Rapidly decreasing launch costs and new satellite fleets are opening up huge opportunities for many companies in many countries. With interesting prospects, but also many risks.
by Matthew Weinzierl and Prithwiraj (Raj) Choudhoury
In the early 2000s, as the US shuttle-based space program was scaled back, US government policy has abandoned the traditional model which attributed all financial resources and all decisions to NASA and the Department of Defense.
Instead, the government has allowed private companies to compete for public contracts. The Commercial Orbital Transportation Service program (commonly called COTS) and the following ones have, for example, awarded private companies fixed-price contracts, instead of the guaranteed-margin contracts that were historically used in the space sector, for the refueling of the International Space Station.
That novelty favored the growth of companies specializing in the launch of space missiles such as Blue Origin, Sierra Space and SpaceX, which have exploited advances in microelectronics and computing in recent decades to lower the cost of launching satellites (the most common payload) by making them smaller, lighter and more powerful. Today, launching a satellite with SpaceX's Falcon Heavy launcher costs less than the 8% did until 2000, before private companies were invited to compete. And forecasts for SpaceX's next vehicle, Starship, are well under $10 million. We're talking a cargo capacity of 150 metric tons, which could bring costs per kilogram down to less than $100.
At the same time, the The proliferation of smartphones and other devices connected to satellites has significantly increased the demand for the latter. Jeff Bezos (who founded Blue Origin) and Elon Musk (who founded SpaceX) have built their personal wealth on the new industries created by technological advances and now provide abundant and patient funding capital to their space start-ups.
But millionaires don't have this business to themselves. Venture capital firms have also stepped in, with total investments that, according to specialist consultancy firm Bryce-Tech, have increased from less than a billion dollars in the early 2000s to more than 15 billion dollars in 2021. Those capital has helped finance more than 100 start-ups that are developing smaller rockets that can provide tailored launch services – for example, placing satellites in predetermined orbital positions and making space accessible to customers whose specific needs are not suitable to the "rideshare" model that characterizes larger rockets. (In that model, many satellites split the cost of launch and are released together; then fly to their respective destinations separately.) Hundreds of young satellite companies are riding this wave of access to lower cost space, each of which has innovative technologies in the pipeline that take advantage of the extraordinary opportunities and unique environment offered by space.
The result is that space is becoming an important source of value for companies in various sectors – including agriculture, pharmaceuticals, tourism and consumer goods. Companies like Apple, Amazon Web Services, General Motors, John Deere, Merck and many others are already moving in this direction. And Microsoft, which in 2020 launched Azure Space, a platform that combines "the possibilities of space with the benefits of the cloud," said all of its customers could benefit from the new platform.
What are the opportunities that lie ahead for your company? To answer this question, consider the four areas where the use of space could create value: data, capabilities, resources and markets. For most companies as they are fine-tuning their space strategy for the next five to ten years – whether as service providers or customers – data will dominate. But those looking further ahead will also want to understand what the value generated by the other three areas could be.
Exploiting the opportunity presented by a new technological market has always required aspiring suppliers to be very timely – they must be able to assemble the skills, resources and capabilities necessary to create completely new products and services as soon as possible. Does the same also apply to space? To answer this question, it is worth revisiting the history of the first wave of commercial initiatives activated in space.
In the fall of 1998, Iridium, a provider of global telephone service to consumers and businesses, announced the launch of its commercial service. In the previous decade, Iridium had developed and put into orbit a constellation of 75 satellites (66 for operations and nine for backup) at a cost of more than five billion dollars. It was a brilliant accomplishment. No one before had ever put together such a vast network of orbiting satellites. And Iridium's satellites had capabilities that the others didn't - they talked to each other as they circled the world at 17,000 miles per hour.
At the launch of the project, however, there were some problems with the technology, particularly with the ability to make and receive calls in large cities and indoors. Most importantly, the expected market has not materialized. After five months, there were only 10,000 subscribers. In the midst of a liquidity crisis, and with too few customers to cover operating costs, less than ten months after its market debut, Iridium filed for composition with creditors.
Compare this approach with that of Lynk, an entrepreneurial company with a similar goal: to provide global cellular coverage using the customer's existing equipment. Though his plans ultimately required hundreds of satellites, Lynk initially conducted a variety of experiments. Each of them gave her more information about the feasibility, desirability and economic viability of the entire project – and more information with which to plan her next experiment. In 2020, Lynk investigated whether cell phones could receive a text message from a single satellite in orbit and thus confirm the technical feasibility of the system. Then, in 2022, with its fifth satellite, it experimented with two-way connection and terrestrial equipment positioned in five locations around the world. During that experiment, the company received pings of service requests from thousands of devices that were out of range of traditional antennas, giving it an important indication of potential demand. No one can know for sure whether Lynk will succeed in an increasingly crowded market, but its philosophy of progressive experimentation allows maximum flexibility to learn and adapt.
A approach flexible is starting to become predominant. In the early days of the space industry, government actors launched multibillion-dollar projects that incorporated sophisticated risk management processes; failure was to be avoided at virtually all costs. Today, SpaceX and other startups have adopted the rapid failure approach that is now common to all high tech. As one executive told a group of MBA students who had witnessed a failed test of the Starship spacecraft's operating systems, “Think of all they learned from that test. Had they tried to eliminate that risk, it would have taken many more years and many more millions." As we prepare to enter the new space age, the message is clear: companies that will go into space cannot avoid risk. They have to accept it and let it guide their learning.
It took nearly a century for the automobile to gain dominance in transportation, and in that century, automotive technology underwent many changes. The first automobiles were little more than refined electric go-karts and, despite the development of lead-acid batteries, were limited in range and speed. Only with the advent of the internal combustion engine did the potential of cars appear in all its evidence. The space industry will evolve in similar ways – uneven progress and unexpected technological breakthroughs.
Like all sectors, the space business will also have its ups and downs. In the near term, as economies grapple with the threat of recession, the commitment of VC firms and other funds will certainly ease. There is already talk of a space bubble about to deflate. The space industry will certainly go through periods of consolidation and repositioning as weaker players exit or are acquired by competitors. But, once a critical point is reached, private involvement can generate progress in a very short time, because entrepreneurs will solve the still unsolved problems. It is true that some results will only come over decades or even centuries. But right now the still growing $300 billion satellite industry is set to revolutionize a whole range of industries through data and connectivity, leveraging solutions and economies of scale enabled by declining launch costs and advances intervened in technology. With the immense opportunities available to us today, it's time to start imagining a space strategy for your company.
Matthew Weinzierl is Professor of Business Administration at Harvard Business School, where Prithwiraj (Raj) Choudhoury is Associate Professor. The full version of this article was published on Harvard Business Review Italia of December 2022.
