In-Flight WiFi: How Gogo achieved its dominance
The in-flight WiFi provider ‘Gogo’ has a reputation for poor speed and connectivity, with travelers frequently complaining of the system’s slow speed compared to its price (costing up to $60). However, with Gogo possessing 80% of the market share the consumer often has no choice but to choose it as their in-flight WiFi provider. How did Gogo achieve such a dominant market position?
Part of the answer is that Gogo got there first. As early as the 1990s, Boeing built a satellite network called Connexion in order to provide internet access on planes. However unfortunately for Boeing, the September 11th attack halted all progress in this sector for several years. Gogo launched its own system at around the time personal electronic devices became popular, spending nearly $1 billion on infrastructure. The new company developed the latest onboard equipment and a vast network of transmission towers across North America. Just a year later, the iPhone arrived, bringing with it a vastly greater demand for onboard WiFi.
By 2008 internet access had become perceived as a basic necessity for business travelers, and airline companies turned to the only established WiFi operator in the market. The inelasticity of the new demand meant that the quality or speed of the WiFi weren’t important to secure market share: airlines had to be able to offer the service to match their competitors and Gogo was the only provider with sufficient infrastructure to provide the service.
Gogo exploited its advantage by tying airlines into long-term exclusive contracts. American Airlines was the first to sign up, followed by Delta, United, Virgin America, Alaska Air, and Air Canada. The list continued to grow, and today more than 2,000 commercial aircraft use Gogo’s services. In the last few years, Gogo has increased its fees and decreased its data speeds, making its WiFi service less popular with consumers than ever before. Nonetheless, thanks to Gogo’s long-term contracts neither of its two main competitors have been able to significantly challenge despite offering faster connections and lower prices.
These contracts also involve a “hardware lock-in”. That means that Gogo’s equipment is proprietary; the servers, antennas and other hardware will only work for Gogo’s service. Airlines who have already signed contracts with Gogo would find it very expensive and time-consuming to switch to a different provider since this would involve replacing all of the associated hardware. Apart from the obvious installation and hardware costs, installing alternative WiFi equipment means aircraft downtime, during which the aircraft are out of service and making a loss for their airline.
Additionally, there is a lack of sufficient competition to challenge Gogo’s place in the market. There aren’t enough commercial jets in the world to attract the level of innovators that are needed to make the market more open and fair. The industry simply isn’t attractive enough to developers. Although ViaSat has now signed a 10-aircraft deal with Virgin America for their service to Hawaii, the future still seems to be Gogo-dominated for now.
What’s needed is innovation and an end to proprietary equipment to really open up the market place, but there is no sign of any such change on the horizon.
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© Chambers of Lawrence Power