The Business Of Space

Since the beginning, space has always been exclusive to public organisations. The model for space exploration from its inception was based on direct involvement of government, through the military and in most cases including India through specifically created space agencies. This could be attributed to two reasons- the first being that that the costs of exploring space were beyond the possibilities of any private organization and the second being that the technology required for those early space missions were directly derived from military technologies and were mostly mastered by the armed forces hence private parties could not have access to it.

Soon the administration of different countries understood that the cost incurred by space exploration is not feasible. If they do not spend a lot they could lose out on the so called ‘space race’, to curb this they started handing out contracts to private players for the construction of hardware (launchers, spacecraft, ground equipment, etc.) at their specifications, with an autonomy mostly limited to strictly technical choices, and under strict control. This model which was pioneered by the United States of America and USSR, was soon used by every country who was involved in space exploration.

Slowly a new model started emerging, which gave private players a bite of some activities that included telecommunication satellites, meteorological and earth resource satellites, while prohibiting them from exploration. This led to the total budget of the private companies in space becoming far greater than the total budget of space governmental agencies.

Fast forward to the 21st century, the share of private investments in space has grown ten-folds and has also given handsome top line growth to the firms. According to Morgan Stanley, the global space industry is expected to generate revenue of $1.1 trillion or more in 2040, up from the current $350 billion.

With Space X being the first private company to successfully carry two NASA astronauts to the International Space Station coupled with the advances in reusable rockets, lowered per-launch costs and miniaturization of satellites, the opportunities in this space are going to soar well beyond just aerospace and defence.

Here are some businesses that could potentially arise from this growth and the economics behind it-

Manufacturing Of Space Satellites/Shuttles

The influence of private players in this space is already at a high level but with more companies wanting to send their own satellites and shuttles to space this field will continue to grow at a tremendous rate. According to Morgan Stanley, satellite mass production could decrease the cost from $500 million per satellite to just $500,000.

Space X has been the leader in the space with a lofty valuation of $36 billion. According to Forbes, Space X on an average makes $80 million per launch, with 15 expected launches this year. This could bring about close to $1.2 billion in revenue in 2020. The USP of the company lies in the success in reusing and relaunching many rocket components – a first for any private or government operator. It has made it its long-term goal of building fully reusable rocket systems that can be used to reach other planets a very real possibility in the not too distant future.

While Space X dominates close to 70% of the market share thanks to the cash flows of its parent company Tesla and Elon Musk’s love and obsession with space. There are other established companies who are leveraging technology to make cheaper and more efficient satellites. The established companies like Boeing, Northrop Gromman and Arianespace make most of their revenues from government contracts. Boeing has signed a contract with NASA to build numerous satellites, as well as being responsible for managing the International Space Station. Northrop Grumman is working on building NASA’s James Webb Space Telescope. The company is also involved in the development of the Chandra Space Telescope and the Dawn asteroid explorer, as well as taking part in programs intended to develop technology for observing Earth from space.

While the big companies dominate the government contracts which is a huge source of revenue, there are numerous start-ups who have come into this space which are catering to telecommunication companies and also to other MNCs. Companies like Terran Orbital have designed nano satellites which has enabled them to create a data infrastructure in space. In India, start-ups like Pixxel, who have already entered into tie-ups with a few private organisations like Skymet and Maxar to use data based on user fees. Advantage of such refrigerator sized micro satellites are that they can monitor the earth with focussed precision and costs at only one-tenth of multi-purpose big satellites that are launched by government agencies.

The companies in this space have to be capital intensive and have to spend a huge amount of their revenue back into Research & Development. The revenue model will be a contract based which does provide a sense of stability for these companies.

Space Tourism

Space tourism has been a broken record, with many companies offering everything from trips to the Moon to a new home on Mars. But after multiple broken promises, things might be about to change for the better.

We all know about the fondness, space has with two of the richest people in the world i.e. Elon Musk and Jeff Bezos. This fondness is leading to new barriers being broken. Musk is running SpaceX with the goal of colonizing Mars and making humanity a multi-planetary species. Bezos, with all of the might of Amazon behind him, is doing it with Blue Origin. Bezos sees space tourism very differently, a space-based civilization rather than colonizing planets, building space stations, and moving heavy industry off-planet, and he is slowly building the pieces for it.

The model of Space tourism lies on perception. This business is a really complicated and to a certain extent dangerous, and the general public’s risk appetite is very low. The general population is still not trenchant about self-driving vehicles because of some of the accidents caused! Space Tourism will take YEARS. So, is Space tourism a viable business model?

Well thanks to new innovations like the Skylon Spaceplane, a single-stage-to-orbit plane that goes to space directly, the cost of sending people to space will decrease drastically. Even if the overhead costs are decreased the only way this model works just like the Airplanes model is if they are capable of sustaining thousands of flights per year and attracting people at the correct price point. Virgin Galatic has been able to achieve this recently when more than 700 people buying tickets on Virgin Galactic at a cost between $200,000 and $250,000. These 700 people would be divided into flights of six passengers, who will experience several minutes of weightlessness and be afforded incredible views of Earth as the space plane hops into space, before returning to a runway landing.

Space tourism is still a nascent sector but with the richest man in the world backing it, you can expect the dream of people travelling to space for recreation to become true soon.

Internet Access And Data Collection

Different companies have already sent a constellation of highly advanced satellites to seamlessly integrate with terrestrial networks they already have. This global network will deliver fibre quality throughput anywhere on Earth. Recently, Space X also launched a rocket that released 60,500-pound satellites into orbit which is part of the Starlink, a web of satellites supporting a global internet service. Amazon is also not behind with plans to launch 3,236 satellites into orbit with the stated intention of providing “low-latency, high-speed broadband connectivity to unserved and underserved communities around the world. With all the conglomerates, promising internet connectivity to all parts of the world more satellites will be launched and the business will thrive.

Data is everywhere these days. They are new start-ups whose core business is to processing the data that comes out of the satellites. These companies focus on capturing geospatial, tracking shipping movements, deforestation or the location of mining deposits. One of the more interesting and controversial model is taking pictures of parking lots at Wal-Mart and Target and selling that to hedge funds, since traffic is a pretty good leading indicator of economic activity.

With the demand for data only promises to increase with the proliferation of AI, development of self-driving vehicles, virtual reality and video we can expect this field to be a cash cow with every type of industry wanting the data from these satellites.

For now, investors are taking a relatively rosy view of the prospect of making money in space. In the last quarter of 2019, $3.1 billion in equity was invested into space companies nearly the double the amount invested in the last quarter of 2018, according to Space Angels. The total funding since 2009 exceeds $20 billion invested in 435 companies. This field is still nascent but there is a lot of optimism with the leading innovators of the world like Bezos, Elon Musk and Richard Branson increasingly turning their attention in the last two decades to space.

With all this optimism, we still need to be cautious about this business as it still faces steep capital costs and high risks.

We should end with this discussion with a quote from Jeff Bezos which highlights the possible opportunities space can provide-

“When it comes to space, I see it as my job, I’m building infrastructure the hard way. I’m using my resources to put in place heavy lifting infrastructure so the next generation of people can have a dynamic, entrepreneurial explosion into space.”

This article was in collaboration with The Financial Pandora.

Written By – Utkarsh Singh

The Financial Pandora is a collaborative content platform with its niche in Business, Finance and Allied areas.