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Virgin America’s IT Strategy

Wall Street Journal tech blog, How to Do IT on the Cheap is about the IT strategy at Virgin America. If you have paid access to Wall Street Journal’s Web Site then you can also read about Virgin America flies new IT path. Both these articles discuss how Virgin America is breaking new ground when it comes to IT infrastructure. They are planning on reducing their IT related costs by mainly outsourcing everything including customer support. Instead of mainframes that is used by the other airlines, they are using Linux based servers. Both the articles talk positively about the Virgin America’s IT initiatives.

Before we applaud this move as ‘out of the box’ thinking, let’s evaluate this from the company’s strategic perspective. According to Micheal Porter there are 2 types of competitive advantage which a company can utilize to build ‘economic moat’.

1. Cost Advantage

2. Differentiation Advantage

If Virgin America is planning on using Cost Advantage strategy then they are setting themselves to fail. Guess what; in the overcrowded airline industry especially in the US there is cutthroat competition for being the low cost carrier. Southwest has a proven successful model and it is difficult to beat them on the merits of cost advantage by itself. Many airlines have tried in the past and have failed. Jet blue might be the only exception. I will write more about Jet Blue’s IT strategy in my later blog.

But based on other Virgin products, personally I would like bet that Virgin America is planning on using Differentiation strategy. To start off they have a well known brand ‘Virgin’ that is widely recognized in US. They also intend on using ‘plush’ features on their airplane (like leather seats, entertain system etc.) to make the in-flight experience comfortable. I believe providing superior ‘flying experience’ is the only way they are going to survive this airline industry.

Crowded airports/ runway and long lines at security is making travelers long for a comfortable flying experience and may be willing to pay higher for that experience. Who are these customers? This is where gathering customer related information becomes very vital. Ferreting out intelligence from that information is equally critical. In my opinion Virgin America needs to start investing in CRM, Data Warehousing and BI tools to identify the right customers. They can get away by outsourcing initially. But as the data grows, depending on an outsourced company to provide the infrastructure to gather the intelligence from information is extremely risky proposition. Never outsource your core competency!

Buried in the WSJ blog they do talk about Virgin America’s homemade software (no details available). If that homemade software is specific to Virgin America’s business strategy, they are doing everything right. If the customized software is only about cost savings and nothing to do with understanding ‘customer life time value’, then sorry to say, in a few years they will be Southwest look alike.

Update: Nov 30, 2007

Finally, today I got motivated to blog about Jet Blue’s IT Strategy.

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Friday, August 31st, 2007 at 7:19 pm and is filed under CRM, Business Intelligence, Outsourcing, Business Strategy, IT Management, IT Strategy, Nicholas Carr. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.