WashPost. Iridium Falls Back to Earth
By Mark Leibovich
Washington Post Staff Writer
Sunday, August 22, 1999; Page A1
To Al Gore, this was a milestone in the nation's continuum of innovation.
In a Rose Garden ceremony last October, the administration's
techie-in-chief placed the first call on a mobile phone system called
Iridium, a celebrated project that let users communicate from anywhere on
the globe through a network of 66 satellites orbiting 421 miles above the
earth.
"These . . . systems complete the telephone coverage of the earth's surface
that Alexander Graham Bell began more than a century ago," the vice
president told Gilbert M. Grosvenor, Bell's great-grandson and the
recipient of the ceremonial call. "Your great-grandfather would be very
proud."
But 10 months later, with plans afoot to display the prototype of an
Iridium satellite in the Smithsonian, the District-based company finds itself
galaxies removed from its giddy launch day. Iridium has spiraled
earthward with startling speed, a dazzling triumph of innovation flipped
into a heap of corporate space junk.
Last week, Iridium LLC filed for bankruptcy protection after it missed a
series of payment deadlines on $1.5 billion in bank loans and another $1.5
billion in bonds. It is celebrated now as one of the highest-profile failures
in a realm of technology marked by success stories, a case study of the
disjunction between cold-eyed market forces and heady technology.
Iridium is just one glaring example of the pioneer confounded by the
riddles of supply and demand. "There is a constant pitter-patter of little
companies that focus too much on technology and not on marketing," said
Carl Pitasi, a former director of marketing at Motorola Inc., the
telecommunications powerhouse that initiated the Iridium project more
than a decade ago and that still owns 18 percent of the company.
Pitasi, who now runs an information technology consultancy in Reston,
said that brilliant technical achievements can breed a dangerous hubris.
Innovators can believe that expertise in one area translates seamlessly to
skill in another, he said. And this can prove fatal to a business such as
Iridium-especially in a high-tech world where market forces zig-zag
unforgivingly.
"When you're undertaking a complex high-tech project that will take five
or six years, you can pretty much predict failure," said Michael Cusumano,
a professor at MIT's Sloan School of Management and author of
"Competing on Internet Time." "No one can think that far ahead. All kinds
of better, cheaper innovations can appear."
This is the reality that set Iridium's downward spiral in motion. In 1987,
when Iridium's vision of worldwide mobile phone service was first
conceived, few could foresee today's widespread use of cellular phones.
Bary Bertiger, a Motorola engineer, imagined a boon for globe-trotting
business travelers by letting them converse through a network of 77
low-earth-orbiting satellites (the number was later scaled back to 66). The
notion seduced an elite team of collaborators and investors.
"They thought they had something stupendous," said Alan Marcus,
director of the Center for the Historical Studies of Technology and
Science at Iowa State University. "They thought they could be like a
mobile AT&T for the entire world." In 1991, Motorola formally
incorporated Iridium, named after the element whose atomic number is
77.
By the early '90s, however, the wireless telephone industry was taking
dramatic, unforeseen turns. Cellular service, far less expensive because it
deployed earthbound transmitters and antennas, was taking hold among
Iridium's target customers-business travelers.
Unlike Iridium phones, cellulars could work from inside buildings. Unlike
Iridiums, cellulars did not require open sky overhead. Cell phones were
also much cheaper: Shortly after the Iridium service was introduced last
year, the handsets cost $3,000 apiece, and international calls cost up to
$7 a minute.
This was prohibitive to most customers, and left Iridium to scramble
somewhat laughably for customers in remote markets with no cellular
service-explorers in the Arctic, for instance, as well as oil rig workers on
far-off seas and trekkers in canyons.
A $100 million global marketing campaign did little to move Iridium
beyond its finite niches.
Customers were scarce from the outset. Iridium has about 20,000 today,
nowhere near the 100,000 it expected to have by the end of last year-and
light-years from the half-million it said it would need to break even. Chief
executive Edward Staiano was forced to resign in April. "These are tough
times," understated his successor, John Richardson, on the day of the
bankruptcy filing. (Richardson was traveling overseas and not available for
comment yesterday).
Iridium has vowed to keep the project running, restructure debts and
soldier forward. While supportive, Motorola has made no commitment to
add to the $1.66 billion it has already sunk into the venture. In sum,
Iridium has borrowed an estimated $3 billion to build the network; this
compares to the mere $1.45 million it reported in annual revenue in the
past fiscal year. Even if Iridium can settle its debts, many wireless analysts
doubt the company could assemble enough niche markets to sustain a
business.
Industry-watchers are pointing to Iridium as a defining failure of the times,
an Edsel for the tech-happy '90s.
"One of the features of [pioneering] developers is that they get their
self-worth all tangled up in their technologies," Pitasi said. It can blind
innovators to market shifts, he said, especially in a time when so much
investor cash is available to keep them going.
"Things like this happen on a much smaller scale than Iridium all the time,"
said Edson de Castro, a founder of Data General Corp., the
Massachusetts computing icon whose creation of the once-dominant
"mini-computer" in the 1970s was chronicled in the Tracy Kidder book
"Soul of a New Machine." DeCastro, whose company was crippled by
the advent of personal computers in the 1980s, sees no parallel between
Data General's downfall and Iridium's.
While both companies embarked on ambitious pursuits, Iridium tried to
launch an elaborate service all at once, with no intermediate checkpoints.
"It's a prescription for failure to undertake something like that and expect
to succeed all of a sudden," de Castro said. Iridium, he said, should have
offered a much more limited service early on, both to test its technical
viability and to gauge market reaction. "These markets are unknowable,
and the only way to learn about them is to put stuff out there in incremental
steps," he said.
Notwithstanding the resulting mess, some say Iridium will long be
respected-and remembered-as a technological triumph, albeit a business
failure. "To launch and manage a vast satellite network is a tremendous
achievement," said Bennett Kobb, a wireless industry analyst in Arlington.
"The stuff they rolled out is terrific," de Castro added.
Likewise, failure is considered a kind of badge of honor in high-tech
circles. Great companies fail all the time, said Cusumano, and they sink
vast amounts of cash into technologies that are never adopted. Early this
century, for instance, companies invested huge resources into things such
as electric and steam-driven cars.
And today, the number of technology companies that go public is a tiny
fraction of those that disintegrate. "No Fear to Fail" is a Silicon Valley
mantra.
But de Castro posits a corollary maxim that applies, unfortunately, to
Iridium.
"If you're gonna fail, fail fast and fail early," he said. "Don't go through 10
years and billions of dollars before you realize you're failing. That's when
things can turn really bad."
¸ 1999 The Washington Post Company |
