could say that airline and mobile industries do have a lot in common: Both industries are heavily regulated, There are physical constraints in delivering the services (airlines have limited number of landing slots and mobile operators limited spectrum), and in both industries the vendor base is limited to a few companies (airlines sourcing equipment from Airbus, Boeing and Embraer, mobile operators from Ericsson, Huawei, NSN and the like. But the similarities don’t end here…

Companies in both industries do need to understand, anticipate and influence consumer behaviour in order to maximize revenues and profit from the perishable resource.

  • Airlines call this process yield management
  • Mobile operators talk about capacity management (complemented by revenue assurance)

Even the biggest companies in the industry are not big enough to satisfy their customer’s mobility needs, hence the partnerships with other companies

  • Airlines have formed alliances
  • Mobile operators need roaming partner networks.

Companies do need to keep their operating expenses in control.

  • Airlines do have to worry about staff expenses, aircraft maintenance costs and cost of petrol
  • For mobile operators the situation is exactly the same (cost of diesel is a major cost element in emerging markets).

The airline industry has low cost carriers and value added carriers, whereas mobile industry has seen emergence of the similar kind of companies. In both industries, the value chains have developed over the years towards direction of outsourcing of all non-core processes and assets.

What’s the difference?

But the question is: “Where does the major difference lie?”. I think it’s in the speed of technological advancement. Let’s imagine a concept of Samsonite luggage. Depending on the airline you use and the type of ticket you have bought, you might have an allowance for certain number of luggage. Once you exceed this limit you do need to pay for extra.

For mobile operators a key success factor has been a concept of a “data-plan”. A difference is that when you travel with an airline you pretty well know how many luggage you are likely to bring with you, but within the mobile industry consumers it is very difficult to predict how much data you will use. “Data-plan” has resolved this “bill shock anxiety” and take up of data usage has been phenomenal over the past few years. Good news is that increase in the number of data plans sold has been a nice incremental revenue source for operators on top of mobile voice.

What if…

Now, let’s imagine that in the airline industry technological advancement would have been so fast that teleportation (think of “Beam me up, Scotty” from Star Trek) would be reality. You would’n need to travel physically but instead Scotty & Co would put you into a teleportation machine which transports you to another place by using Samsonite luggage as transport medium (which are in turn delivered as airline cargo).

  • This would be excellent for consumers once cost of teleportation would be considerably cheaper (you pay only for the luggage fees) and more convenient than travelling via traditional method.
  • This would be excellent for aircraft manufacturers once increased demand in luggage capacity would mean increased demand for aircrafts.

Scotty & Co would need to build big enough network of teleportation machines to ensure that networking effects would start to kick-in (teleportation is useful only when you are not only able to beam-up but to beam-down to reasonably many places). This is why Scotty & Co would provide its services free of charge for consumers (at least initially). Advertising and referral business models would emerge — “This evening, would you like to get beamed to my resort in Fiji to enjoy the sunset?”

Well, for the airlines the situation might actually be slightly more worrying. Number of paid seats would go down and number of luggage carried on-board would go up (some chargeable and some not; “all you can eat” operators would have serious problems). Airline companies would still need to invest in and maintain their fleet of aircraft to deliver those numerous Samsonite luggage.

The reality

In the airline industry, teleports don’t exist and not likely to happen for a long time but in a mobile industry technological advancement has been extremely fast and a similar situation is reality today. Making a VOIP call is considerably cheaper than calling over the traditional method, sending a messaging update over Facebook is considerably cheaper than sending a SMS, and the list goes on. The only difference is that Scott & Co name would need to get replaced by one of the over-the-top service providers like Google, Facebook and others. What OTTs are doing are actually exactly the same what Scotty would be doing for airline industry.

Good news for mobile operators is that somebody still needs to transfer all this data. Bad news is that consumers do not see much value in the data bits itself but on services they enable. Mobile operators either need to fight the change or to fully embrace the change and adapt to this new environment.

Mobile operators do have some core assets which they can leverage – their network, their billing relationship with the customer, their knowledge of their customer’s usage and spending patterns, their capability to differentiate with quality of service provided to different types of customers. But at the same time operators do need to assess validity of their existing business and pricing models.

Jack Welsh has said: “Change before you have to”. What will you do?