Boys Like Rockets (and we have too many)
By Rick Tumlinson
Boys like rockets. For all the Freudian, gender, sexual innuendo-based, snicker-inducing reasons I could cite. Icons of “space as a frontier”, building and flying rockets is the prime obsession of many male engineers and entrepreneurs – and because the space industry is sadly still mainly made up of boys, well, there are a lot of rockets. Too many rockets in fact (and yes, too many boys as well, but that’s a different blog post).
Based on SpaceFund research, as of January 2019, at least 116 commercial organizations from all over the world have announced plans to fly payloads to space. Of those, more than 40 have received private funding (nearly $4B in total, almost $3B of which has gone to SpaceX), and about 30 of them are currently flight testing or operational. While they are the harbingers of a revolution in space and indicate the very real possibilities of profitability and large future markets, they also represent a bias and focus in one high-profile slice of a much larger pie. As the market shakes out, many good space bucks will be wasted that could have funded other Buck Rogers.
Recent developments in satellite technology and construction (specifically the small satellite revolution) have set the stage for new ways to play on the edge of space and are helping to pace this boom in new launch providers. In the broadband internet category alone, OneWeb has said they’ll build over 800 of these small satellites (potentially scaling to a 2,000-satellite constellation), SpaceX is building a fleet of over 4,000 satellites, Boeing has proposed a constellation of 2,900 satellites, Telesat will build a fleet of 300 to 500 satellites, and many others are on the drawing board. Commercial small satellite constellations are also being proposed to provide solutions for a wide range of customers, from IoT (Internet of Things) connectivity, to remote sensing, to personal cell phone networks, to government and military applications.
These satellite companies essentially have two choices when it comes to getting into space. They can ‘rideshare’ on a launch that is carrying other payloads, or they can purchase a dedicated launch. You can think of the rideshare like taking the bus. The schedule is set, the route is fixed, there are a limited number of stops where your satellite can disembark, and you need to make sure your spacecraft plays well with others. Dedicated launches – the second option – are more akin to Uber or Lyft. You pick the time and the destination, and the mission will be tailored to your specific needs.
While massive swarms of spacecraft are currently in the planning stages, and huge constellations of satellites will need to be launched in the near future, the reality is that many of these payloads will be flown as rideshares aboard large rockets with the capability to carry dozens of small satellites at a time.
Let’s look at the big rigs (the ‘buses’ of space transportation) for a moment. In 2017, a single ISRO mission launched 104 small satellites into orbit aboard the PSLV, which flew 4 times last year. A December 2018 SpaceX Falcon 9 launch carried 64 small satellites into orbit and the Falcon 9 flew 20 times last year, with even more flights planned for 2019. Newcomer Rocket Lab had two successful launches in 2018, each carrying 10 or more satellites, and the company says it will build 50 rockets per year. Just these three rockets can provide a total small satellite launch capacity of well over 2,000 satellites per year (SpaceX could put over 1,200 small satellites into orbit each year, PSLV could do another 400, and Rocket Lab another 500). Now, not all SpaceX and PSLV launches are dedicated to small satellites (most carry large payloads, with only a few ridesharing small satellites ‘in the trunk’), and Rocket Lab will take some time to reach a cadence of 50 launches per year. However, the capacity certainly exists among today’s proven players to meet the need of the entire small satellite market. According to SpaceWorks, only 2,600 of these small satellites will require launch over the next 5 years, with less than 500 small satellites expected to launch each year during the next few years. With a current capacity of over 4x that (among existing, proven players), will there be enough customers for all these competitors to survive?
This ‘bus’ space transportation business model is already well established, with many big corporate players, government-run programs, and plenty of funding. However, most of the new launch companies that are currently developing vehicles aim to be the Uber of space transportation. They promise to place custom satellites in unique locations in a timely manner. And this is a legitimate market niche. Be it the fleet operator or energy company that wants its own eyes and tracking systems in a specific place for competitive reasons, a special scientific payload needing to gather a specific type of data in a special orbit, a military need for rapid intel, or pop-up communications capabilities due to a crisis or strategic challenge, there are real and profitable reasons to be able to go where you want, when you want. Thus, many government groups such as DARPA and others are supporting new launch capabilities, seeding the ground to see what might best serve their needs.
