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Iridium Failure-Why did the Iridium fail – A Comprehensive Overview

Iridium Failure- The Story of the World’s Most Expensive Science Experiment

Iridium failure,why did iridium fail

In an era where telecommunications shape the course of our communication, social spending, and social discourses and even help in the formation of governments, there was an organization that aimed to disrupt the industry two decades ago. With a cumulative business of 2.5 Trillion dollars today, the project could have transformed Motorola and cemented its position in corporate history – an impact that a handful of products like the iPhone and Alexa have made. The technology was so advanced and ahead of its times, Google refused to outgo its patents to Lenovo even though the deal was sealed at 2.4 Billion Dollars in 2014.

Aimed to provide telephone coverage to any customer anywhere in the world without the availability of band spectrums – Iridium was indeed a revolutionary idea that was bound to transform the way telephony was perceived. With strong financial backing and strong technological prowess of Motorola, Iridium was destined to achieve greatness. However, within 5 years of operation, Iridium ceased to exist making it one of the largest corporate failures of the decade as per TIME magazine.

Was it the strategy, the industry attractiveness, technology, or simply failure to understand the latent needs of the customer, that led to a 6Bn Dollar Chapter 11 Bankruptcy and gained its infamy as one the Top 20 failures of American Corporate history? How did Iridium fall from being one of the most revered tech companies of the late 90s – “a darling of the Wall Street” to a story of corporate failure that is widely discussed from the lens of innovation, idea capitalization, service rollout, and even from a viewpoint of leadership.

Iridium Failure: Introduction

In 1985, Japan launched its first interplanetary mission, Sakigake, the third country in the world after the United States and Russia to achieve the feat. At the height of the Cold War, Ronald Reagan was sworn in as the President of the United States for the second time. However, for private investment in telephony, satellite communication, and wireless communication, the world did not see major private investment.

Considered to be highly regulated and having significant entries to barriers due to technology and lack of an ecosystem, the World was gearing up for the internet era by spectrum distribution. Motorola, though was in its zenith of glory was raking in 5 billion dollars in Net Sales in its wide range of high-tech products that included ahead-of-age technologies like memory devices, discrete expansion, CMOS logic circuits, and developing facilities in Europe to achieve excellence in analog and digital devices.

During that time, a lesser-known engineer in Motorola, Bary Bertiger pitched the idea of a Low Earth orbit constellation (LEO) of satellites that could help consumers reach any part of the globe without a network. The idea was envisaged when his wife complained of network unavailability during their trip to the Bahamas.

Initially, the idea met resistance from the executives of Motorola. They considered it to be a high-end device without any practical usage. However, they started worked working on the concept from the Arizona facility within the aegis of the coveted Satellite Communications group. It was Chief Executive Officer Robert Galvin who found the idea to be revolutionary and subsequently backed the concept. Later on executive Christopher Galvin gave a definitive structure to the project by assigning resources and capital for the project.

The plan was to give flesh and bone with Bary being the helm of the development and the technological supremacy of the radical idea kept acting as a major motivator for the group. Motorola during late 1980 used to be an incubation hub for such innovations and was famous for giving strong executive and capital support to such path-breaking technologies without much consideration of project viability. The patent count at Motorola swelled to more than 2000 and they were regarded as one of the most innovative companies of the decade.

Iridium Failure: A Layman’s understanding of the technology

Iridium Failure
Iridium Technology: Source

Late 1960s saw major investment in Space-Tech industry due to the US- Russia Space rush. Geostationary orbits became widespread for defense and telecommunications applications. Geostationary satellites are used for communications purposes because they appear to be stationary above one spot on Earth. They are placed in a geostationary orbit 35,786 km (22,236 miles) above the equator.

This is the same altitude as the International Space Station. A geostationary satellite receives and transmits radio signals to and from a ground station or antenna. The radio signals are sent to the satellite in uplink frequency bands and received by the ground station in downlink frequency bands. The geometry of a geostationary orbit is such that the satellite’s line of sight to the ground is always perpendicular to the equator. This means that communications antennas on the ground can be pointed permanently at the satellite, without needing to track its movement across the sky.

Project Iridium intended to break away from this specific concept by placing low earth orbit satellites within the range of 400-450 km much lower than conventional geostationary satellites. The low orbit not only meant a minimal delay in transmission but also ensured lower maintenance. It also meant that they could use much smaller receivers than conventional satellite receivers on the ground which made it portable and made it viable for executives to carry them around wherever they needed. The initial plan was to make a constellation of satellites, placing 77 satellites in a phased manner. The name was inspired by the 77th element of the periodic table Iridium a very bright and silvery element.

