Thoughts on Commercial Space -- New Blog by George Sowers

[Zingpc]

We are witnessing private companies doing ambitious research on their own without a government agenda.
There is an aboundance of money for new space now. Once we get $5 million dollars 200kg into Leo and $30 million for 20000 kgs. What SpaceX has achieved in ten years is amazing. And remember the govt money was for services at a fraction of the cost previously for stuff to the space station.

There is a lot of hype on the size of the market for launchers that have not yet come on stream. But they will in the next two years. Then we see what happens to the hype.

[okan170]

We are witnessing private companies doing ambitious research on their own without a government agenda.
There is an aboundance of money for new space now. Once we get $5 million dollars 200kg into Leo and $30 million for 20000 kgs. What SpaceX has achieved in ten years is amazing. And remember the govt money was for services at a fraction of the cost previously for stuff to the space station.

There is a lot of hype on the size of the market for launchers that have not yet come on stream. But they will in the next two years. Then we see what happens to the hype.

Too bad that unlike government work, a lot of it remains secret and non-public.  I guess thats the sacrifice we make with commercial, more is done, but less benefits and spinoffs to the public. 

 (I think thats all I'll say, its abundantly clear the way this forum/thread is leaning politically.)

[AncientU]

We are witnessing private companies doing ambitious research on their own without a government agenda.
There is an aboundance of money for new space now. Once we get $5 million dollars 200kg into Leo and $30 million for 20000 kgs. What SpaceX has achieved in ten years is amazing. And remember the govt money was for services at a fraction of the cost previously for stuff to the space station.

There is a lot of hype on the size of the market for launchers that have not yet come on stream. But they will in the next two years. Then we see what happens to the hype.

Too bad that unlike government work, a lot of it remains secret and non-public.  I guess thats the sacrifice we make with commercial, more is done, but less benefits and spinoffs to the public. 

 (I think thats all I'll say, its abundantly clear the way this forum/thread is leaning politically.)

Private companies cannot survive unless they offer something to the public that is a sufficient benefit that they will buy it.  Look at all the micro-electronics industry... do you have a smart phone?  USG pioneered that technology, but it wasn't until the private sector ran with it that benefits to the public flowed.  Same with the internet.  Same with space.

[Zingpc]

Most of Rocket Labs money was private, and they are about to revolutionise small orbital rocketry.

[Coastal Ron]

Too bad that unlike government work, a lot of it remains secret and non-public.  I guess thats the sacrifice we make with commercial, more is done, but less benefits and spinoffs to the public. 

I can't find the original article that I found this information on, but if you look at the chart of the top 20 publicly-traded R&D spenders globally:

Top 20 R&D Spenders 2005-2015 | PwC’s Strategy&

There is only one "Aerospace & Defense" company that shows up during that 10 year period - Boeing. And only for one year, 2010.

Contrast that with the "Automotive" industry, which had five of the top 20 in 2015, with VW being the top R&D spender for the last 3 years.

The "Computing & Electronics" industries had four in the top 20 for 2015, with Samsung and Intel at #2 & 3, and Apple at #18. I think the latest data shows Apple higher on the list now, but VW is still on top.

Two takeaways for me:

1.  The private sector is spending a lot of money on R&D, and though we may not see it before it shows up in a product, we the public do benefit from that R&D. And usually today's proprietary technology turns into tomorrows commodity technology, so proprietary R&D eventually benefits everyone.

2. It should not be a surprise that "Aerospace & Defense", which is dominated by government contractors, is so absent from this list. When the government is willing to pay a company to do R&D, that company has little incentive to do R&D on their own. Boeing, who only showed up on the list once in 10 years, has their commercial airplane division, so they have commercial customers that they need to spend R&D money on. But otherwise government contractors have no incentive to spend their own money on R&D for potential government work - or at least not a lot.

What I think this could mean is that when business models are discovered for expanding humanity out into space then we should see more proprietary R&D money also being spent on expanding humanity out into space. But I don't expect much government money being spent on expanding humanity out into space, meaning more and more space will be taken over by the private sector. Which is either good or scary...

[M.E.T.]

Something I've been pondering on is the almost insurmountable barrier to entry that SpaceX and probably Blue Origin as well, will create once they have perfected reusability. To me it seems that we are witnessing a unique window of opportunity - largely grabbed by SpaceX - where revenues per launch are still at pre-reusability levels, which means that New Space launch providers can recover the costs of their reusability experiments at expendable launch prices.

Put differently, they are able to recover billions spent on reusability R&D, by charging $62m per launch, or close to it, for the forseeable future. So they could recover that investment in little more than a year or perhaps two.

Now imagine what happens once full reusability has been developed, let's say 5-10 years from now, with ITS and New Glenn type fully reusable rockets having become the norm.  Any new entrant into the market would have to develop a completely new rocket from scratch, with the paltry expected return of maybe 10% of the revenue currently earned for a payload delivered to orbit. Perhaps only 1% even, if Musk can be believed.

