Ken’s Take: A nice example of PVP concepts in action: (1) The recurring power of free – charge even a minimal amount and demand falls – a lot. (2) Differentiated pricing – in this case, by distance. (3) Morphing from “by the drink” to subscriptions.
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WSJ, In the Air, Wi-Fi Gets a Ho-Hum Reception, Aug. 27, 2009
More than 500 airliners are flying around the U.S. with wireless Internet access up and running, but airlines are finding that the technology that they hope will bring new revenues may be more like in-flight meals: People gobbled up food when it was free, but they find it a lot less appetizing when they have to pay.
Airlines and in-flight Wi-Fi providers say usage has been strong and is growing as more travelers sign up for the service and find it on more flights.
But usage drops off considerably when travelers must pay for the service.
Alaska Airlines even tested charging just $1. The result: a lot fewer laptops, BlackBerrys and iPhones signed on.
Most U.S. airlines with Wi-Fi are using a service called Gogo from Aircell LLC, which built a network of cellular towers across the country.
Aircell is already testing lower prices and rolling out longer service plans. The service is priced now at $12.95 for flights longer than three hours; $9.95 for flights under three hours but more than 90 minutes, and $5.95 for flights shorter than 90 minutes.
Usage is higher on long-haul flights and has steadily increased as more travelers register for the service—making it easier to sign on during subsequent flights without entering credit-card numbers and other information.
Virgin America says about 12% to 15% of passengers across its fleet are using the service. That’s likely higher than industry averages since Virgin America has a high proportion of cross-country flights in its schedule—plus, the airline offers power ports at all seats, making it easier to use Wi-Fi.
On average, 8% to 10% of travelers need to pay for Internet access for the service providers to be profitable within five years. That may be hard to do because a large percentage of U.S. domestic flights are shorter than two hours, when travelers are least likely to pay for Web access in the air.
For many business travelers, staying online will make hours in the air more productive (and rob some road warriors of a respite from electronic leashes).
Aircell, which is adding about 100 planes a month, thinks pricing will move more toward subscriptions, with travelers buying packages of five flights or more and companies directly buying the service for their business travelers.
Full article:
http://online.wsj.com/article/SB10001424052970203706604574374571364228440.html
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