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Space is at the verge of going completely private

Man has always been obsessed with exploration and since the days of Magellan and Christopher Columbus, the excitement of finding something new and the possibility of finding unknown wealth has driven humans to achieve feats that have been considered impossible.

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Space was always the final frontier. In the late 1950’s, thanks to the cold war which brought fear and ego in equal measures, both United States as well as USSR launched into the space race. Starting with Sputnik, the race just got more and more heated up as time went on.

In 1957 Sputnik became the first satellite to the put in space and in 1958 NASA was created.

Since the money needed to go space faring was high, with little in terms of returns to show for it, Space remained the domain of governments. They spent money and put satellites in space mostly for the purposes of spying and national security. National security also meant being able to communicate with troops in war fronts and that is how the first communication satellites found their way into space.

The US had lost the race to put the first satellite and the first man in space and the next stop was the moon. Hence, the race to the moon had a lot of ego riding on it and both countries threw all of their resources into the program. The head of the USSR space program died and US with the help of an ex-Nazi rocket designer Wernher Von Braun, managed to put man on moon.

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Monetising Space

The first communication satellites also doubled up as a means of transmitting television and radio broadcasts across the world. Since the government owned them, television companies were required to purchase bandwidth on the satellite to transmit. The first trans-atlantic transmission happened in 1962 through the Telstar satellite. Through the 60’s, certain special programs would be transmitted through satellite but was not meant for general transmission. It was not until 1972 that HBO started transmitting signals through satellites to homes and the first pay cable network was born.

With this, it became possible to monetize a satellite. As we progressed into the 80’s many business applications began to emerge for satellites and space was no longer only the domain of government agencies. In fact, a large portion of activity in space was business related. Till then all of the space launches were carried out by governmental agencies.

In 1980, the European Space Agency created Arianespace as a the first private organisation to launch satellites into space. On October 30, 1984, United States President Ronald Reagan signed into law the Commercial Space Launch Act. This enabled an American industry of private operators of expendable launch systems. Prior to the signing of this law, all commercial satellite launches in the United States were restricted by Federal regulation to NASA’s Space Shuttle.

On November 5, 1990, United States President George H. W. Bush signed into law the Launch Services Purchase Act. The Act, in a complete reversal of the earlier Space Shuttle monopoly, ordered NASA to purchase launch services for its primary payloads from commercial providers whenever such services are required in the course of its activities.

In the aftermath of these legislations, many companies jumped into the space business. Many of them wanted to try their hands out at space tourism, but costs remained prohibitive.

There were companies like Boeing and Lockheed Martin who were supplying to NASA and were undertaking contractual work on their behalf. Many large aeronautical players established their credentials as suppliers to the likes of NASA and ESA. They would mainly supply parts for the launch vehicle or the payload that would travel on the launch vehicle. For example, the Canadarm was built by a private company to perform the function of payload movement on the space shuttle as well as the space station.

The launch vehicle business was harder to understand and monetise. Also the number of customers required to make one launch viable meant that the launches would be 3 to 5 years apart.

 

The Issues with launch business

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I can write an entire book on the technical challenges but we shall keep it to the business of it.

Launch vehicles were always designed to make a one way trip to space. A large part of any launch vehicle is fuel and once the fuel is spent, bringing the rocket back is difficult. In order to make a re-entry into the atmosphere, the launch vehicle needs to carry extra fuel and also at the same time, it needs to be shielded from the heat that is generated during re-entry.

The cash rich government agencies took the easy route and just abandoned the entire craft after launch, making it incredibly expensive to launch.

This is the equivalent of going on a drive in a car and then abandoning the car because bringing it back and parking it is hard.

The Space Shuttle Program mitigated the cost of launch to a certain extent by bringing the shuttle back but the cost of maintenance was nevertheless high. The Space Shuttle Program was plagued with issues of its own. The Challenger and later the Columbia accidents put a nail in the coffin of the STS program.

Several private companies were always making grand announcement about building space vehicles and making plans to go to other planets. None of them really did.

 

Moving towards privatisation

In 2006, NASA initiated a program to purchase commercial rides to carry cargo to the International Space Station, while funding a portion of the development of new technology through a public-private partnership, initially with US$500 million of contracted development funds.

Once the Space Shuttle Program was shut down, the missions that needed to be sent to the ISS were increasingly being undertaken by the Russians.

SpaceX took advantage of this situation and started approaching NASA as well as other government agencies to carry their payload into space using their Falcon rockets. The price that SpaceX was quoting was a tenth of any other industry player because – reusable launch vehicles.

SpaceX Rocket

Since the entire launch business had been government fiefdom, they had not thought about cost efficiencies. Also, many of these contracts are awarded through a great deal of lobbying and companies like United Launch Alliance, (a joint venture between Lockheed Martin and Boeing) took the contract. Since they had been engaged with the government for long and did not need to compete, they never focused on building more efficient systems.