So to recover your investment you would have to launch 10-100 times as many payloads as the first mover - Spacex - needed to do at the same point in their journey. And that's if you can even attract any customers once SpaceX and Blue Origin are already charging rock bottom prices based on full reusability.

My conclusion is that short of some revolutionary new technology breakthrough, the rocket launch market will pretty much be sealed off to new entrants once SpaceX and Blue Origin have achieved full reusability. The return on investment will simply not be there for new entrants to overcome the barriers to entry established by the first mover. And the only reason Blue Origin (as the first follower) is even able to have any prospect of success, is because they don't care about making a profit due to having a virtually bottomless pit of research money supporting their efforts, as a pet project of their founder.

But even Blue Origin would be unsuccessful if they arrived 10 years later, with something like ITS already in full operation.

So as far as the commercial launch industry is concerned, I think it has pretty much been closed for new entrants who missed the initial reusability window of opportunity, which is already closing, and will slam shut once 2nd stage reusability has been perfected.

[Lars-J]

No, the window will not close if SpaceX and Blue Origin succeed with reusability. Just like with any technology  breakthrough, the followers will have the benefit of knowing what works. (And what doesn't)

Will it still be a difficult? Of course, but it's not exactly easy to break into the expendable launch business either...

[meekGee]

No, the window will not close if SpaceX and Blue Origin succeed with reusability. Just like with any technology  breakthrough, the followers will have the benefit of knowing what works. (And what doesn't)

Will it still be a difficult? Of course, but it's not exactly easy to break into the expendable launch business either...

MET's point is that with reusability, launch prices will come down.  Or rather, when there are at least two providers, launch prices will come down.

Entrant #3, who is only starting now and will hit the market in 5-10 years, is looking at a very uncertain price model, since who knows what launch prices will be.

SpaceX, and to some extent BO, maybe, get to dictate how quickly prices come down, recouping R&D expenses, and then maximizing profits. (not profits-per-launch, but profits in general).

Until BO actually joins the game, it's entirely SpaceX's.

[Lars-J]

...and you are missing my point. Followers won't need to spend as much on R&D when how to do it has been demonstrated.

[Danderman]

It would almost seem like the more money spent in the commercial sector, more progress in made in the industry, whereas money spent on government systems seem to result in more of the same, with few exceptions.

[high road]

It would almost seem like the more money spent in the commercial sector, more progress in made in the industry, whereas money spent on government systems seem to result in more of the same, with few exceptions.

Biased naturally by commercial entities not spending a lot of money on things that don't have a reasonable chance of succeeding to make an adequately big impact. While there is a powerful tendency to commercialize good ideas asap, even though the initial steps have been taken by governments.

[M.E.T.]

...and you are missing my point. Followers won't need to spend as much on R&D when how to do it has been demonstrated.

To me the issue goes beyond R&D spent on reusability. A newcomer would need to spend R&D in general, just to design, build, test and bring their rocket to operation - whether it includes reusability or not. That is a substantial investment. But unlike in the past, where this money could be recovered via relatively few, high value launches, the initial investment will now have to be recovered through a very different business model, with low margins spread over many more launches, over a much longer time period. Because the revenues per launch will be so much lower than in the past.

To make this even worse, any newcomer is likely to face significant risk of catastrophic failure in the range of maybe 10% of initial launches, dropping to perhaps 5% or lower as they become more established. In the past, such a catastrophic loss would have lost you the vehicle for a single launch, and your budget would have included having to build a new vehicle for the next launch anyway.

But now, in the new "low revenue per launch" game, the lost vehicle would represent the loss of an asset that was needed to generate revenue from as many as 100 launches in the future. This is because the business model of your competitors would be built around getting the theoretical 100 launches  from each reusable rocket, and their prices would reflect this. So for the newcomer to compete, he would need to do the same, or else be uncompetitive in the market.

So all of the above sketches a picture of an industry that is no longer built around a few, high value launches. But instead it becomes one of massive economies of scale, low margins on each individual launch, and huge barriers of entry to newcomers.

The chance to finance your new, more efficient rocket company with overpriced "Old Space" launch revenues will be gone within a couple of years. Certainly within 5 years, once upper stage reusability is perfected. After that, the existing launch providers will have an asset that only makes money at marginal rates, over hundreds of launches. A new entrant will need to carry the development costs while waiting for dozens of launches to recover that cost. And that's assuming they have no failures and can compete on price with the established players sufficiently to attract customers in the first place.

A tough ask, in my view.

[envy887]

Once both the technical viability of, and business case for rapidly reusable launch is proven, it will be MUCH easier​ to get financing for commercial development of new vehicles.

[M.E.T.]

Once both the technical viability of, and business case for rapidly reusable launch is proven, it will be MUCH easier​ to get financing for commercial development of new vehicles.

I don't doubt that the technology will be proven. I doubt that the Business Case will be obvious for new entrants, unless they have some kind of breakthrough technology that fundamentally changes their value offering.

