The Demise of the A380

The Airbus A380 is an amazing airplane and an engineering marvel – it’s the largest commercial aircraft currently flying, able to carry up to 868 passengers in a one-class configuration (although the typical three-class configuration carries 544 passengers). The plane is quiet, it’s comfortable and passengers like it. It can reduce airport congestion, since one A380 with 544 passengers will require less airport footprint and fewer resources than the three A320s that would carry the same number of passengers.

And yet, Airbus announced this week that it will cease production of its flagship A380 in 2021, just 14 years after its first commercial flight in 2007. Contrast this with the Boeing 747, which flew its first commercial flight in January 1970 and is still in production (albeit now only as a freighter and as two new Special Air Mission/Air Force One aircraft to be delivered in 2024), giving it a production life of at least 54 years.

So, why the demise of the A380? There are a number of reasons, including the logistical difficulties associated with producing the aircraft’s components in four countries across Europe and transporting them for final assembly in Toulouse, France; the high cost of the aircraft (~$445 million); the limited number of airlines that have purchased it (only 16 have ordered, and only 13 fly); the high cost of modifying airport terminals to accommodate it; and the introduction of highly fuel-efficient aircraft like the Boeing 787 and Airbus A350.

The A380 was designed to accommodate the hub-and-spoke model of air travel: fly large numbers of passengers to a central hub like London or Dubai, and then put those passengers on several smaller planes to their final destination. In contrast, aircraft like the 787 and A350 were designed more for point-to-point flights, making routes like Minneapolis to Lisbon financially viable. To be fair, the A380 was conceived before the 787, A350 and other, more fuel-efficient aircraft were available, but Airbus simply made the wrong decision about the future of air travel and was woefully optimistic in its forecasts: the company predicted in 2000 that 1,235 “very large aircraft” would be delivered from 2000 to 2019, but orders and deliveries of the A380 have been just 313 and 234, respectively, through last month. That’s a revenue miss of roughly $410 billion!

In my opinion, the A380’s demise boils down fundamentally to a single question: as a passenger, would you rather take one flight or two to get to your destination? Airbus seems to have answered that question with “two”, while a large proportion of the flying public and most airlines answered “one”.

In my own case, I would rather not make a connection through a large and busy airport if it’s at all possible to avoid it and I will go out of my way – and pay more – to take a flight without connections. I realize that many people will opt for cheaper, connecting flights, but they carry with them some fairly high costs: for example, a dated study commissioned by the FAA found that in 2010, missed connections cost passengers $1.5 billion each year.

The inconvenience of needing to make connections, as well as the lost productivity and opportunities that sometimes result, is not something that most business travelers, and many leisure travelers, are willing to accept. It’s one of the key reasons that we will see no new A380s produced after 2021.

Should You Rent or Buy Your Email and Productivity Apps?

Microsoft dominates the business email and desktop productivity markets. Over the past few years, the company has been pushing hard to move its user base for both to Office 365 and away from Exchange Server and desktop versions of Office. The push has intensified in recent months to the point where the company is now telling customers not just to adopt Office 365, but also not to use non-Office 365 solutions. For example, as noted in this article, the Microsoft corporate VP for the Office and Windows group said that the various applications in Office 2019 are “frozen in time. They don’t ever get updated with new features”. By contrast, Office 365 keeps “getting better over time, with new capabilities delivered every month.” It makes one wonder why Microsoft bothered to produce Office 2019, but that’s a subject for a different post.

Perhaps telling people not to use your products is the natural consequence of having such a dominant market share that the only competition left for your new and shiny products is your old and dull ones.

The key for decision makers, then, is to determine if the “new capabilities delivered every month” in Office, coupled with the reduced IT labor required to manage corporate email, is worth becoming a renter in perpetuity rather than a buyer.

To compare the costs of renting versus buying for a 50-person company, we compared the cost of two competing systems:

  1. MDaemon Server (including MDaemon AntiVirus, MDaemon Connector for Outlook, MDaemon ActiveSync and MailStore email archiving) and Office 2019 Home & Business.
  2. Various flavors of Office 365 (Office 365 Business Premium, Office 365 Enterprise E3 and Office 365 Enterprise E5).

Using only publicly available pricing on the MDaemonOffice 365 and Amazon.com web sites, here’s the annual pricing to support 50 users with business email and productivity applications over a three-year period:

  • MDaemon and Office 2019: $114.68 per user per year
  • Office 365 Business Premium: $150.00 per user per year
  • Office 365 Enterprise E3: $240.00 per user per year
  • Office 365 Enterprise E5: $420.00 per user per year

Of course, the primary advantage of any cloud-based solution is the reduction in IT labor realized from not having to manage on-premises infrastructure. But productivity applications don’t need significant levels of IT support, and most on-premises email solutions for small companies, as in our 50-user example, don’t either.

Please understand that this is not meant to disparage cloud-based solutions. Osterman Research is a strong proponent of the cloud for productivity solutions, CRM, security, archiving and a wide variety of other capabilities, and we are also a strong proponent of Office 365. But when making decisions, it’s important to understand where to rent and where to buy — buying is still not a bad business decision in some cases.

 

Bartering our Privacy

Many years ago I worked for a brilliant man, an industry analyst who did groundbreaking work in developing models for delivering broadband services to residential customers. I recommend you check out his current company, DEEPfutures.

Last August, he wrote a post on LinkedIn discussing new business models for Internet services. It’s a good read, but I disagreed with a key point that he made about the business model of presenting ads based on personal data:

“That business model is an unequal barter. In old-style, traditional barter, a farmer might trade a sheep and two chickens to have the barn roof repaired: both sides would have calculated the value and benefit. In our unequal barter, we trade all our personal information for…cat videos [and] free-to-us online services: Gmail, Facebook, Whatsapp, Twitter, etc. It’s unequal in that we, the users, have no say over or insights into the value the adtech giant firms abstract from our data. It’s also unequal in that all people’s data, mine, yours, a billionaire banker’s, a poor farmhand’s, are traded for the same “free” service, although our data clearly have different utility and value to the adtech companies and their customers.”