Why would you make a 10% margin on a $50 Million launch, if you could make 10% on a $500 Million dollar launch?

SpaceX entered the space business because Elon Musk genuinely wanted to build a settlement on Mars. He needed to get the government contracts in order to be able to finance this dream in the meantime.  It took SpaceX a great deal of press and legal battles to break the strong hold that the ULA lobby had built up at the United State Air Force (USAF).

While that was happening, the Shuttle-less NASA began to warm up to SpaceX because the cost advantage was huge! Also, since America was busy imposing sanctions on Russia over the Crimea issue, depending on the Russians to keep the ISS alive was not the most exciting idea.

SpaceX won NASA contracts to transport cargo to the ISS and if all goes well, their Dragon capsule would carry crew as well to the international space station.

The eventual settlement of the lawsuit between SpaceX and the USAF, meant SpaceX was free to bid for the Air Force contracts as well.

Dragon Capsule

Last week, NASA announced they would plan to privatise the ISS.

NASA is slowly getting out of the launch business and outsourcing most of its requirements to other companies already. Since the decommissioning of the Space Shuttle Program almost all of the cargo and crew missions to the ISS have been handled by private players. The only missions they continue to fly are long haul (outer planets of the solar system) and highly experimental missions to asteroids, etc.

Also, NASA made all of its research results from over the years public.

I am not an expert, but when you put all of these things together it feels a bit like NASA no longer wants to be the biggest player in the space business. I think the organisation will slowly move towards a more regulatory role for space rather than being an active player as far as space and space research is concerned. Just like the Federal Bank regulates all banks.

 

Big Boy, Big Money; What can startups do?

When the first airports were built, or even airliners established, they were often established by governments. They were pride projects that would not even breakeven leave alone produce a profit. It was an investment in the future and it was a project meant to show the ability of the country to have an airport or to have a flag carrier. Eventually, as scales grew, social acceptance increased, private players made their way into these businesses. Today many of the airports in the world are privately owned and so are some of the largest airliners.

We are at the precipice of change. Space is going to become a huge business and a private business. Spaceports, launch vehicles, satellites and capsules, lots of money to be made.

Most of the news that you get to read today chases the SpaceX’s and the ULA’s of the world and for good reason. These companies have been pioneers and have created a business model, where none was thought feasible. When Virgin Galactic was launched in 2004, it was considered an expensive hobby being pursued by a rich man. That is not the way a space business is being seen today.

In fact, there is visible competition beginning to brew and thought is being extended towards making the journey cheaper and efficient. ULA just proposed an alternate approach to bringing cost down as opposed to SpaceX. It reminds me of the philosophical difference between the design of the Boeing 787 and the Airbus A380.

But that is just the tip of the iceberg.

The Falcon 9 is the SpaceX workhorse. It measures about 230 feet in height and has a payload capacity of 22,800 Kgs to the Low Earth Orbit (LEO). What if you just want to fly a 50 Kg nanosatellite, which will help you provide traffic surveillance or help improve disaster response or create a corporate communication network? What if you want to setup your super awesome Waze competitor, with real-time space based traffic surveillance?

You have to wait and buy space from SpaceX or ISRO or Arianespace, or one of the other launch companies. The associated issue is also that since these launch vehicles are large they don’t fly often, so it would be normal for you to be left waiting for months, if not years to put that small payload in space.

The frequency of launches for larger launch vehicles is low because of the cost as well as the number of clients required for the payload to be filled out. Its like having to find enough passengers to fill out an entire ship.

Opportunities

The need of the hour is small rockets which are of the order of 40 feet, which can carry smaller payloads into orbit and can be turned around in much shorter periods of time. This is where startups come in. This is the equivalent of small companies focusing on the 16MB USB drives when the Seagate’s of the world were busy making larger hard disks.

The business of space is more of a chicken and egg story.

The number of applications for which satellites are being used today are low because the cost of getting up to space is high. The cost of getting up to space is high because the number of organisations committing to put satellites in space is low.

Many companies like Vector Space, Rocket Labs and Vulcan Aerospace are committing their resources to developing such launch vehicles.

There are two sides to the business, one being the launch vehicle itself, while the other is the design and development of micro/nano-satellites. There is ample potential for startups to explore both sides of the business and to develop solutions.

In the long run, the launch business would be much more valuable than the satellite development business. There will be fewer companies that will be in the launch business than the satellite business and the value of each launch would be orders of magnitude greater than the cost of a satellite. An analogy would be to look at this like the car companies vs tyre manufacturers.

The components of space business is being defined today. There are going to be many components to this business and how each of the components would work, is ripe for definition. Startups that get into this space now will have the opportunity to define these components and pioneer many of them. If you have the passion, jump in!

 

Space is at the precipice of going prime-time. There are billions, perhaps trillions, to be made over the next 20 years. This is the time to start.

Vivek Srinivasan

Vivek is a startup mentor who has been working with startups for the past 10 years. He is the founder of Startups Club and engages with startups across the country and overseas.