The Gonzo Way of Branding

Schulman calls Virgin Mobile USA a "youth marketing company." And it shows in how innovative it has been. Virgin Mobile offers a bunch of features that make cell phones more playful and fun, such as VoiceMania (voicemail greetings from campy celebrities such as William Shatner and Adam West), Rescue Rings (to save yourself from a bad blind date or a boring meeting), wake-up calls, ringtones from the latest hit songs, and music news and celebrity gossip from MTV. Virgin Mobile USA's risque marketing inspired The Wall Street Journal to give it an award for the worst ad of the week. "The last publication I want endorsing our ads is The Wall Street Journal," Schulman told his people. "Your goal for the fourth quarter is to win that award again."

Control Freak

For a long time, Branson has wanted Virgin to be much bigger in America. But he thought he would have to live in the States to become a highly visible presence here and promote the Virgin brand. He wasn't willing to consider such a move while his two children were growing up in England. Now, though, his kids are adults. His daughter, Holly, 22, is in medical school. Sam, 19, recently took what the British call a "gap year" -- some time off before college. Branson was openly envious: He has worked, albeit for himself, ever since he dropped out of high school at 16. His first big success came in his early twenties, when Virgin released a recording of the Sex Pistols screeching, "God save the queen, she's not a human being." How ironic now that the same queen has made Branson a knight.

Last year, he decided to take his own gap year and live with Sam in Australia. "I learned to surf, which was tremendous fun, and hung out with teenagers and had a ball," he says. But after five weeks, Branson gave it up to oversee the 2003 public stock offering of Virgin Blue, his low-priced airline startup in Australia that had swiftly captured 35% of the market.

The Australian success helped inspire Branson's plans for Virgin America, even though he knows that the United States will be a much tougher market. Why is he entering this business so very late? Branson was waiting while he lobbied Washington to repeal the rules forbidding foreigners from owning a majority interest in a U.S. airline. It wasn't that he was a control freak. He had learned a hard lesson from his troubled venture in the PC business, when Virgin's name wound up on a mediocre product another company had designed. "We had decided that we'd never get involved in a company unless we could control it and protect the Virgin brand name," he says.

Virgin's brand was so glamorous that Branson could typically keep 60% or 70% ownership of new ventures while partners put up and risked all the capital. But his insistence on control forced him to pass on a terrific opportunity. In the late 1990s, David Neeleman offered him 40% of a new U.S. airline for no cash, just the use of the Virgin name. Branson turned him down. The airline became today's JetBlue.

Branson has given up on lobbying. He's starting a U.S. carrier even though he can own only a 49% stake and has to let Americans -- who they'll be is still undetermined -- control the operation. His goal will be to outdo the majors and the upstarts alike in quality, especially in business class. It's not a bad strategy, some analysts figure. Forrester's Hardevelt says: "If I were Branson, I'd go for the quality-focused traveler who will pay $1,000 for business class coast-to-coast and give them an airport clubhouse and in-flight Internet access. That's the only niche that's left."

Branson isn't intimidated by all the competition. "In America you've got an excellent airline in JetBlue and a good airline, a pioneer airline, but slightly tiring, in Southwest. It's the Tower Records of the airline business: a great reputation in the past, but now . . ." He pauses for effect. "And then most of the other airlines are just pretty awful."

But for Branson to succeed, he'll have to fight all the trends in domestic airlines. He's pushing a brand in a business where they matter less than ever: Last year, only 33% of U.S. fliers were brand loyal, according to Forrester's research, down from 40% in 2002. Meanwhile, "mercenary" customers, for whom price is everything, make up 20% of the market. And the industry's economics, to put it politely, stink. "What's Virgin's advantage?" asks Sealey. "He's going to be buying the same planes and hiring pilots at the same salaries. His cost structure will be identical to theirs. If I were a banker, I wouldn't lend him the money. If he were presenting this as a business case in my class at Stanford, I would fail him."