Skift Global Forum 2015: Gogo’s CEO on the Future of In-Flight Connectivity

Michael Small, CEO of Gogo will speak about the digital habits of air travelers at the Skift Global Forum on October 14 and 15 in Brooklyn, New York. See the complete list of amazing speakers and topics at the Skift Global Forum.

Gogo has become a household name when it comes to providers of in-flight wireless connectivity. As the industry’s first-mover, it’s become synonymous with onboard Internet— both the good and the bad. It’s an enviable position in which to operate, but with the position also comes the deep risk of building a new market segment and hauling consumers along for the ride.

Michael Small has been in the CEO’s chair for the last five years of that journey, overseeing explosive growth in the consumer space and uprecendented hardware development. We sat down with him early this month to get his views on what’s next for the fledgling internet company and what turbulence he forecasts ahead.

Skift: It’s been a big year for Gogo. Your stock is up nearly 100% from January 1; you’ve got a new office in downtown Chicago; there’s a new flagship Gogo 1. Is this the year that we’ll finally see Gogo turn profitable?

Michael Small: We divide our business into three business lines: Commercial Aviation North America, Commercial Aviation Rest of World, and Business Aviation. We have clear line of site to profitability based on our experiences with the financial performance of our business aviation and commercial aviation North America businesses. However; we don’t give guidance on timing for that to happen.

Skift: One of your challenges right now in the commercial space lies in managing demand as it continues to grow. What’s the best way to deal with an aircraft in which every seat wants to connect when there’s only limited bandwidth?

Small: This is truly a delicate balance and we have gotten exceedingly sophisticated at striking that balance using dynamic pricing to help assure that everyone has a usable experience. Obviously, the long-term solution is more bandwidth and, increasingly, more cost efficient bandwidth. We will soon launch our next generation satellite solution – 2Ku – which we believe will be the best performing solution in terms of coverage, cost, capacity and reliability. For Gogo, connectivity solutions for the air have to check those boxes. We believe that 2Ku is the only global solution in the market that does this.

Skift: How is Gogo better helping manage the expectations of passengers on flights where the bandwidth is constrained?

Small: We have done a lot in this regard. I believe we were the first in our industry to openly say we don’t support streaming applications like Netflix during the purchase path and on the home page of the portal. Our competitors have started to follow suit. Obviously, not everyone sees this, but we are also very active in the air and provide the only live customer care at 35,000 feet to help customers. Our care agents are also very open about this when a passenger tries to do these activities and has a poor experience.

Some of our competitors have seen this as an opportunity to attack and we are generally OK with that because we believe in being transparent with our customers. Technologies evolve over time and we believe our 2Ku solution will outperform anything else on the market. At the same time, we are working on our third generation air-to-ground technology and exploring different avenues for additional spectrum should it become available.

Skift: Can Gogo Vision help alleviate some of your bandwidth constraints? What does the next generation of that technology hold?

Small: Gogo Vision is already helping. We know passengers want to stream movies. We created Gogo Vision to support that desire, but because the content is stored locally in the air, bandwidth isn’t as much of a problem. We also know that it’s starting to resonate with leisure travelers. On certain weekends, we’ve seen views on Gogo Vision come close to equaling Wi-Fi sessions.

The seat selection technology you see on Delta, that serves varying levels of free content based on where you are sitting on the plane, is an important next step for this product. We see an opportunity to eventually provide varying content at the seat level. In general, we also see an opportunity to expand on our entertainment offerings to airlines. We recently announced that we will launch a live television product with GOL called Gogo TV. We are having good conversations with other airlines about this product.

Skift: Prices for monthly have generally gone up across the board this year. How do you reconcile the costs when home Internet — which also requires significant infrastructure investment — doesn’t cost more and is an order of magnitude faster?

Small: We get this question all the time and it’s a good question. While it’s fair to say there are costs to deliver bandwidth on the ground, the cost per bit of delivering bandwidth to a plane is still significantly higher. That being said, we continue to price the product dynamically so that passengers who want to stay productive can do so. You see this having a higher impact on transcontinental routes where we have often seen 50 percent of the plane using the Internet and have raised pricing to try and create a better experience for those travelers who have come to depend on the connection to get work done.

Ultimately, the solution is more bandwidth. 2Ku is expected to come on line later this year and to start having a significant impact in 2016.

Skift: Let’s talk about hardware. From a terrestrial standpoint, ATG-4 is your new state-of-the-art connectivity product. What percentage of the domestic, commercial fleet is equipped with ATG-4 vs. ATG and how quickly is ATG going away?

Small: We have about a third of all Gogo-equipped domestic commercial aircraft flying with ATG-4 and hope to have about half by the end of the year. We don’t expect ATG to go away, though. There are many smaller RJs where ATG is a viable technology for now and into the future. It also serves our business aviation market extremely well.

ATG has been wrongfully vilified by our competitors and consumers alike. We still say that it’s a great technology for domestic flights simply because of its low costs per bit, reliability and operational benefits. An air-to-ground solution is only limited by the amount of spectrum that the government issues for the service and geography. The FCC could allocate more spectrum for an air-to-ground service. If that were to happen, this technology would once again become an extremely attractive technology for the U.S. market.

However, you still need global coverage for this business and 2Ku provides that.

Skift: So to that end, you see 2Ku as being an addition to terrestrial networks instead of a replacement?

Small: Definitely an addition. We believe there are multiple paths to checking the boxes in terms of coverage, cost, capacity, and reliability. Right now, Gogo is the only global aero communications service provider that has the technology portfolio to outfit an entire fleet of aircraft no matter its size. However, satellite gives you global coverage.

Unfortunately, we don’t see traditional Ku as a commercially viable solution for the global aero market. We believe 2Ku and its superior economics make it the first global satellite solution that’s commercially viable.

Skift: Can you compare the bandwidth and connectivity of 2Ku, to say, Panasonic’s eXconnect?

Small: Well, I prefer to not judge our competitors. What I can say, though, is we have a Ku system that operates on a similar core technology. We believe 2Ku will deliver twice the bandwidth at half the cost and will have a much better performance in tropical areas around the world than traditional Ku antennas.

Skift: Tell us about Ka connectivity and what Honeywell is bringing to the table. Do you expect to eventually be part of the GX solution and if so, when?

Small: We are committed to GX and Honeywell and, as of today, we are the only service provider to have an airline under contract for that technology in Vietnam Airlines.

Skift: Has AT&T’s departure from the in-flight internet market made Gogo’s job easier? Who would you say your biggest competitor is now?

Small: I don’t know that their entrance and exit made our lives any easier or harder. It just proved what we’ve been saying for a long time: This is an incredibly difficult industry and we truly believe you have to specialize in global aviation to succeed. We also see their interest in getting into this business as justification of the viability and potential of this market. We believe it’s an attractive, global market.

In terms of competitors, that’s tough to say. They all have other businesses that are pretty central to what they do. Panasonic and Thales are fully competing in the embedded IFE market, GEE has put content central to what they do and ViaSat has been trying to compete on the ground for many years. In fact, ViaSat-1 was originally designed for ground service on the coasts.

Our concentration is on being the leading global aero communications service provider.

Skift: Expansion. You just announced 2Ku service with GOL and are already online with JAL. What other frontiers are you pursuing in international space?

Small: We have built out our international sales team that is active all over the world. We are discussing our products and services with all of the world’s leading airlines.

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