Last summer, for the first time in human history, the opportunity to privately achieve our furthest-reaching imaginations became possible as the U.S. government fully embraced the concept of commercial space development. For most of humankind’s existence, the ability to travel to the stars was limited by our technology, not our dreams. After the USSR launched Sputnik, the world realized our technical ability had the potential to take us beyond our planet, but this event also catapulted the emerging Cold War to new heights as space became the ultimate battlefield. In the 1960s, the “Space Race” was defined as a mission to the moon and back. We won that race, which was the greatest achievement in this country during my lifetime. In the 1980s, the concept of Star Wars went from Hollywood to Washington as the government openly debated what a space-based battlefield could look like. Currently, the threat of cyber warfare is real and increasingly jeopardizes our information-based economy.
With space being the domain of military and government activities, there was little oxygen in the air for private commercial activities. NASA played a critical role in shuttling experiments back and forth to the Space Station, and communication satellites were launched by the large defense contractors who knew how to play Washington’s game. Yet this industry failed to fulfill the potential of what is possible; however, in July 2011, the Space Shuttle landed for the last time, and there is renewed imagination of what can be.
Much has been written about the advent of Space Race 2.0 or what has come to be known as New Space, and there is renewed excitement about going “to infinity and beyond,” but there remain significant regulatory, technical and financial hurdles to realizing these dreams. The retirement of the shuttle by the Obama administration was not universally accepted—could future administrations change this policy? Even if this policy is not altered, the FAA and other foreign government agencies have yet to agree on all of the regulatory issues required to make this future possible. The cost of flying the shuttle made it very difficult to create business models that made financial sense; new technology that applies reusable vehicles that don’t require reassembly with each re-entry is needed to lower the cost of space exploration. New propulsion systems that lower the cost of sending a person or a payload into orbit are necessary to create the Moore’s Law of Space, but it may surprise some to learn that the greatest need for this industry to take off is not technical or regulatory—it is financial.
The phrase “I am not a rocket scientist” connotes a level of deep technical expertise not shared by the general public, but is that what is most needed to advance this industry? One of the historical arguments for continued investment in NASA has been the technical innovations that have come out of our space program—from the microprocessor, to solar power, to GPS, to Tang. These innovations have created the technical foundation for the companies that have driven our economy for the last 40 years; however, do we primarily need new technology for the private commercial space industry? To capitalize on this opportunity, I firmly believe what is mainly needed is not new technology; it is new capital and new business models to make use of this capital. Technical innovation will always play a significant role in this industry, but after 50 years of funding NASA, there are significant technologies that exist and are just waiting to be commercialized wherever there is a market to be served.
In short, the primary innovation needed for this industry not only to take off but to leave orbit is a shift in thinking: from serving missions to serving markets, from completing programs to creating profits. Although this may sound intuitive, it is a 180-degree shift in thinking to most people who are in the space industry. A cursory review of NASA will highlight the various programs this agency has overseen, from Mercury to Apollo, from the Space Shuttle to the current Commercial Crew program, and within each program are a series of well-defined missions. The most audacious program was the Apollo program (1961-1972), and the success of the Apollo 11 mission to put a man on the moon continues to inspire 40 years later. Yet what market was served by this? At the cost of more than $200 billion for the entire program, what profits were realized? Of course, the government is not in the business of making a profit, but for the privately funded commercial space industry to move forward, this shift of emphasis is sine qua non of all New Space business plans.
Earlier this year, the FAA together with Space Florida conducted a market study of opportunities for suborbital reusable vehicles and identified five existing markets, including:
- · Commercial Human Spaceflight
- · Basic and Applied Research
- · Technology Demonstration
- · Media and Public Relations
- · Education and Satellite Deployment
This study forecasts a total of between 2,378 and 4,518 commercial suborbital flights over the next 10 years; with current costs ranging between $100,000 and $200,000, this equates to a market size of $2 billion to $9 billion. Many believe this study is extremely conservative and misses the exponential growth curve of new industries. Others believe the largest market is point to point suborbital transportation, which could be a $100 billion market when the technology develops in the next couple of decades. The Brookings Institute supported by McKinsey & Company studied the existing Colorado space industry, including space system manufacturing and operations, satellite-based services and their supply chain, and determined this market encompasses $15 billion and employs more than 50,000 people. Although this market is primarily composed of traditional space activities, the private-sector work makes up the strongest growth potential, and with the looming possibility of reduced federal spending, this is a trend that looks to continue. Earlier this year, the Investor’s Business Daily ran a story suggesting that the first trillionaires will make their fortune in space. Yogi Berra once said, “Predicting is difficult, especially when it involves the future;” but it is clear that a significant need for this emerging industry is good market intelligence and appropriate strategies to capture these markets.
