Lots of people are building new IT companies. You can start a company and sell it to Yahoo! or Google in a couple of years. But so can anyone else. Aerospace is different. To paraphrase John F. Kennedy: We choose to go to the moon not because it’s easy, but because it’s hard.
That’s why, as a long-time investor in IT and Internet start-ups, I’m now spending more time on private aviation and commercial space start-ups. I’m trailing an illustrious crew of IT pioneers: Elon Musk (Space-X, rockets, formerly with PayPal), Vern Raburn (Eclipse Aviation, very light jets, formerly at Microsoft, Symantec and Lotus), Jeff Bezos (Blue Origin, rockets, and still at Amazon, too!), Jeff Greason (XCOR, rockets and formerly with Intel) and Ed Iacobucci (DayJet, air taxi operator, and founder of Citrix).
In aviation, the unpleasantness of “regular” air service is driving customers—those who can afford it—to alternatives. On the one hand, there are high-end services such as Warren Buffett’s NetJets, which is increasingly profitable and growing healthily, though it spends huge amounts on training its people in customer service. NetJets appeals to people who value their time, including their leisure time, at thousands of dollars per hour.
Then there are the air taxis—which represent the conjunction of aviation and information (plus a generation of new, light jets). Air taxis and private jets are to mass-market airlines what PCs are to mainframes. They will take you wherever you want to go on demand, as long as you want to go to one of the secondary airports they serve. But doing so cost-effectively requires extensive information and calculations in order to get the most efficient use of airplanes and staff.
This emerging business model is aimed at people whose employers value their time at $500 or more per hour because, for example, they can make three sales calls a day rather than two in three small, non-hub cities and still get home at night. Air taxis often replace hours of driving.
I worked on Federal Express as a junior analyst for a VC firm in the 1970s. FedEx was created as a response to the complexity of shipping packages around the country. The answer was simple: Ship them through Memphis and make everything routine. Packages don’t know the difference.
By contrast, air taxis, represented by start-up DayJet, take it as given that people, unlike packages, do care. IT is needed to optimize the use of aircraft and staffing resources according to specific customer demand. With enough hardware and software, each trip can be what programmers call an “exception”: A route uniquely designed for each customer, each time.
These new air operators will be successful only if they also offer responsive, personal service. The major airlines have fooled themselves into competing only on price, since they can’t control the experience the way, say, NetJets can. They can’t help it if you end up in a middle seat with an unpleasant neighbour, and they can’t easily charge more for aisle seats because people who board an empty plane will feel cheated if they paid for an aisle seat.
To be sure, air taxis won’t ever make sense for travel between hub cities, if only because of airport capacity. But the air taxis may well change living and working patterns over time. (If you don’t want to invest in air taxis directly, consider the prospects for your local airport.)
On the space side, there’s a different but equally strong parallel with the world of IT. The establishment in ‘space’ is the government, and especially the military, just as it once was (along with academia) for the Internet. I remember the days when commerce on the Internet was considered sleazy—but look at the innovations and productivity it unleashed. In the same way, the current priests of space are dismayed by the privately-funded space start-ups—unsafe, sleazy, frivolous. Imagine: Ads on the side of a rocket ship! Why not, if it helps pay for the fuel... and the R&D that designed the thing?
Tourism is likely to be the initial driver for commercial space travel. You can make a deposit on a future suborbital flight (360,000 ft up) with Virgin Galactic. Zero-G (in which I am an investor and two-time flier) offers flights in a reconfigured 727 that give you a total of eight minutes (16 half-minute stretches) of weightlessness. It charges about $3,500. In our time-pressed world, that’s a compelling proposition. A Caribbean cruise, for example, costs the same amount per person, plus a week of time. Space offers an intensity of experience in a world where high-tech is devaluing itself by making artificial experiences so easy. The guys building rocket ships are willing to take real risks, and they’re selling to passengers who are willing to take risks.
The challenge for all these start-ups right now, they tell me, is that investors want to invest in the third round. That is, they want someone else to take the risks and then come in at the end, when the price has been beaten down and the risks overcome. But the trick is to start early and stick with it. IT investors mostly invest in opportunities; aerospace investors create them.
Esther Dyson is chairman, EDventure Holdings. Your comments are welcome at email@example.com