An historic event that happened 40 years ago kicked off the cooperation between the USSR and America: a handshake between cosmonaut Aleksey Leonov and US astronaut Tom Stafford marked a mutually successful space mission. That partnership has continued, even when relationships on the Earth have been strained. But now, when there are more international players in the field of space exploration and when NASA plans to send the first crew to ride an American commercial spaceship, how will interplanetary expansion proceed?
We can say with full confidence that only private industry will bridge this period of uncertainty. During the last decades of the 20th century, private companies were mostly out of the picture, but today, commercial companies have already been awarded contracts to supply the ISS and other lucrative aerospace contracts from the government. This signals not only a shift toward diversity but also about new approaches, new business models and new channels of profit. Private companies do the same work government do, but faster a much cheaper. For example, SpaceX took five years and almost $400 million to develop the Falcon 9 rocket, which is already launching cargo missions to the International Space Station. A NASA study found it would have cost $1.4 billion to build the same rocket in-house.
We’re now in the third era of the space industry that is becoming known as Space 3.0 or NewSpace. It is defined by a radical shift in the industry. At first, governments invested heavily into space exploration. Now companies with large budgets have entered the industry. There are new possibilities and new approaches now. The difference is that commercial space companies are all driven by a general mindset of getting the cost of products and services very low and using cross-industry business models.
Erich Fischer, principal consultant for U.S. aerospace and defence at Deloitte said that the aerospace industry is still a growing industry, but parts of the industry haven’t significantly evolved with the growing companies. Over the past 25 years, at any given time, between 25 and 50 percent of A&D companies have stayed with their historical strategies and business models, despite what have been some very significant changes in competitive dynamics and market requirements. That’s why the business community is supporting space startups with new business models based on downstream applications, image analytics, asset tracking and high-speed data connectivity that haven’t been known until recently. This new space race is just the tip of the technological iceberg!
Panorama of opportunities
Today, the space industry is experiencing a progressive overhaul across its value chain accommodating the low-cost business model of small satellites, including increased usage of commercial components for subsystems manufacturing, production of small satellites, dedicated launch services development, and the use of ground stations.
NewSpace industry provides possibilities by connecting successful entrepreneurs, venture capital investors, huge contracts from military and government companies and advanced space policy. Setting aside the bulk of largely unproven new companies, since 1970 there is only been a few dozens large, space-focused startups. But despite this, most have been successful. There are spectacular success stories (SkyBox, SpaceX, Orbital, etc.) which are attracting new players, incentivising the VC scene and facilitating the financing of so-called “disruptive“ technologies and business models.
The success of these companies inspires many out-of-industry entrepreneurs to start their own space companies. NewSpace Global, a firm that tracks the private space industry, has seen explosive growth in the market. Over the last five years, it’s gone from tracking 120 space companies to over a thousand. NewSpace Global expects that number to grow to 10,000 companies in the next ten years. There are more companies emerging that are capable of sending something to space or create some solutions useful for astronauts. It’s going to drive down launch costs and increase launch rates.
The Bank of America (BAML) has written a report describing the forecasts for space technology over the next 30 years: growth from 339 billion to 2.7 trillion, involving 80+ countries and dropping the launch price to 5 million. The report identifies only five companies that create 100% of sales in the space business at this moment, all five work with satellites – ViaSat (VSAT) and Intelsat SA (NYSE: I) is located in the United States, Inmarsat, SES and Eutelsat – in Europe. These companies are relatively small, being worth between 500 million and 9.6 billion dollars, but the rest of the list of companies are having a larger impact on the space industry.
The increasing convergence of space with the IT sector is seriously reflected in the business models of such mixed companies. On the one hand, the IT sector is producing a great demand for global systems and services to cover the demand for broadband, the Internet of Things, location-based services or Big Data. On the other hand, business models (e-commerce), services (cloud computing) and approaches (agile software development) are being transferred from the IT to the space sector.
There have already been two IT generations of companies over the last six years. In this period the US has been invested $2-3 billion in companies and projects such as SpaceX, SkyBox, Spire, PlanetLabs or OneWeb in the USA. The globally unique combination of venture capital and entrepreneurship on the US West Coast has become the pacesetter for the commercial space industry. US government agencies have supported the trend through massive investments and as anchor clients for the new systems and services.
A continuous finance chain with fast and risk-taking decision culture still does not yet exist in continental Europe as it does in the US. Whilst venture capital companies are highly committed in the USA, little of this commitment is noticed in Europe. The big difference has been the venture capitalists in the US, the Silicon Valley types of high net-worth individuals, who will set up a space company basically overnight. So as a startup, to go big you had to have production facilities in the US. Also, if government space agencies allowed companies to focus on building the hardware – the rockets and satellites – and developing space travel opportunities, even asteroid mining, then we would see more money go into the core science.
Making money on launching something into space is still very risky. According to Bank of America research, one of the main problems is the unsuccessful launch of the rockets. Since the first years of the 21st century, it has become safer. Only 0.79% of the launches with people have been unsuccessful over the past 20 years. With 79% of failures in 1957, space companies came at about 5% in 2016.
Due to the SpaceTec Partners research, today the space-focused market drivers are primarily proactive in the following fields:
- global data networks, broadband coverage, and the Internet of Things
- geo-information services for applications in the private sector, e.g. in the insurance sector or in the oil and gas industry
- Big Data applications which capture data with the assistance of satellites
- autonomous systems which are based on satellite navigation
- communication for the purposes of steering and control
- cheaper in maintaining rocket launch systems for mini-, micro- and nano-satellites
We already greatly benefit from satellites where we interact with them 36x per day in today’s tech-driven society from video/voice calls, in-flight WiFi, driverless cars in the future, and weather monitoring. To put this into perspective, SatNav or GPS contributes up to US$75bn to the US economy every year.