So who will be the risk-takers who capitalize on this trillion-dollar opportunity? Again, the future will determine the winners and losers, but I predict it will not be the large defense contractors who currently receive significant NASA and Department of Defense spending. This may seem counterintuitive as these large companies have a workforce in place to best solve the technical challenges, but as I have stated, I believe engineering hurdles are not the prime limiting factor. Also, these companies have established very sophisticated protocols to avoid risk and are used to accepting small profit margins to do so. This system has worked very well for NASA and our federal government, but the exact opposite is required for the private commercial space market. What is required are companies and investors willing to embrace risk for the commensurate returns the market forecasts.
Space has long been the domain of dreamers and visionaries, from Star Trek nerds to our most brilliant minds, from ancient astronomers, to Galileo, to Einstein, to Stephen Hawking; humankind has consistently looked to the heavens with questions resulting in technical answers that are nothing short of amazing. I still don’t understand E=mc2, but a mind that can reduce the equations of the universe to such simplicity is the epitome of the word genius. But again, such higher-level thinking is not the main requirement for us to commercialize the final frontier. What is needed is smart investment based upon fundamental business principles. So the trillion-dollar question would be, is anyone making these investments in private commercial space, and if so, what are their business models?
The short answer to the above question is yes. Internet billionaires who made their fortune in the tech sector (where innovations have driven our economy since the invention of the microprocessor by the space industry) are the early adaptors to commercial space. Paul Allan, a co-founder of Microsoft, spent $30 million to win the $10 million Ansari X prize back in 2004 and last year announced a new venture—Stratolaunch, which promises to significantly reduce the cost of launching satellites. Before you question the wisdom of investing $30 million to make $10 million, upon winning the X prize, he was met by Richard Branson of the Virgin Companies, who licensed his technology for $50 million and started Virgin Galactic. Virgin Galactic is primarily known for pioneering the concept of space tourism, where wealthy individuals spend $200 thousand for a ride to suborbital space. However, the larger vision behind the company is to become a worldwide transportation company utilizing suborbital flight. Jeff Bezos of Amazon fame is the resource behind Blue Origin, a quiet company developing a vertical takeoff vehicle that is targeting the research and educational market, among other things. The most successful commercial space company to date may be SpaceX, the brainchild of Elon Musk, the 40-year-old co-founder of PayPal. Earlier this year, SpaceX made history by becoming the first private company to launch a craft that docked with the International Space Station, an accomplishment that had only been completed by a select number of nation-states. When this event occurred, it was the highest tweeted activity for the day on Twitter; when was the last time this industry had captured the imagination of the younger generation, which has anointed Musk as the real-world embodiment of Tony Stark of Ironman fame?
The IT industry is comfortable with the concept of risk, and not all of these companies will be successful, but by combining proven business models with identified markets, and adding supportive regulations to patient capital, you have a winning formula. To be sure, each of the examples above and others not mentioned also have advanced technology, but the technical innovations are not what gives promise to the enormous potential of this industry. As soon as some of these New Space companies show acceptable returns on the risk capital that has been invested, larger forms of investment from traditional sources will pour into this new market looking for a technical advantage to gain a foothold. The innovations that follow will rival our greatest science fiction novels.
PADT is a mechanical engineering company that specializes in numerical simulation, product development and additive manufacturing; we have been fortunate enough to have many clients that use our tools and services, both in the traditional aerospace industry and some in the New Space world. The tagline for our company is “We make Innovation Work”; we are proud of our ability to work with great technical ideas and to help optimize them. Our desire is to help elevate the importance of great technology in all facets of the design process; we are firmly entrenched in the technical community in Arizona and are expanding our influence throughout the Southwest and Rocky Mountain area. We continue to be involved in Colorado’s initiative to become a spaceport state, and we are working with multiple companies in this private commercial space industry. Though we would like to think that disruptive technology is the most important element required to reach the stars, our experience tells us this is not the case. Innovation for innovation’s sake may produce the “flux capacitor,” but without identified markets; solid business fundamentals; and most importantly, risk capital, the best ideas will not take off.