Many of these new ventures are also offering incredible innovations into what has been an essentially stale industry since the Cold War. Some, like Musk and Bezos, are focused on re-usability – the holy grail of low-cost access to space. Others are using additive manufacturing processes, robotic systems, and novel materials as their special sauce in an attempt to own this ‘space Uber’ market.
A notable differentiator in this sector is the type of transportation system itself. Most companies are using traditional, chemical-based rockets. Big shiny objects that ride to space on tons of highly flammable fuel. Some are balloons. Some are planes. Some are a combination of these (like a rockoon – a rocket + balloon). But not all the new players are chemically-fueled rockets. In several cases, railgun-style or electric launch systems are being developed and funded to deliver payloads to orbit at extremely high speeds. While addressing a limited market, this type of approach is an important element of opening the accessibility of space. Payloads such as hard electronic parts, solid-state devices, supplies, and fuel can be whisked into orbit using these non-chemical launchers. It is quite possible, as they become more sophisticated and are scaled up over time, that such non-traditional systems may take a significant part of the market. If they can eventually reduce the overall G-forces placed on their payloads, it may even be possible for these systems to become central pillars of access to space; but they face many technological and economic hurdles without the benefit of decades of massive government and industrial support.
Regardless of the technology type, the ‘secret sauce,’ or the market niche, a large portion of the participants in this ecosystem will never get off the ground. Over the next few years we will witness a slow-motion shake down of this industry. Darwin’s Spreadsheet will simply zero them out of the space ecosystem. They will fail for a wide range of reasons. Bad management, bad ideas, bad design, bad timing, and bad luck will take out many. Others will fail because of shifts in their customer base, by being too specific in their service offering, or they will simply be out competed for the niche in which they planned to succeed. There are too many rockets and not enough demand.
In the end, a few will rise to the top and succeed. Most of these will be well capitalized, feature systems and technologies that are reliable, low cost, and easily evolved or adapted to other uses, and be led by management teams that combine dynamic and ingenious leadership with hardnosed business savvy. Those who have reached success early have a huge head start, allowing them to capture valuable market share. Some will survive because they have strong government support and subsidies, allowing them to keep their prices low. Yet, no matter what, the ‘use it once and throw it away’ culture that now dominates rocketry is in its last chapter. In the end, some 10-20 years from now, dedicated non-re-useable launches aboard chemical fueled rockets will be a very rare thing, if they occur at all. Reusability, electric launch, and on-orbit tugboats and placement services will be the main elements of the future transport system, with old school rockets reserved for weapons of war and the odd novelty launch.
Given all the challenges presented here, many wise investment advisors are steering their clients clear of this sector. The first movers are protecting their market share, the innovators are very high risk and subject to many variables (any one of which could take them out permanently), and the possible winners are frequently self- or government-funded with seemingly bottomless pocketbooks. There is no room left in this industry for the average investor. The opportunity to invest in launch has long since passed.
Still, there is an upside for space investors here, and it is huge. Lower costs to orbit mean a move from the traditional uses of space to an almost endless range of other activities. The very competitive nature of the crowded launch field means that the price to access space is likely to continue to decline over the next few years, and as it does, many other types of space businesses will take off.
Now is the time to be looking into those customers, products, and services that will be enabled by cheap access to space. For example, the ability to fly humans to space at low cost and high reliability means we are about to enter the first phase of space industrial development; the long discussed and dreamed-of era of civilian labs, hotels, and even communities in space. The development of industrial processes and products so long constrained by the launch bottleneck will be unlocked. Business models around satellite servicing, refueling, and moving will see their addressable markets grow exponentially with the launch of thousands of new satellites.
Fuel depots, space tugs, an entire in-space supply chain, commercial research labs, microgravity manufacturing and industrial processes. These and thousands of other new business models will be not just viable, but highly valuable, as the cost of access to space continues to drop. And this is where the smart space investor is currently focused – not on the launch industry itself, but on the new business models it will enable.
The battle ahead between the rocket boys of the launch industry may take its toll, but when the smoke clears, the winners will be anyone seeking a ride to the frontier.
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The blockchain revolution seeks to open finance and governance to everyone. Its goal is to enable people to establish and manage their own financial and legal lives. The space revolution seeks to open the solar system to everyone. Its goal is to enable humanity to expand beyond the Earth.