Five to 10 years from now industry observers may well look back to January 2015 as one of the most pivotal moments in the evolution of the commercial satellite industry.
Elon Musk on Jan. 16 announced that SpaceX would undertake a massive satellite project to facilitate unfettered global access to the Internet, followed on Jan. 20 by Google confirming its participation in a $1 billion investment in SpaceX (subsequently confirmed to be $900 million with an additional $100 million coming from Fidelity Investments), effectively signaling its intent to outsource its space-based ventures to the industry’s most passionate change agent.
Planet Labs concurrently announced it had secured an additional $95 million in financing consisting of a successful $70 million Series C investment and a $25 million debt facility.
These and a number of other relatively new entrants to the commercial satellite market, as well as the satellite operators who are making their own investments in technology, are introducing an exciting new chapter in the industry’s history. The question is: What impact will these new entrants have on the established U.S. and European commercial manufacturers? Will these developments reinvigorate their creativity or so weaken them that they are forced to exit the commercial market?
An argument can be made that these new ventures are occurring at just the right time to spark new technological advancement in the satellite industry while forcing necessary contraction of manufacturing capacity. Today the industry is facing ever eroding margins on sales; the movement among various European Union members to protect Europe’s space industry, including its satellite manufacturers and launch provider; and static, if not declining, sales of geostationary commercial satellites. To respond to these threats and the new competition, the established U.S. and European commercial communications satellite manufacturers must apply to their own operations the same enthusiasm for innovation, management techniques and financial investment as these newer entities. By doing so, those that survive in this new marketplace will be rewarded with renewed relevancy.
Buyers of large commercial communication satellites face increasing competition from the appealing bandwidth, speed and economics of alternative technologies such as fiber and wireless, as well as revolutionary, although perhaps more fanciful, ideas for providing Internet connectivity in remote geographic areas, such as high-altitude drones and balloons operating in the stratosphere. To meet the needs of both their individual direct subscribers and those clients leasing large blocks of capacity, satellite operators are insisting upon improved technologies, lower prices and faster manufacturing cycles from the satellite manufacturers.
Nearly five years ago, SpaceNews published an editorial entitled “The Challenge Ahead for Satellite Manufacturers” [Oct. 11, 2010, page 18] explicitly pointing out that customers for large, high-capacity commercial satellites were calling on manufacturers to reduce prices by providing new technologies, such as onboard digital signal processing, at competitive prices. SpaceNews rightly noted that the manufacturers needed “bold and innovative thinking” to retain their relevancy and concluded by saying that “it likely will be the companies that come closest to meeting the technical and pricing challenges issued by the customer community that come out on top.”
While the current economics of the industry may be hindering significant innovation among the established manufacturers, there is no doubt that a new generation of thinkers, engineers, entrepreneurs and venture capitalists — many with successful prior business and government service experiences in technologies unrelated to space — recognize the opportunity. Within five or so years, these entrants most likely are going to fundamentally change both the economics of and the market for commercial geostationary satellites. Rather than simply offering tweaked versions of existing technologies, these new entrants are starting from scratch — reinventing nearly every satellite component and system.
At these new space entities the reinvention starts with the management culture. The entrepreneurs running these companies are bringing their outside expertise and experience to bear on an otherwise largely ignored industry. Specifically, they are surrounding themselves with diverse teams of innovators and then following up by objectively (and manically focusing on) making sound, fact-based decisions, honestly looking at new ideas, embracing differing opinions and working incredibly hard.
Further, they are not just blindly throwing out the industry’s past practices, but are making objective, side-by-side appraisals of their new ideas as evidenced by the fact that while reinventing the satellites they are concurrently seeking proposals based upon existing technologies and engaging in constant dialogue with the established manufacturers.
These entrepreneurs are endeavoring to tackle incredibly difficult technical challenges while developing designs featuring reduced complexity with fewer, more standardized components (including proven off-the-shelf components originally developed for other applications). As has occurred in other fields, we can expect increased efficiencies as a consequence, resulting in dramatically lower power requirements, which will translate to further mass reductions.
Rethinking and simplifying the manufacturing processes (including the use of increasingly automated assembly) will enable these new players to achieve lower costs with faster production cycles, ultimately resulting in lighter spacecraft able to take advantage of an increasing range of economical launch vehicle options. Building large (and, in the case of SpaceX, mind-numbing) constellations of low Earth orbit (LEO) spacecraft will serve to further reduce costs through bulk purchases of components. In the process these economics will allow the builders to inherently trust their manufacturing processes to obtain the necessary reliability, eliminating the need for expensive qualification requirements during the design phase and costly, time-consuming testing during manufacturing.