Since reusability changes the launch business to a low margin, high volume game, it perhaps becomes analogous to the auto industry. Sure, someone could come along with sufficient financing to build a new car. But first they have to build the factories, do the R&D and produce their first car. And then they need to sell enough to justify the investment, and do so in competition with the established players.

How many new US car companies have we seen in the last few decades? There may be more, but I can only think of Tesla, really. And in their case it was because they brought something fundamentally new to the market. And even then, they are seen as something of a miracle case, as yet unproven.

How would a new car company be able to compete with Ford, GM etc. with just a comparable product, rather than a breakthrough one? My point is that once SpaceX and Blue Origin have perfected reusability, they will effectively remove, or at the very least reduce, the business case for new entrants to try and enter the market.

[spacenut]

I think once SpaceX and Blue Origin get there reusable rockets working steady, than Boeing and Lockheed will follow.  They will either still use ULA or on their own.  If they want to continue their business beyond aircraft into space, they will have to expend the research money into reusable rockets.  Same with Ariane Space, Russia, and China, maybe others.  All will be playing catchup. 

I think we are on the verge of some serious space exploration in the next 10-20 years.  Reusable rockets, new rocket building materials, asteroid mining, moon mining, Mars colonization. 

I would hope to see within 50-100 years large O'Neil colonies at L1 or L2 moon vicinity, maybe even one near Mars using martian resources.  Eventually O'Neal colonies near Jupiter and Saturn's moons.  All kick started by SpaceX and Blue Origin with reusable rockets.  Venture capital for all these projects will follow these two just like people and settlers following the railroads westward. 

[AncientU]

The National agencies must follow, whatever the cost.  Other domestic competitors have to deal with SpaceX and Blue, plus several other heavily/completely subsidized programs.  This will make the wall tougher to overcome as new vehicles come on line.  I don't expect Boeing or LM to follow, though either could have easily led the way (from a talent and resources perspective, but not culturally).

[envy887]

Once both the technical viability of, and business case for rapidly reusable launch is proven, it will be MUCH easier​ to get financing for commercial development of new vehicles.

I don't doubt that the technology will be proven. I doubt that the Business Case will be obvious for new entrants, unless they have some kind of breakthrough technology that fundamentally changes their value offering.

Since reusability changes the launch business to a low margin, high volume game, it perhaps becomes analogous to the auto industry. Sure, someone could come along with sufficient financing to build a new car. But first they have to build the factories, do the R&D and produce their first car. And then they need to sell enough to justify the investment, and do so in competition with the established players.

How many new US car companies have we seen in the last few decades? There may be more, but I can only think of Tesla, really. And in their case it was because they brought something fundamentally new to the market. And even then, they are seen as something of a miracle case, as yet unproven.

How would a new car company be able to compete with Ford, GM etc. with just a comparable product, rather than a breakthrough one? My point is that once SpaceX and Blue Origin have perfected reusability, they will effectively remove, or at the very least reduce, the business case for new entrants to try and enter the market.

Space transport is ripe for breakthroughs because existing technology has only scratched the surface of what is possible. Consider the first 50 years of automotive development... there was a new car company around every corner.

[spacenut]

Yes, but the first internal combustion engine was in the late 1860's.  It wasn't until the 1890's that it began to take off.  Then it wasn't until the 1920's that automobiles took off. 

It also took a while for the steam locomotive to get enough track built to become competitive with riverboats and wagons. 

Others will be forced to follow or they will be out of the launch business.  I see more competition from foreign companies that their government supports to compete with SX and BO.  Don't know if Boeing and Lockheed will follow, or they may develop flyback boosters as a different approach. 

Rockets and spacecraft are harder than vehicles, trains, steamships, even aircraft, thus taking longer to get reusable. 

[M.E.T.]

To me the issue is the relatively small size of the launch market, compared to the massive size of the market for satellite construction, space habitat construction, LEO internet constellations, exploration probes and the like.

The money is not in providing launch services. It is in constructing payloads and deriving benefit from them. Why invest in the risky business of developing your own rocket, when you could just buy a cheap launch from SpaceX or Blue Origin to launch your new asteroid mining machine, or satellite constellation or Space Hotel.

That's where the money lies. SpaceX can just be the sub-contractor who gets your stuff into orbit for a minimal fee, now that launch services are so cheap.

[laszlo]

Yes, but the first internal combustion engine was in the late 1860's.  It wasn't until the 1890's that it began to take off.  Then it wasn't until the 1920's that automobiles took off. 

It also took a while for the steam locomotive to get enough track built to become competitive with riverboats and wagons.  ... Rockets and spacecraft are harder than vehicles, trains, steamships, even aircraft, thus taking longer to get reusable.

Are they actually harder relative to the existing technology? The Space Shuttle was flying orbital missions reusably just 24 years after the first satellite went into orbit. That's the same order of timespan as your first dates. The second dates match nicely with SpaceX being on the threshold of demonstrating the commercial viability of used rockets.