Flying Cables

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I love it when two businesses take completely opposite approaches to the same strategic problem. It always makes for entertaining reading (and writing).

For a long time, network providers have argued that they are about content, phones, payments, everything but the network. AT&T Wireless, Verizon Wireless, Sprint, 3, BT, Deutsche Telecom, Cablevision, Liberty Cable, just about every major carrier has argued that they are "not just dumb pipes" but everything that goes through them, i.e. content.

To my mind, this is simple envy. Customers love Fox TV shows that go through networks and Apple iPhones which are endpoints on those networks, and hate AT&T Wireless or Cablevision. To boot, Fox and Apple get higher margins. Loved and higher profit? Just because you own the customer touch points and content? It galls them. It seems unfair. "We're content too!"

And yet, it never seems to occur to them that it might be because they are focused on everything else that they have worse margins and terrible reputations. I have long felt that being the biggest, fastest, most customer supporting, most affordable "dumb pipe" is a pretty smart way to run a business. I would love to own an AT&T that had its 3G/4G/LTE network, but sold wireless access in just 2-3 plans for a great price and great customer service, and stopped worrying about everything else.

Well, it looks like James Dolan, CEO of Cablevision, actually may get it. While his language was hedging, he did say in an interview that "there could come a day" when Cablevision stops offering television service and makes broadband its primary offering. Personally, I haven't connected my TV to antenna, cable or satellite in years; I don't even think the tuner works. My nice 32" LED is hooked up to a hard drive with video, a long-dormant DVD player, and an Apple TV. Between iTunes, YouTube, Amazon Prime and anything I can stream over AirPlay, what else do I need (except perhaps Chromecast)? The other day, my cable Internet provider tried to sell me a "Triple Play" of television+phone+Internet 100Mb for ~$80/month. What for? What if they stopped wasting money on these salespeople and instead built a phenomenal customer service and network distribution and QA system? Would I spend more on Internet? Would I pay a premium for guaranteed service and repair times?

Cable television is a closed ecosystem; it requires you to purchase content and access from the same provider. The Internet is an open ecosystem; there are millions of content providers out there, if only you have access. No cable provider will ever be able to provide sufficient content to compete with the wide world of the Internet, which allows each person to craft their own "content provider." Cable companies as content providers are being disintermediated. In the days when you needed both network access and an intermediary to aggregate content, combining them into a closed ecosystem made sense. In the Internet era, when you can access content directly, all you need is fast and reliable network access. Companies that get it and work hard to be the best "dumb pipe" may be the smartest ones out there.

While Cablevision may finally be figuring out how its core business may be its future, JetBlue is starting to envy bigger carriers and going the other way. The same day that Dolan announced, if perhaps not in these words, that he finally gets the core of his business, JetBlue announced that they will start providing "Premium Class" on transcontinental flights. This is quite the shift for JetBlue. A discount carrier, by definition, doesn't sell Business/First Class seating. JetBlue's philosophy, from day one, was that you can have a comfortable, reasonable flight for a reasonable price, and not be stuck between cattle class and luxury class. By standardizing on one class, one type of airplane, and strong IT, the airline could operate very efficiently and pass savings on to customers.

While it is difficult to know JetBlue's motivations, it looks a lot like simple envy of the premium profits American and United and Delta get from First Class paying passengers, combined with "we already have expensive assets flying these routes, why not us?" It looks like JetBlue doesn't get that servicing Premium passengers is a fundamentally different business than servicing coach passengers, especially discount coach passengers. JetBlue's entire culture is built around uniform service, uniform jets, uniform friendliness. Bifurcating requires two different but related structures, and modifying everything from maintenance to culture to crisis management to delay management to lounge facilities and back again.

Is JetBlue truly prepared for all of this? Or are they a barely profitable airline (although barely is pretty good for an airline) hunting for more profit and jealous of its larger peers, forgetting how to be a great "dumb pipe" and now trying to say, "we're a content provider! Really! Believe us!"?