Upending The Distributor Model


The prevailing business model for satellite communications has remained unperturbed since the industry began more than 5 decades ago. Consumers purchase a satcom terminal, or a phone, or a satellite TV antenna from a distributor with some subscription service for airtime. For the satellite companies themselves, there is little to no interaction with the consumer, and instead sell bandwidth to a distribution network, maintaining an arms-length relationship with those who actually use their service.


There are a great number of smart people that continue to advocate for maintaining the status quo. But much like retail vs. e-commerce, taxis vs. Uber, or video rentals vs. Netflix, the distribution model for satellite communications needs an upheaval. The vestiges of a disconnected world, in which it was impractical for a satellite company to support a global sales operation, means that today there exists a global network of thousands of distributors. The net result is a business model that stifles innovation, and leads to poor customer experience.





A direct-to-customer model has obvious benefits. It substantially reduces the barriers for soliciting feedback and making service improvements, and ensures companies can reach the right product-market fit. Direct interaction also means companies can educate and empower the customer to make choices to maximize utility of their service. For example, properly installing ground antennas, or individualized bandwidth and power management services not only improve the quality of service for the customer, but optimize overall network performance and allow satellite companies the ability to sell additional capacity. This alignment of incentives between the customer and the service provider are not feasible in a traditional distributor model, where the satellite operator is only directly incentivized to sell to the distributor network, and remain largely apathetic to the service quality for the customer.


Moreover, this direct to customer distribution strategy reduces the time and capital required to deploy a service. By way of analogy, car dealerships require sufficient inventory of vehicles on the showroom floor to sell to customers. What this implies is that automotive manufacturers must over-produce vehicles based on anticipated demand from their distribution network, thus increasing capital required for a new product line. Conversely, Tesla’s choice to sell direct-to-customers means their vehicles are manufactured as they are purchased, reducing risk of capital loss and allowing the company to increase production in-stride with demand. Satellite communications are no different. Traditional satellites and designed and manufactured to meet bandwidth requirements of the distribution network, which may not be indicative of the actual customer usage. This imbalance between capacity and usage has led to some rather colossal failures of satellite companies which are now delegated to business school case studies.


It remains to be seen whether new business models for satellite communications that do not mimic the traditional distributor sales channels will supersede the incumbents. However, it is well known that for innovative industries, the best products and services are often not those with the greater number of features, but those that can rapidly adapt to changing customer requirements. Mired in a complex distributor network, future customer demands may force the satellite communications industry to embrace this trend.

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