Thoughts on Commercial Space, Part I

            I decided to officially kick off my blog with some thoughts on commercial space.  I anticipate three parts.  This first part will contain some general observations.  Part II will chronicle the somewhat torpid history of commercial space activities and a few key lessons learned.  Part III will be my thoughts on the future of commercial space and how we can escape the doldrums.   

I am passionate about space in general, but commercial space occupies a special place in my heart.  It represents an intersection of many of my beliefs:  my libertarian political philosophy, my capitalist economic philosophy, my overarching philosophy of power which elevates human exploration and exploitation of space to a moral imperative.  You see, for the space enterprise to be sustainable and grow, we must harness the power of the free market.  And that means commercial space.

Over the years, I participated on several commercial space panels that bogged down in defining what it is we mean by commercial space.  I, for one, am tired of discussing the question so hopefully I can settle it here once and for all.  There are many definitions and which is appropriate depends on the context.  The real distinction is between the public sector and the private sector.  Any given space activity can include a mixture of both elements.  The purest form of commercial activity takes place entirely within the private sector.  It is performed by private-sector companies for the benefit of private-sector customers using private-sector capital. At the other end of the spectrum is a pure public-sector activity where the activity is performed entirely by public-sector agencies using public-sector employees, entirely funded by public funds for a public purpose.  In between are all manner of hybrids involving a mix of investment funds, executing entities and customers.

A few examples from current space activities illustrate the spectrum.

1.      A satellite for television broadcast (e.g. Direct TV) is close to pure commercial:  private-sector capital, private-sector operating company and private-sector customers.  However, it is likely to be launched by a rocket that benefitted by a large government investment (Atlas V, Ariane V or Falcon 9, for example).  And much of the R&D into the satellite itself is spun-off from government programs.

2.      Commercial remote sensing is a hybrid.  While the satellites are operated by commercial companies (e.g. DigitalGlobe), much of the investment has been from the government and most of the customers are government agencies.  New companies like Planet might be moving the needle closer to pure commercial.  We’ll see how it turns out.

3.      NASA’s much ballyhooed COTS (Commercial Orbital Transportation Services) program that rolled into the CRS (Commercial Resupply Services) program was an innovative government acquisition approach but not very commercial.  Much (if not most) of the investment came directly from the government and to date, the government has been the sole customer.  The commercial moniker comes from the fact that commercial companies are performing the activities and commercial-like contracts are employed.  Though the CRS contracts are still governed by the FAR.

4.      NASA’s SLS (Space Launch System) program is about as far to the other end of the spectrum as it gets.  All the investment is public.  NASA is the managing agency and thousands of NASA employees are engaged.  NASA is utilizing private-sector companies to perform much of the work, notably Boeing, Aerojet Rocketdyne and Orbital ATK, but none of those contracts were competitively awarded and NASA has full design authority and close oversight of all work performed.  By the way, I have heard some NASA folks claim that SLS is commercial because commercial companies are involved.

On this spectrum, what I mean by commercial space is pure commercial space, or at least as close to the top of the list as possible.  The reasons are economic.  If space continues to be (mostly) the purview of governments, it is constrained by government budgets, subject to political winds, subject to hijacking by special interests both inside and outside government and subject to the gross inefficiencies and lack of accountability of any government enterprise.

On the other hand, a pure commercial enterprise is subject to the tyranny of consumers who will vote with their feet if the product or service does not meet their needs in both price and performance.  It is subject to competition not just from other space companies, but any other idea that meets the same consumer demand.  For example, satellite communication services compete with terrestrial communication services. Furthermore, it is accountable to investors who expect a return on their investment.  All these pressures drive innovation and efficiency resulting in a continual reduction in cost and increase in performance. 

To make a profit and thus survive, a commercial space business must provide value to its customers more than the value of the materials and labor it took to generate the product or service.  Profit is a direct measure of the value added by the business and, by the way, the wealth added to society.  [Political aside:  I am astounded by people who decry profits as being somehow evil.  To the contrary, everyone in the chain comes out ahead.  The consumer is better off for having the product or service—otherwise they wouldn’t have bought it.  The wealth created (i.e. profits) will either be spent for other goods and services or invested in the means to create even more wealth.  It’s called capitalism and is the greatest system for producing wealth and eliminating poverty ever devised by humankind.  Wealth creation works far-far better than wealth redistribution.]

In summary, the growth and sustainability of the space enterprise requires a strong and robust pure commercial sector.  However, so far, only telecommunications has provided a semblance of a nearly pure commercial market.  It turns out to be very difficult to make a profit in space other than by selling stuff to the government.  In part II, I will review the history of commercial space activities, the few successes and many failures, and try to extract some lessons learned.  With the lessons from history, part III will look to the future.  New technologies, new discoveries and new players all afford great hope that we can overcome the failures of the past and usher in a new age of commercial space.