I disagree with this statement in two key areas:

  1. “It’s unequal in that we, the users, have no say over or insights into the value the adtech giant firms abstract from our data.” Yes, it may be unequal, but it’s certainly not unfair. In the old-style barter system, we assume that the farmer traded his sheep or chickens to the roof repairer so that the latter could feed his family. But what if the roof-repairer had discovered a way to make chickens lay golden eggs and he could generate millions of dollars in income going forward? That’s still not an unfair barter, since the farmer received something valuable — a now leakproof roof — in exchange for something he considered valuable. In the same way, companies like Google, Facebook and others who give us cat videos or apps in exchange for our data are providing something of value — we don’t lose in the bargain if they are smart enough to turn our data into something more valuable than we consider it be when we hand it over.
  2. “It’s also unequal in that all people’s data, mine, yours, a billionaire banker’s, a poor farmhand’s, are traded for the same “free” service, although our data clearly have different utility and value to the adtech companies and their customers.” Here again, that doesn’t really make the barter unfair — if adtech companies find more value in a billionaire banker’s data than they do in the data from a farmhand, but are willing to provide the same free services to both, that’s not really unfair to the banker or farmhand. These individuals, as well as the adtech companies, are willing to enter into a barter relationship for something they each perceive to be of value.

This should not be interpreted as any kind of defense of Google, Facebook or others who have clearly demonstrated that they often play fast and loose with others’ data. Nor is it a defense of adtech companies and others that take your data without permission. For example, TechCrunch has found that companies like Air Canada and Hotels.com will record your mobile phone interactions, sometimes without permission. That’s not barter, since something of value has been taken from you without your consent in exchange for nothing in return.

Instead, I believe the fundamental problem is that too many aficionados of cat videos and various types of “free” apps place too little value on their privacy. They are too quick to hand over their data without first considering the consequences of doing so. The transaction is fair, but the adtech companies are thinking critically about what they can do with data owned by people who don’t think critically about entering into a relationship with them.

Any unfairness in the bartering between individuals and adtech companies will be solved only when the former begin to think seriously about the implications of handing over data without first considering the consequences.

Some Ideas, Other than Fines, to Reduce Data Breaches

An idealist might view the European Union’s General Data Protection Regulation (GDPR) as an effective means of reducing the number of data breaches by imposing massive fines on those who lose control over the private data of EU residents. A cynic might view the GDPR simply as a means for the EU to make lots of money from those who violate it, while not having much impact on reducing the total number of data breaches.

The truth might lie somewhere in the middle.

In terms of good news about the efficacy of the GDPR, Cisco recently released a report showing that only 74 percent of GDPR-ready organizations experienced a breach since the GDPR went into effect last May, compared to 89 percent of non-GDPR-ready organizations that suffered a breach during the same period.

The bad news is that 74 percent of GDPR-ready organizations experienced a breach since the GDPR went into effect last May.

Corroborating the fact that data breaches are still running rampant is a DLA Piper report showing that more than 59,000 data breaches occurred in Europe during the eight months since the GDPR went into effect, or roughly 10 breaches per hour. The DLA Piper data shows that data breaches are significantly more common than the 41,502 breaches reported by the European Commission for the same period.

The continuing high rate of data breaches should not be used by corporate decision makers as an excuse for not complying with the GDPR. Every organization should do so for a couple of reasons: first, it’s the law and decision makers should comply with the law. Second, becoming GDPR-compliant will make organizations and the data they process and control safer and less likely to be breached.

Plus, complying with the requirements of the GDPR is a good idea because they make sense: encrypt data, keep it only for as long as you need it, ensure that third parties that have access to data comply with good data governance practices, enable data owners to have control over information about them, and so forth.

What might not be such a good idea is imposing massive fines on companies for data breaches because big fines often don’t work. For example, in 2015 five US banks were fined $5.6 billion for their role in colluding to manipulate interest rate and currency markets, yet some concluded that the fines had little impact on the future behavior of these institutions. In January of this year, Google was fined €50 million (~$57 million) in France for GDPR violations, or about 0.04 percent of the company’s 2018 revenue – a drop in the bucket for a company this large. Even at a personal level, huge fines have little impact: for example, in 2014 the State of Illinois imposed new anti-littering laws that, for a third offense, impose a fine of $25,000 and a felony conviction on the offender. The result in the first three months of the new law was that very few citations were issued.

So, what might be a more effective way to reduce data breaches and increase compliance with privacy regulations like the GDPR? Here are three ideas:

  1. Every time a breach occurs, require offending companies to pay for 1,000 randomly selected victims to be flown first class to an exotic location — perhaps a very nice hotel for a long weekend — where victims can meet in a public forum and air their grievances with executives of the company that lost their data. Also require that the event be recorded and made available on the home page of the offending company’s web site for one year following the event. This would allow executives to meet their victims face-to-face and learn first-hand of the pain their carelessness has caused.
  2. Require the CEOs from offending companies to take a three-month sabbatical following a data breach, not allowing them to participate in the day-to-day activities of running their companies.
  3. Instead of imposing fines on offending companies, instead require that these companies spend the same amount on technologies, processes, training, etc. to ensure that their data processing practices are improved so as to prevent future data breaches. The spending plan and expenses could be monitored by a third-party consulting firm not connected with the offender.

While these ideas certainly won’t prevent all future data breaches, they might be more effective than slapping offenders with big fines that dissipate into a government bureaucracy.