Airlines and innovation

British Airways announced today the launch later this year of OpenSkies, a new airline that will fly from New York to various cities in Europe. Likely destinations include Brussels and Paris, although this has not yet been confirmed.

[Updated Jan 10 2008] I wrongly assumed initially that it was a business class only airline, but as more details emerge in the press it looks like OpenSkies has a 3-class configuration: business, premium economy, economy.

This looks like the perfect timing to publish a post I wrote a few months ago about airlines and innovation. It was initially meant to appear in Idris Mootee’s blog Innovation Playground.

Just two more things to add… First, the original post has been updated to reflect the new number of low cost airlines in Europe and the recent bankruptcy of business class airline MaxJet. Also in the spirit of full disclosure, I should mention that I have been working for various clients in the airline industry for the last ten years – boy, things have changed during these ten years! But my point of view remains external and hopefully unbiased. You be the judge…

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Innovation comes in many shapes and forms. Along with a strong brand, innovation is an essential way to create differentiation in an industry that is highly commoditized. Come to think about it: travelers are flying in the same planes; they eat food that was prepared in the same airport kitchens… even the schedules are not that different as airlines are coveting the same time slots. And you may even have noticed if you have flown different airlines on the same month: you often get the exact same selection of in-flight movies!

As a result of this standardization, innovation has been concentrated in a few specific areas: price, value for money and loyalty programs.

One major innovation came in the 1970s with Southwest Airlines, whose “no-thrills” model has been since then replicated by the likes of Ryan Air and Easyjet. At the last count on www.flycheapo.com, there are now 45 low cost airlines in activity in Europe [updated January 9, 2008]. The operational aspects of the low cost business model are well documented: minimize time on the ground, reduce maintenance and training costs through a standardized aircraft fleet.

What I find most fascinating about the Southwest story is that they did not try at first to compete with major US carriers. They wanted to lure consumers away from Greyhound buses, by offering a much shorter trip for a small additional cost.

As competition amongst carriers increased as a result of the 1978 deregulation, American introduced in 1981 the first loyalty program. Other airlines quickly followed suit, as the programs proved successful for both the airlines and for the consumers. Today with the proliferation of programs and the increased difficulty and costs associated with redeeming miles, there are clear signs of loyalty fatigue. Most rewards programs have to adapt and offer more inspirational experiences.

Major North American airlines with their unionized personnel, aging fleets and cost base could not compete effectively with the likes of Southwest and JetBlue. Events like the terrorist attacks of September 11 and the SARS crisis further contributed to depressing travel demand. In the five years between 2001 and 2006, these airlines undertook some drastic transformation to improve their competitiveness. For example, to respond to the price pressure on North American routes Air Canada recently introduced “prix fixe” coupons.

They also started to disengage from the highly competitive domestic market to focus on more profitable international routes – the domestic capacity for major US airlines steadily decreased from around 39% in 2001 to 33% in 2006. Their network is expanding beyond traditional high traffic destinations: Delta broke new ground by offering direct flights between New York and Accra, Ghana. Yet major US airlines have been in reactive mode, responding to innovation rather than driving it.

As the industry focus moved to transatlantic routes, so did the innovation drive. Low cost business airlines like EOS, Maxjet, Silverjet or L’Avion are targeting the highly lucrative business class traveler. They use an older type of plane (757 or 767) but fit them to fly only 50 to 100 passengers instead of 200. The price of a business class ticket is usually around 50% cheaper than on traditional carriers – a proposition especially attractive to business travelers who do not benefit from corporate discounts.

While Maxjet declared bankruptcy at the end of 2007, the other business airlines claim that they have been very successful, with occupancy rates already above 75%. Interestingly it looks like a large portion of their following comes from leisure travelers who are willing to pay a little more to escape the potentially dreadful experience of flying transatlantic in economy class. [paragraph updated on January 9, 2008]

With further deregulation under way with the “open skies” US-EU agreement, established airlines like British Airways and Virgin Atlantic are considering deploying direct business class only flights to other European cities than London.

Similar developments will probably soon see the light of day in Asia, the fastest growing air travel market in the world. Low cost airlines have appeared across Asia, most notably in China and India.

So what’s next – where is the next wave of innovation going to come from in air travel?

There is no disruptive technology on the near horizon. New supersonic jets or planes designed for sub-orbital flights are being developed but it will probably take decades before their actual introduction. In the meantime, most of the technological progress is incremental and aims at reducing the operational cost per mile per passenger.

