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THE IRIDIUM STORY: A MARKETING DISCONNECT?

"The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man."George Barnard Shaw, Maxims for Revolutions. THE PROBLEM WITH wildly creative ideas is they stand a better than even this environment that Motorola engineers 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 system 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 consumers would no longer have to worry when traveling whether their telephones were analog or digital, based on code division, time division, or GSM technology, or could interface with foreign service 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 standardcoupled 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)suggested a substantial opportunity in the wireless telephony market still existed. The technical complexity of the Iridium system should not be underplayedindeed the launching and positioning 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

Market pioneer Iridium was a brilliant idea surrounded by multiple mistakes. By Eric M. Olson, Stanley F. Slater, and Andrew J. Czaplewski

chance of turning out to be wildly creative failures. Well-intentioned projects become saddled with wildly inflated expenses, wildly underestimated problems, and wildly off-base timetables. In retrospect, such appears to have been the case with Iridium, the $5-billion global satellite-based wireless telephone system conceived and chiefly sponsored by Motorola. Iridium emerged out of a wellingrained Motorola culture whose members took great pride in being able to fmd technological solutions to problems others said could not be solved. It was in

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passed through the air without the use of directly attached wires. Arthur C. Clark, author of 2001: A Space Odyssey, proposed the idea of telecommunication satellites nearly a half century ago. So the basic concept was not as wild as it might have appeared, but actually assembling 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 creative 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 components of marketing strategythe four Ps and the targeted market.

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 whopping $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 signup customers. Still, the cost of the actual Iridium phone was only one portion of the fee structure. The otherthe one with the most profit potentialwas 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 flow off Antarctica, but when domestic wireless rates are down to pennies a minute, it's mighty hard to justify the frequent use of a system that is up to 10,000% more expensive.

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 caUs. 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 wasat least when compared with PCS offeringthe initial quality of the transmission service proved even worse. Potential customers 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

Place
Of course the beauty of the Iridium system was that the Iridium telephone could be transported anywhere a person could travel and, at least in theory, be used. But the phone was valuable only as a communications device where service was provided. The implied, though not 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 handset 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.

POTENTIAL CUSTOMERS WHO TRIED TO ACCESS THE SATELLITE NETWORK FREQUENTLY FOUNO COMPLETION RATES LOW ANO OROPPEO CALL RATES HIGH.

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
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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 hrave and daring man challenges nature and pushes himself beyond all reasonable expectations. 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 magazines around the world. Iridium supplanted this effort with a direct-mail campaign to major markets 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 consumers from the constraints of incompatible systems 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 force, at least in North America, were not aggressive and sincere. But whereas the advertising and public relations campaigns could avoid or dance around issues of price, service availability, and handset bulk, sales persons in the field could not. Many consumers concluded that the benefit provided was just too small for the price they were being asked to pay. Consistent with Geoffrey Moore's concept of bridging the chasm, mainstream consumers

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 concerted. 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 rnarketingand specifically the marketing of high-technology telephony equipmentwere 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 promotions 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 advertising and public relations campaigns generated roughly one and a half million inquiries, most of these went unanswered. The niechanisms for promptly responding to an inquiry with followup calls or visits were never established by many of the partners. As the novelty generated by the early announcements of the Iridium system wore off, these hot leads cooled and were lost. Out of this initial pool of 1.5 million potential 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.

THE IMPLIEO, THOUGH NOT EXPLICITLY STATEO, PROMISE OFIRIOIUMWAS YOU COULO USE IT ANYWHERE IN THEWORLO.
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Market Entry
One of the critical marketing and engineering decisions was the adoption of a target launch date. In order to beat other fledgling goanywhere telecommunication firms to market.

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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 partners 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, distribution, 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.

the assistance of newer technologies? The promise of go-anywhere communications is still a big allure and these firms have a chance to avoid the mistakes of market pioneer Iridium if they can.

About the Authors

Eric M. Olson is associate professor of marketing and strategic management and chairman of the marketing, strategy, and international business department at the University of Colorado-Colorado Springs. He served as an account executive for AT&T and U.S. West and was director of marketing research for Turtledove/Clemens Advertising Agency in Portland, Ore. He regularly consults for firms such as Hewlett-Packard in the areas of new product development and design management. 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 academic 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 academic career, he held professional and managerial 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 HewlettPackard, 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 candidate in marketing at Arizona State University. Andrew earned a BS in management from Northern Arizona University and an M.l.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.

OUT OF THIS INITIAL POOL OF 1.5 MILLION POTENTIAL SUBSCRIBERS, ONLY ABOUT 20,000 EVENTUALLY SIGNEO UP, JUST OVER A 1 % CLOSE RATE.

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 quality 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 industry. And yet, despite these problems, an industry 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 mistakes 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 successfully being resurrected 15 years later with

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