Iridium Failure: Formation of Iridium LLC

The enthusiasm for the project was so high that Motorola set Iridium as an independent company outside the purview of Motorola’s governance. In 1991. Iridium Limited liability corporation was established with an initial investment of $400 Million. With the investment, Motorola took 25% ownership of the company and 6 Board positions out of the initial 28 decided by the Securities and exchange commission.

However, Motorola tried hard to delink itself from Iridium, it was its major capital financer. Motorola agreed to loan $750 million in loan guarantees within an additional credit line of $350 Million. Iridium in turn secured a contract of $6.6 Billion with Motorola which was to be invested in R&D, launching of satellites, and maintenance of the fleet. Iridium on the other hand was supposed to generate significant knowledge capital for the organization with over 2000 Patents which could fuel the later parts of expansion for Iridium to transform into a self-sufficient organization along with constant sources of revenues.

Iridium as a part of Motorola’s Salvation

The mid-90s posed significant challenges for Motorola. The robust growth of a decade gradually began to slow down as the technological landscape changed. Motorola started losing out on significant revenues as it failed to anticipate the mercurial rise of digital telephones. Motorola stock plummeted by over 50% over a decade ago in 1998. However, Motorola gave significant autonomy to the Iridium with an independent CEO in the form of Edward Staiano, a Ph.D. in Mechanical Engineering with significant contributions to Motorola’s $25-billion-dollar revenue.

Staiano received a wholesome cash package along with 750,000 stock options for Iridium vested over a period of 5 years. The appointment of a technically capable CEO and the formation of a diverse board gave green signals regarding Motorola’s seriousness for the project and the reclaim of its position as the major player in the satellite telephony business. The Project would also ensure first mover advantage and fortify its position in the sector which was seeing major disruptions and changes in business models due to the advent of widely accepted digital phones.

Equally competent players like Blackberry and Do-Co-Mo were making significant inroads with their customer-centric services which made a significant breakaway for the technology being available for defense and uber-rich customers. Though it was never mentioned explicitly, Iridium was indeed a prestige project for Motorola – one that will redeem its soul and allow a turnaround in a sector that was slowly slipping away from its hands.

Industry Attractiveness for Iridium

Iridium with its technological prowess could have built a near monopoly and could have dictated terms for commercial applications which could have further fuelled its growth. The sector due to high regulations, the IPR regime, and strongly controlled technology at the hands of the OEM posed a great opportunity. During that phase, the private telephone market was expected a double-digit CAGR for nearly the decade to follow.

Definitely, Iridium was in a sweet spot. The customers on the other hand had limited options but the competition was coming up with solutions and scale unprecedented in the history of the industry. Having said that perfect marriage of the product offering and affordable pricing could have secured a deal for Iridium. The company launched its services after much delay in 198 under the background of a $180 Million advertising and PR campaign and attracted heavyweights like President Al Gore.

The Downhill Journey and Collapse

If the rise of Iridium was meteoric, its downfall was equally spectacular. The company had planned to launch 77 satellites, but after reconsideration, it was decided that 66 satellite units could serve the purpose. The company was slotted to bring in 100,000 users within its first year of business. However, in 1999, just a year into the operations, it had only 10,000 subscribers and a loan outgo of $40 million.

Unpalatable pricing $3000 for the device and the $3-$5 for a minute for a commercial technology ensured very slow growth. For the loan of $1.5 billion, Iridium needed at least 52,000 customers to break even. However, it had only been able to acquire half the number of customers. Reeling under debt and a gleam quarterly results in foresight Staiano quit citing a fallout with the board. In 1999, just within one and half years of operations, Iridium filed for Chapter 11 bankruptcy making it one of the largest failures in American Corporate history.

Iridium Failure: Analysing Iridium from the Lens of Strategy

In hindsight, one may question the strategy of Iridium. Was it big enough to encompass all other strategies of manufacturing, R&D, satellite launches, project management, and distribution? Definitely, it did. With focused leadership, a dedicated board, some of the most fulgurous engineers, and unparalleled technology, Iridium did the technology and innovation part of the solution very well. Many may question the delay to the incubation period of approximately 12 years for the disaster and a lack of a minimum viable product (MVP) to test the market.

The environment that was conducive for a disruption a decade ago was no longer so as spectrum-based telephony started getting widely accepted with a strong focus on operational excellence and cost reduction making it more affordable for the masses. From a Resource Based View (RBV), an organization with so many competitive advantages and resources, capital inflow, and assured market fails so spectacularly.

Iridium Failure: Reasons

A Novel Technology did not mean it was usable

It was beyond doubt what Iridium achieved as a technological marvel for modern-day communication. However, the technology was not consumer friendly. The bulky devices could not be transported easily and soon found a frontal attack from sleek and powerful devices from Nokia and Blackberry.