It is a safe bet to assume that after changing the landscape for economy class and business class, the low cost pattern will soon be expanded to executive jet travel. The industry has already moved from a full time ownership model to a time-share model, made famous by NetJets. And Marquis Jets already made the executive jet time-share model more accessible by lowering the entry point to 25 hours a year.

Time will tell but the air travel landscape in 2015 will probably bear little resemblance to that at the beginning of the millennium.

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One last look at 2007, and a glimpse at 2008

Back on track! I have been unable to pay as much attention to this blog over the last month as I would have liked. Well – one more item to add to the 2008 resolutions list 🙂

Zeitgeist is the German word for “sign of the times” (the literal translation is in fact “spirit of the times”). Search engines remarkably capture what’s on people minds on any given day, and Google Zeitgeist was created to capture and share some of those trends.

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They put together a fascinating summary of 2007 search trends, covering specific categories like news, show business, technology, etc.

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It seems that from that perspective at least, 2007 will be remembered as the year of the iPhone.

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Webkinz, the virtual world for kids, makes an interesting appearance on the second spot of the fastest rising US search terms. According to Quantcast, it is now one of the 300 most popular sites in the US, with a monthly audience of 4.3 million unique visitors.

What’s in store for the year ahead? Yahoo! Buzz is a similar service to Google Zeitgeist. They published today (January 1st) a list of all the searches that include the number 2008. Apparently much of the attention is on bank holidays!

Here is the list:

  1. 2008 Dodge Challenger
  2. Printable January 2008 Calendar
  3. 2008 World Junior Hockey Championship
  4. New Year 2008
  5. 2008 U.S. Holiday List Calendar
  6. 2008 Year of the Rat Predictions
  7. Super Bowl 2008 Date
  8. Presidents’ Day 2008
  9. 2008 Rose Parade
  10. Happy New Year 2008
  1. Free 2008 Online Calendar
  2. Mardi Gras 2008 Date
  3. Thanksgiving 2008
  4. New Year’s Eve 2008
  5. Martin Luther King Day 2008
  6. 2008 Ford Edge
  7. 2008 Dodge Charger
  8. Mother’s Day 2008
  9. Iowa Caucus 2008
  10. 2008 Sugar Bowl

Not direct mention of two 2008 events that are bound to capture worldwide media attention: the 2008 U.S. Presidential Election (11/4/2008) and the 2008 Beijing Olympic Games (8/8/2008). Interestingly 8 is considered a lucky number in China, and the opening date of the Olympics reads as 8/8/8 – obviously an intentional move in a culture where superstition is taken very seriously. “Year Of The Rat Predictions” is number 6 in the list after all!

Happy New Year to everyone!

Culture Pub vs. Firebrand

The French week continues!

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Pub stands for “la publicite”, the French word for advertising – rather than the more British “Public House”.

Culture Pub is a TV show about advertising that was broadcast weekly on French channel M6 for almost 20 years. This is actually an impressive amount of longevity for France (yet as a point of comparison, the soap opera General Hospital has apparently been showing in the US since 1963).

Culture Pub was taken off the air in 2005, but is now reborn as a web site which launched a couple of days ago: www.culturepub.fr. It is literally a Youtube for commercials with thousands of spots available – very much the same concept as Firebrand which coincidentally launched yesterday.

The jury is still out since Firebrand is in beta, but my preference right now goes to Culture Pub.

Compared to Firebrand, they seem to have more depth and editorial video content (albeit only in French). Hopefully they will realize the potential benefits of making English language transcripts or subtitles available to reach an international audience.

Is advertising effective?

The answer is… at least sometimes!

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I am in France for business this week. I attended last night the French Effie Award ceremony that crowns every year the most effective advertising campaigns in several categories.

One of my international clients won this much coveted award and needless to say, I am very proud to be an integral part of this success from New York.

I moved out of France quite a while ago which made it kind of eerie to bump into former colleagues who also attended the event. Congratulations again to Pierre D. and Philippe D. from Rapp Collins and to Francois B. from Eurodisney, if you read these lines!

Since today’s post is about Effies, I would like to share the link to their US case study database. Lots of amazing success stories there… They speak for themselves.

Another one of my favorite Effie story is from the UK and illustrates the work Wieden + Kennedy did for Honda. Truly interesting how they examine the impact (or lack thereof) of potential other factors

Talking of Honda… I cannot resist the temptation of including the 2002 Accord commercial nicknamed “Cog”. I’m not sure if the debate is settled on whether this was a painstakingly precise real life domino effect or whether it was just the result of some computer graphics wizardy.

