In a Sept. 29 IPO, Iridium raised $200 million with its plans for reinvention and earning $54 million in profit from $320 million in sales last year. We’ve had extensive discussion about Iridium’s mistakes in the 1990’s (to name a few: excessive development spending in an engineering vacuum by a team desperate for a project; lack of regard for the environment where cellular was becoming the viable mechanism for mobile voice communication in Iridium’s target market; moving forward without proper testing and despite signs of product deficiency) (HBR case study). We have analyzed why its launch of satellite voice service was such a colossal disaster with a $5B-plus price tag.
Here’s what they are doing differently this time:
· focus on new market (90% of earth not covered by wireless service) rather than compete with existing wireless market
· machine-to-machine (M2M) communications, monitors equipment in remote locations and to tracks shipments en route
· within M2M market, 200 companies incorporate Iridium products into their own goods in aviation, shipping, and oil industries (e.g., Iridium sells a satellite data modem to Garmin to who incorporates it into its aviation products
· DOD and other government entities rent space on existing satellites rather than building satellites
The move from selling to a market that has the alternative of using cellular is an obvious but promising improvement. But Iridium has to make enough money to cover a $2.7B replacement of its satellites in 2014.
Will the use of its existing resources (the satellites) as outlined above be enough to foster a feasible second chance? Has it learned from the many mistakes we have discussed in class?
I think the M2M market is an option they should have focused on in the first place. If 90% of the earth (airspace, the sea, and mountaintops—where shipping, logistics, oil exploration and gas exploration companies need ways to communicate) does not have wireless coverage – Iridium can fill a niche market there.
Is this move into M2M a red ocean or a blue ocean strategy? Does M2M communication as a strategy for growth “part with traditional models focused on competing in existing market space”? Does it “alter the boundaries of the existing satellite communication industry” as defined by Kim and Mauborgne (2004)?
If Iridium can pull this off, is its story one of success? Or does the blunder of the 1990s taint any progress it makes in the future?
For more information on M2M satellite communications and Iridium’s attempted comeback, http://www.businessweek.com/technology/content/oct2009/tc2009106_078908.htm