The handheld devices weighed 3 Pounds, were significantly costly for the value they added, and could not be used inside cars and lifts. The team at Iridium was so focussed on satellite telephony that they failed to recognize that they needed to make the receiver devices compatible with modern-day needs. Spectrum-based telephony spread faster due to lower costs of adoption and interoperability among players. The engineers never looked beyond the hardware in providing a solution that could solve a real problem.

Iridium Failure 1: Failing to adapt to early warnings

There was numerous feedback from the consumer team and leadership stating that the receiver was out of context and looked like a brick. Yet they launched with the same receiver a year ahead stating their inability to stay nimble for any technological success which changes landscapes within the course of a few years. By the time they launched, they were already dinosaurs, fighting a formidable opponent which was constantly adapting, expanding, and evolving.

Iridium Failure 2: Lack of Due Diligence

Motorola was notoriously known to invest in technologies without proper or highly inflated business cases. The idea of perfection during a launch made the projects unviable during launches and they had to shelve many technologies after spending millions of dollars in R&D and a considerable amount of engineering and management resources. Yet, there was no learning carried forward to future projects, and neither did a project management structure takes shape nor did a strong consumer insights group that would provide feedback on the pulse of the customer.

The Board was heavily lopsided in favor of Motorola and Lockheed Martin (a technology partner) ensuring a lack of proper course correction and implanting corrective measures before the launch. Nealy all the board members were Ex-Motorola employees and never put pressure on key resources regarding delays or plans to become financially viable

Iridium Failure 3: Leadership Crisis

Staiano was considered a stalwart in Motorola, however, the financial incentives were significantly high for a start-up even for today’s standard. Due to such high incentives, Staiano never pulled out of the project or raised alarm bells to the Board. In reality, a mesmeric leader with a strong technical and business background failed to anticipate the rapidly changing external environment which could be directly attributed to the failure of the project.
Lack of Forward integration

The Leadership at Iridium failed to deliver operational excellence or a great forwarding integration in the form sales and marketing support. The Partners who were responsible for Sales and Marketing outside the United States never got themselves ready for the launch.

They failed to set up basic teams for the distribution and acquisition of customers. The target to achieve 52,000 customers to achieve financial viability was woven out of thin air without proper backward and forward integration. The partners who were supposed to earn a lion’s share of the profit sharing never disclosed that they running behind schedules. All these outcomes were an outcome of a sunk cost fallacy which always made them believe that the success of the project will only be dependent on the technology.

Iridium Failure 4: Lack of Agility and Valuing Alternatives

Even when the technology started to fail, the iridium core leadership did not resort to alternatives like contracting or liquidating its patents to get some cash float to run the business. Motorola never explored the idea of partnership in launching its satellites or acquiring a telecom distribution company that would place them on the same footing with digital telephones.

The lack of agility was evident from the lack of course correction even after so much feedback from the customers. Repeated investment by Motorola also ensured that their risk exposures were also increasing significantly which was indeed a problem as the core company was facing a major downturn and financial challenges.

Iridium Failure 5: Lack of Vision for the Product

The Vision for the product was never materialised or to put never envisaged. When the executives realized that the receivers were too big for any use commercially they must have pivoted towards securing defense deals with countries and autonomous agencies giving them reliability and security of the hardware. We never see that happening in the case of Iridium and one of the major reasons for its spectacular demise.

Iridium Failure 6: Excessive Financial Leverage

Many startups even today, leverage their financial positions on the basis of technology and solution they bring for the customer. However, excessive financial leverage puts excessive pressure on the organization and reduces agility and adaptability for growth and responding to customer needs.

In the case of Iridium, they needed to serve nearly $40 Million as interest repayment of debt which was never going to be possible for a company with limited resources just proving out its technology. Staggered methods of investing are always welcomed as it brings financial prudence and discipline which helps in developing and bettering products – sometimes incrementally and sometimes with disruptions.


If Success stories tell us what strategies to be adopted, bankruptcies also provide a guiding light to what not to do. From Lehmann Brothers to General Motors, we find an eerie trend of either leadership incapability, leverage, or a poor product-market fit. The Iridium case is no different. One might blame it on the strategy itself, but in reality, it ticked the checkboxes of a sound strategy. What led to the demise of such a promising technology was the near- sightedness of the leadership and board coupled with very poor execution.

Even more saddening is the fact that after a decade, the parent company Motorola was acquired by Google later to be sold after three years to the Chinese Tech company Lenovo. The loss of value was unprecedented. Iridium shares rose from $20 per share to $72.19 later to plummet to $3.06 when it declared bankruptcy. The same story would unveil in the case of Motorola just a decade later wherein it was acquired at $12.5 billion and later sold at $2.91 Billion.