While all of the new entrants are concentrating their efforts on deploying large constellations of small LEO satellites weighing at most in the hundreds of kilograms as opposed to the large commercial satellites weighing nearly 7,000 kilograms, in the long term the new entrants pose significant challenges to the market for high-power, large commercial satellites.
While the large communications satellites today serve a number of customer needs very well, the projected driver of increased sales of large satellites is the demand for broadband and digital content — precisely the markets that the most formidable of these new entrants, such as SpaceX, plan to serve. Unless the manufacturers of today’s large broadband satellites are able to either significantly reduce their prices for these mega-satellites or offer entirely new products, the new entrants with their constellations of cheap and easily replaced smallsats may well capture and ultimately dominate this expanding market opportunity.
The second threat posed by these new entrants is technical. The established players are currently focused on using their existing and expensive bus designs to respond to immediate market demands, such as the new all-electric offers and satellites with higher throughput and flexibility achieved by utilizing digital signal processing payloads (flexible payloads) to provide on-orbit bandwidth flexibility across all bands.
In contrast, the new entrants are looking at redesigning the entire satellite, including the bus, propulsion, payload, onboard processors and solar electrical generation — much like SpaceX has successfully accomplished with the launch vehicle. This holistic approach is exactly the “bold and innovative thinking” customers are seeking. Unless the established manufacturers respond soon with comparable offers, it may be only a matter of time before these new companies fill the void by offering more economical and efficient geostationary satellites. Applying the technologies and manufacturing processes being developed today for smallsats to the geostationary market could result in viable alternatives. As a consequence, loss of customers — and perhaps even markets — is possible due to reliance upon traditional technologies.
Although the commercial satellite market is highly competitive with an average of 20 awards per year in an industry where the annual manufacturing capacity of the top manufacturers combined is capable of producing approximately 35 satellites, it is safe to assume that the quick fix — a contraction in manufacturing capacity — is unlikely to occur voluntarily. Given the active engagement in recent competitions for new commercial awards by the firms traditionally focused on the U.S. Defense Department market and the recent successes of the other firms, it appears that all of the major players intend to remain in the commercial market. Nobody plans to throw in the towel so customers inevitably must drive the necessary contraction. Without a realignment of the manufacturing capacity with demand, investment in innovation will not pencil out.
Despite the headwinds presented by these new entrants and their public appeal, the established manufacturers have advantages they can use not only to meet this competitive challenge but to even flourish.
One promising path requires undertaking two fundamental activities. First, success requires management’s ability to think differently, namely an ability to invest in innovators as if they are startups.
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The current manufacturers are all pretty much alike when it comes to how they think about meeting the requirements of their customers using their existing products. What they all have going for them is current market share based upon their proven strengths in manufacturing knowhow, engineering talent based upon experience and technical wherewithal. Each has proved time after time that it can build awesomely complex, high-quality spacecraft. Unfortunately, given the overcapacity in the market and the poor margins on sales, the current economics of the industry prevent them from exploiting these strengths to introduce truly new products.
Comparatively, it does not take too much time when sitting in on a presentation by Elon Musk, or one of the other leaders from the new space entities fortunate to have ample available capital, to feel the energy and passion these individuals have about new ways to deliver cheaper, more capable launch and satellite services.
To succeed, management at the established manufacturers needs to start thinking, managing and inspiring like their entrepreneurial competitors. By exploiting the new ideas their teams are capable of bringing forth using their company’s existing strengths — strengths and experience the new entrants lack — the established players with adequate financial wherewithal have a compelling competitive advantage.
Second, the established manufacturers need new products — namely, dramatically lighter spacecraft incorporating new technologies including those that are known (revolutionary new radio frequency equipment and power amplifier technologies to replace the expensive and difficult to manufacture traveling wave tubes, technologies permitting on-orbit coverage reconfiguration and shifting of power usage, and efficient electric propulsion to reduce the mass penalties associated with tradition fuels) and those that have not yet been conceived.
Success requires a willingness to innovate by investing heavily in new ideas — many of which might fail, but some of which should ultimately form the core of entirely new satellite designs.
Concurrently these newly designed spacecraft need to be manufactured almost entirely utilizing standardized parts, automated tooling and simplified spacecraft integration and testing.
But again, the established manufacturers already have the talent necessary to innovate. They simply need to have the financial and cultural environment to set them free.
Competing in this new landscape will not be cheap — people, time and the willingness to risk failure will require sustained financial commitment — but for those companies that have the necessary financial wherewithal, survive the inevitable contraction and are successful in introducing new products, the rewards will benefit investors, customers and the markets they serve.
John Rakow is former senior vice president for business and legal affairs at Space Systems/Loral.
