caselNpoint
"The reasonable man adapts himself to this environment that Motorola engi-
THE IRIDIUM the world; the unreasonable one persists
in trying to adapt the world to himself
STORY: Therefore all progress depends on the
unreasonable man."—George Barnard
A MARKETING Shaw, Maxims for Revolutions.
THE PROBLEM WITH wildly creative
DISCONNECT? ideas is they stand a better than even
chance of turning out to be wildly cre-
Market pioneer Iridium ative failures. Well-intentioned projects
was a brilliant idea become saddled with wildly inflated
expenses, wildly underestimated prob-
surrounded by
lems, and wildly off-base timetables. In
multiple mistakes. retrospect, such appears to have been
the case with Iridium, the $5-billion
global satellite-based wireless telephone
By Eric M. Olson,
system conceived and chiefly sponsored
Stanley F. Slater, and by Motorola.
Andrew J. Czaplewski Iridium emerged out of a well-
ingrained Motorola culture whose mem-
bers took great pride in being able to
find technological solutions to problems
others said could not be solved. It was in
54 I M M S u m m e r 2000
neers initially envisioned a go-anywhere
telecommunications system that would
eventually come to be comprised of 66
telecommunication satellites circling the
planet at 17,000 miles an hour in low
altitude orbits. This new and daring sys-
tem would provide consumers with a
single wireless telephony standard and a
single telecommunications system that
would allow them to place and receive
calls in dense jungles, urban canyons,
and as the television advertisements
suggested, at the ends of the earth. The
beauty of this system would be that con-
sumers would no longer have to worry
when traveling whether their telephones
were analog or digital, based on code
division, time division, or GSM technolo-
gy, or could interface with foreign serv-
ice providers. Tbis lack of a worldwide
or even countrywide standard meant
travelers might well be required to carry
several different phones and subscribe
to several different service providers if
they wished to truly appreciate the
potential benefits of the age of wireless
communications. More importantly to
Motorola, this lack of a universal stan-
dard—coupled with the fact there were
still many places on the planet that
didn't have, nor were likely in the near
future to be able to justify the expense
of setting up cellular or Personal
Communication Systems (PCS)—suggest-
ed a substantial opportunity in the wire-
less telephony market still existed.
The technical complexity of the
Iridium system should not be under-
played—indeed the launching and posi-
tioning of 66 satellites, the development
of network switching systems, and tbe
design and development of tbe actual
telephone have been compared to a
moon shot. However, the fact remains
that the basic idea of satellite telephone
transmission was well documented
before Motorola ran with it. Alexander
Graham Bell demonstrated in the 19th
century that telephone calls could be
passed through the air without the use of
directly attached wires. Arthur C. Clark, author
0^2001: A Space Odyssey, proposed the idea of
telecommunication satellites nearly a half cen-
tury ago. So the basic concept was not as wild
as it might have appeared, but actually assem-
bling a worldwide system was something else.
As it turned out, the technological concerns of
such a system were not the only stumbling
block in the path of success.
So what went wrong with this wildly cre-
ative business plan? Why did Iridium fail to
meet a $90-million bond payment in July 1999,
file for bankruptcy protection in August, and
have its chief backer pull the plug? To answer
these questions, let us go back and consider
how well the firm addressed the basic compo-
nents of marketing strategy—the four Ps and the
targeted market.
Product
Iridium's most visible product of what is
essentially a service offering is the phone set.
With Its distinctive knobby antenna, the Iridium
handset was clearly identifiable from the myriad
of other wireless telephones on the market.
Unfortunately, that was not the only distinctive
feature. Weighing in at about one pound, the
Iridium phone felt like a piece of lead when
compared with contemporary PCS phones that
weigh a couple of ounces. Even worse was the
brick mimicking shape of the phone that made it
awkward to carry on your body or pack in a
briefcase and, as a consequence, difficult to
quickly access in order to take incoming calls.
These problems were exacerbated by the fact
that in order to capitalize on the touted benefits
of this system a worldwide traveler needed to
carry a bag of attachments whose use was not
always readily apparent. As bad as the design of
the phone was—at least when compared with
PCS offering—the initial quality of the transmis-
sion service proved even worse. Potential cus-
tomers who tried to access the satellite network
frequently found completion rates low and
dropped call rates high.
While it never reached capacity, the system
was only equipped to serve about 25,000 callers
at a time. When callers did get through voice
quality frequently proved to be substantially
lower than callers were used to with traditional
network calls or even other wireless providers.