Frost & Sullivan’s 2018 first quarter update of the ‘Small Satellite Launch Services Market’ estimates that over 11,000 small satellites will be launched by 2030. The central value proposition offered by these commercial players to end-users is real-time imagery and seamless global connectivity. This is a real game changer for commercial entities when it comes to making well-informed business decisions about global assets.
21st century space business models: channels, segments, value propositions
According to a report released by Deloitte in 2018, the aerospace sector has been underperforming as a result of its struggle to adapt to the evolving market. Many A&D companies are choosing to “stay the course” as opposed to exploring new business models and potentially exposing themselves to new revenue streams and areas of innovation, according to the report, but changing circumstances in the industry are pushing many companies toward new business models.
Erich Fischer believes that the democratization of technology, digitalization, globalization, the atomization of security threats, among other factors, are disrupting many A&D markets in ways not seen for years. This stagnation in business practice makes disruption in how business is executed just as important as technological disruption. Fischer points to additive manufacturing, or 3D printing, as an example in which technological disruption needs to be met with new thinking as well.
“Those approaching it as just a technology miss the point as advanced manufacturing has the potential to completely upend the cost structure of the supply chain, who has strategic power across the supply chain, how engineering is done, and so forth,” Fischer said. “If you don’t consider the business model aspects of disruption from something like advanced manufacturing, you’ve missed the point.”
Sharing goods and services became the main idea of some business. The idea of the sharing economy in space is essentially what launch business is built upon, and is similar to other industry disruptors such as Airbnb and Uber. Space becoming more accessible through new rocket launch approach called “uberisation” (e.g. FireFly Aerospace), through the cheap data that is broadcasted down from satellites (e.g. Planet Labs) or low-cost ground station solutions for the small satellite segment (e.g. KSA). Making the data more accessible enables governments, researchers, NGOs and even students to run analysis and make new discoveries, it even made available for same-day online via GUI and API. This technology has completely disrupted traditional markets based on the idea of the sharing economy.
Startup companies around the world have focused on a number of narrow business models. The most profitable are:
- geoinformation, data and services
- SmallSat systems
- IoT, media, and internet for all
- components and subsystems for smallsats
- satellite servicing
- debris mitigation and removal
A company can, of course, choose to engage in multiple businesses with different business models. In the A&D industry, however, it is often difficult for a company to execute two or more distinct business models or operating models well. More often, the company’s core business model exerts a “pull” on those of the subsidiary businesses, so that the model employed by the main business, or inconsiderably different variants of it, are applied to markets across the board.
Most space A&D companies adopt one of the six business models depicted in figure 1, with some variations.
Startups could provide one avenue for new business models to enter and disrupt the market, but Fischer recommends that companies focus on technologies that allow them to break the constraints that have traditionally shaped strategies and business models. Digital manufacturing, for example, in which the minimum efficient scale is now one unit for certain things, is allowing companies to fundamentally break the constraints of historical business models.
In general, founders of the NewSpace companies come from the IT industry (like Elon Musk) and mainly from the USA. They using their failure experience and financial funds generated from their previous projects. Such people are changing the way we think about space and forcing us to accept that fact that the private space sector is essential and profitable. Their approach is defined by today’s services, hiring the best people from around the world, aiming at big goals, and fast adaptation to market demands.
Entrepreneurs traditionally introduce innovations or exploit new market niches. They strive to offer greater value to customers than their rivals, either by providing better products or value for the money. There are two important aspects to consider. One is the activities of the firm and how they add value to the final product or service, also known as the value chain view. The second aspect is the satisfaction of customer needs or needs-based positioning. Below is a list of new space companies and ways they create unique value for customers:
- Novelty: Virgin Galactic provides a way for the public to access space for tourism purposes.
- Performance: Planet offers EO data with much shorter re-visit times than
government-based satellite constellations.
- Customization: Made In Space offers the ISS a way for the ISS to produce the required tools at any time.
- Getting the job done: Astrome plans to offer internet from space in rural areas,
enabling people to connect and work from anywhere.
- Design: Space Worldwide offers creative branding and marketing for aerospace companies.
- Status: Elysium Space delivers funeral ashes into space or potentially to the Moon to remember a departed loved one.
- Price: Open Cosmos brings down the total price of a CubeSat mission by one order of magnitude.
- Cost reduction: SpaceX’s Dragon capsule successfully reduced the costs for NASA to access the ISS.
- Flexibility: NovaWurks proposes a modular platform for creating spacecraft built around the payload that can be built up in a flexible manner.
- Convenience and usability: Nanoracks provides easy-to-use platforms to integrate payloads in space.
Once a business idea starts developing, the business model definition is essential to assess and enhance the feasibility and solidity of the project. Aerospace startups are facing higher test costs, and greater risks than traditional industries, which is why the first important task of aerospace startups is smart surviving.
Robert H. Goddard, Wernher von Braun, Konstantin E. Tsiolkovsky generated many original ideas during the space race of the last century. Is it too far a stretch to think that the second space race is propelled by a new generation of entrepreneurs, including Bezos, Branson, Diamandis and Musk? If this is the situation, then we would hope that the main enabling factor in the pursuit of space endeavours is not the possession of wealth, but that vision, ingenuity and a wish for the betterment of humanity are the main driving forces. Space is still a hotbed for disruptive technologies that stretch the boundaries of human engineering.