Whatever – the resulting visual feast is what matters!

Amazon launches e-reader

Hot off the press: a quick post to say that Amazon just launched Kindle, a book / magazine / newspaper reader that uses e-ink technology, just like the Sony Reader. Following the launch of movie and DRM-free MP3 downloads, Amazon is aggressively pursuing digital distribution opportunities.

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What’s interesting though is that it has wireless capability, not through wi-fi hotspots but through the Sprint EVDO wireless data network. There is no subscription necessary to download content so the deal with Sprint must be about revenue sharing. Mmm… I guess international roaming is not an option then.

At $399 it may be on the expensive side but Amazon is probably only interested in getting the product in the hands of early adopters at this stage.

Another week, another social network – part 2

I realized that I did not mention Yahoo! Kickstart in my last post about social networks.

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Yahoo! has had clear success in injecting social components in its offering, most notably through Yahoo! Travel and Yahoo! Answers. Interestingly, the portal did not try to create yet another generic social network and went for a niche approach with Kickstart.

The service aims at establishing bridges between two worlds are not strongly interconnected from a social computing standpoint: the business universe where LinkedIn is the social network of choice, and the academic universe where Facebook established its initial stronghold.

Linkedin offers amongst other things to put job applicants in contact with company insiders that they are connected to, and Kickstart follows in those footsteps. Kickstart is in fact probably closer to Doostang than Linkedin. It inherits a few things from Yahoo! … its enormous traffic, its brand reputation with young adults, and its legitimacy on the job search segment through HotJobs.

There is undoubtedly a need for this service. The HR department of one of my clients recruits a lot of graduates every year and was interested in a similar application as part of the redesign of their web site. In corporate marketing, as the war for talent intensifies, brochures have no longer the same impact as word of mouth and peer conversations – just like in consumer marketing.

The key question for the future of Yahoo! Kickstart is whether Facebook (or an independent third party Facebook developer) will offer a similar service to its fast growing user base. Which in turn brings us to the larger topic of the professional credentials of Facebook – so far, the network has been mainly synonymous with frivolous time-killing activities like games and quizzes.

Can Facebook become a force in business networking? Is an exchange protocol a la OpenSocial the answer? What do you think?

Another week, another social network

Everyone seems to be jumping on the social network bandwagon these days, and things are unlikely to slow down given Microsoft’s valuation of Facebook at $15 billion.

There is certainly what Gartner calls a hype cycle at play with social networks – not just in general, but with each of them individually. Friendster was the first social network to falter into oblivion, and MySpace’s growth has considerably slowed down.

I remember reading a post a long time ago that was comparing social networks to trendy bars and restaurants: the people motivated by exclusivity move on to a new spot as soon as the crowds start to show up in the current one.

Social network fatigue will grow in parallel with, if not faster than the number of solicitations. Like for email newsletters, there is a finite amount of user time and attention available. Each new network brings dilution and accelerates the path to saturation. In that regard, Google’s somewhat ballyhooed launch of OpenSocial is a timely announcement even if it does not address the core issue of proliferation.

Behind the generic term “social networks”, I feel that there is in fact a number of different approaches. Here is my take at a quick and dirty classification of social networks.

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1) In the first category (“connection networks”) you can of course find the most popular names, from Myspace and Facebook to Hi5 and Orkut. At the core of those services there is a “connection engine” and initially the main activity of the users is to accumulate contacts. Sharing becomes most gratifying after they reach a certain threshold in terms of network size.

2) Services like Plaxo Pulse or AIM Pages are built on existing connections like email address books or IM buddy lists. They are mainly adding a content sharing layer to communication tools, and that is why I nickname them “communication networks”.

While these first two types are intentionally generic, the other types of social networks are focused on narrower purposes. I would call them “topic networks”, “demographic networks”, and “media networks”.

3) Social networks like last.fm, LinkedIn, Xbox Live, and sermo.com gather users around a specific interest topic – respectively music, business, gaming, and medical research. Sites like Bebo or MySpace still very much reflect their original focus on music, but they have become less specialized over time.

4) Any topic can be discussed on social networs like eons.com (for people past 50 years old) and cafemom.com but membership satisfies specific demographic criteria.

5) Social networks on sites like usatoday.com or ESPN Sports Nation aim at increasing audience engagement, and as such remain secondary to “journalistic” content.

I would love to hear other opinions and comments on this: would you classify social networks differently? Do you see other categories? Can you think of other examples?