The Most Expensive New Product Failure in History
D. Thomas
June 2000
The Iridium system, based on more than 70 satellites, is closing down and the satellites will be destroyed.
It seems that the system was great for anyone stranded in the deserts of Australia or the North Pole, but did not work well in a building. Technologically it may have been marvelous but it failed to offer benefits to sufficient people.
Choice modelling should have been used to evaluate the likely success of the system. Crucial in any such choice model is inclusion of competitors - in this case digital cellphones. When the system was devised in 1987, cellphones were new and expensive - but it is important to anticipate likely trends in competitive products.
Had that been done properly - ie the Iridium system described to potential customers along with the cellphone, over a range of prices for each, the risks associated with launching all those satellites would have been more accurately assessed.
Of course, this is easy to say with the benefit of hindsight. And in 1987, it was not expected that cellphones would become fashion accessories as well as productivity tools for people on the move - resulting in economies of scale and falling prices.
Given the cost of new product failures, it is important to use choice modelling and to be elastic in assumptions about what competitors could offer in the future.