Pricing
The price for becoming the proud owner of
an Iridium phone was, at least initially, a whop-
ping $3,000. While the price of the phone set
did eventually come down to about $1,500, this
was still far more expensive than traditional
analog cellular phones or even the newer PCS
phones where some service providers were
practically giving phones away in order to sign-
up customers. Still, the cost of the actual Iridium
phone was only one portion of the fee structure.
The other—the one with the most profit poten-
tial—was airtime charges. Iridium's airtime
charges ranged from as high as $4 to $9 a
minute. A $9 a minute call might not be such a
bad deal if you were stuck in the middle of a
Borneo jungle, the Sahara desert, or an ice fiow
off Antarctica, but when domestic wireless rates POTENTIAL
are down to pennies a minute, it's mighty hard CUSTOMERS WHO
to justify the frequent use of a system that is up TRIED TO ACCESS
to 10,000% more expensive.
THE SATELLITE
Place NETWORK FRE-
Of course the beauty of the Iridium system QUENTLY FOUNO
was that the Iridium telephone could be trans- COMPLETION
ported anywhere a person could travel and, at
least in theory, be used. But the phone was valu-
RATES LOW AND
able only as a communications device where DROPPED CALL
service was provided. The implied, though not RATES HIGH.
explicitly stated, promise of Iridium was you
could use it anywhere in the world.
Unfortunately, it turned out you could not
use it in some of the most obvious places in the
world like inside buildings or moving cars. Due
to line-of-sight requirements between the hand-
set and orbiting satellites, users of the Iridium
system were required to maintain a clear path
between the two objects. This meant you had to
stop your car or exit the building to ensure a call
would connect to the system. In addition, there
were large sections of Europe, Asia, and Africa
where service linkages could not be established.
Promotion
One of the bright spots in this otherwise sad
tale is found in the advertising created to convey
Iridium's message to consumers. For those of
MM S u m m e r 2000 I 55
caselNpoint
you who may have missed it, Iridium's television
advertisement consisted of a man in a heavy
parka pulling a sled across what looks like
Antarctica. It is a cold desolate place where one
brave and daring man challenges nature and
pushes himself beyond all reasonable expecta-
tions. As he huffs and puffs his way across this
barren landscape, suddenly a telephone starts
ringing. He quickly searches inside his parka
and retrieves his distinctive Iridium phone and
engages in a conversation in the middle of
nowhere. The beauty of this advertisement is
two fold. First, it implies the promise of Iridium
that service will be available where no other
service exists. Second, it demonstrates the kind
of person who signs up for Iridium service is an
adventurer, a risk-taker, a leader, and a man's
man. This is no iMac designer phone, this is a
serious tool and damn big.
This television campaign was just part of a
$180-million promotion campaign that included
advertising in business journals like Fortune and
the Wall Street Journal, and in airline maga-
zines around the world. Iridium supplanted this
effort with a direct-mail campaign to major mar-
kets in more than 20 countries. The marketing
managers at Iridium also skillfully tapped into
the media for free publicity, including the Spring
1999 issue oi Marketing Management, through
a strong public relations campaign. Numerous
columns were written and interviews aired
about the promise of this satellite-based system
and the cool technology that would free con-
sumers from the constraints of incompatible sys-
tems around the world. Of course issues of price
were downplayed over issues of technology.
Unfortunately, the success of the advertising
and public relations campaigns did not spill over
to the personal selling effort. This in no way is
meant to suggest that the efforts of the sales
THE IMPLIED, force, at least in North America, were not
THOUGH NOT aggressive and sincere. But whereas the adver-
EXPLICITLY tising and public relations campaigns could
STATED, PROMISE avoid or dance around issues of price, service
availability, and handset bulk, sales persons in
OFIRIOIUMWAS the field could not. Many consumers concluded
YOU COULD USE that the benefit provided was just too small for
IT ANYWHERE IN the price they were being asked to pay.
THE WORLD. Consistent with Geoffrey Moore's concept of
bridging the chasm, mainstream consumers
56 I M M S u m m e r 2000
were of no mind to shell out $3,000 for a phone
and pay up to $9 a minute in service charges for
a system that frequently did not work as well as
their current cellular or PCS systems in the
majority of their calling areas.
While North American sales efforts were
not highly successful, they were at least concert-
ed. The same can't be said for the efforts of
many of Motorola's international partners. To
succeed, this global telephone system needed
global subscribers. The cost of initiating such a
system was astronomical and thus it appeared
to make perfect sense for Motorola to organize
a consortium of international investors.
Unfortunately, whether through lack of
attention or inability to control these partners.
Motorola found itself saddled with partners
whose backgrounds in rnarketing—and specifi-
cally the marketing of high-technology telephony
equipment—were minimal. In Venezuela, the
Iridium partner's chief business was in dairy
goods. In countries like China and Russia, where
professional marketing and sales managers
were in short supply, the critical selling and pro-
motions tasks were simply too important to be
left to the control of government officials.
Target Market
The real tragedy of this lack of international
marketing sophistication is that while the adver-
tising and public relations campaigns generated
roughly one and a half million inquiries, most of
these went unanswered. The rnechanisms for
promptly responding to an inquiry with follow-
up calls or visits were never established by
many of the partners. As the novelty generated
by the early announcements of the Iridium sys-
tem wore off, these hot leads cooled and were
lost. Out of this initial pool of 1.5 million poten-
tial subscribers, only about 20,000 eventually
signed up, just over a 1% close rate. Even this
number is suspect as some of these subscribers
were provided free or highly discounted services
to induce trial.
Market Entry
One of the critical marketing and engineer-
ing decisions was the adoption of a target
launch date. In order to beat other fiedgling go-
anywhere telecommunication firms to market.
senior management within Iridium established
Sept. 23, 1998 as the date for initial service
offerings. The establishment of a drop-dead
date was admirable in that it gave all parties a
clear target. However, the complexities of the
technical issues coupled with the difficulties of
managing numerous and highly diverse part-
ners proved too much. As a concession to these
problems, the date was pushed back to Nov. 1,
1998. But In the end, even that date proved too
early. Problems with product, service, distribu-
tion, support, and sales left the project in an
inadequate position to generate sufficient cash
flows to meet the firm's debt obligations. Yet
the need to start generating revenues to justify
the $5 billion investment in the project was just
too intense to allow senior marketing managers
the luxury of waiting until these problems
were rectified.
Conclusions
Imagine having to continuously carry
around a one-pound phone nearly as large as a
brick. Imagine having to pay exponentially
higher airtime charges than available through
other sources. Imagine poor transmission quali-
ty where conversations cut in and out. Imagine
falling into zones where there is no service
available. Sound like the reasons for Iridium's
death knell? Perhaps, but these were exactly
the same kinds of issues the cellular telephony
industry had to address in the middle to late
'80s and even into the early '90s. Even by the
standard of (Gordon) Moore's Law, it was not all
that long ago these problems plagued the indus-
try. And yet, despite these problems, an indus-
try that AT&T only a decade earlier had written
off as too small to ever be of any consequence,
is now thriving. Even as Iridium's fortunes sink,
a handful of other firms including ICO Global
Communications backed by GM and Hughes,
Globalstar Telecommunications Ltd. backed by
Loral Space and Communications Ltd., and
Ellipso backed by Mobile Communications
Holdings Inc. are struggling to avoid the mis-
takes of the market leader. Will any or all of
these firms succeed where Iridium has failed?
Or will the industry echo the life cycle of the
videodisk where a good idea failed before suc-
cessfully being resurrected 15 years later with
the assistance of newer technologies? The
promise of go-anywhere communications is still
a big allure and these firms have a chance to
OUT OF THIS
avoid the mistakes of market pioneer Iridium— INITIAL POOL
if they can. OF 1.5 MILLION
About the Authors POTENTIAL
Eric M. Olson is associate professor of SUBSCRIBERS,
marketing and strategic management and ONLY ABOUT
chairman of the marketing, strategy, and inter- 20,000
national business department at the University
of Colorado-Colorado Springs. He served as
EVENTUALLY
an account executive for AT&T and U.S. West SIGNEO UP,
and was director of marketing research for JUST OVER A 1 %
Turtledove/Clemens Advertising Agency in CLOSE RATE.
Portland, Ore. He regularly consults for
firms such as Hewlett-Packard in the areas of
new product development and design manage-
ment. He holds an MBA from Portland State
University and a PhD from the Carlson School
of Management at the University of Minnesota.
Stanley F. Slater is vice chancellor of aca-
demic affairs at the University of Washington,
Bothell. He was previously professor of strategic
management and marketing at the University of
Colorado-Colorado Springs. Prior to his aca-
demic career, he held professional and manage-
rial positions in finance and marketing for IBM
and the Adolph Coors Co. He has consulted
with and provided training to numerous large
and small organizations including Hewlett-
Packard, Weyerhaeuser, Monsanto, Cigna
Insurance, United Technologies, and Philips
Electronics. He holds an MBA from the
University of Alabama and a PhD from the
University of Washington.
Andrew J. Czaplewski is an instructor of
international business at the University of
Colorado-Colorado Springs, and a doctoral can-
didate in marketing at Arizona State University.
Andrew earned a BS in management from
Northern Arizona University and an M.I.M. from
Thunderbird, The American Graduate School of
International Management. He spent five years
working for two multinational firms in the area
of export sales and international new business
development.
MM Summer 2000 | 57