Thoughts on Commercial Space, Part IIA

            The history of commercial space is fascinating and dramatic.  It is full of spectacular technical and business failures and some success.  I’ve had the privilege of living through much of it and what follows is largely from my memory, though I have made liberal use of the internet to get the facts and dates correct.

            I like to think of commercial space, so far, as being divided into phases called 1.0, 2.0, 3.0 and 4.0.  Not a terribly creative nomenclature, but I’ve used it in talks in the past and will stick with it here.  I’ll briefly sketch each phase and subsequent posts will do a deeper dive on each.  I will also distinguish between the demand side of commercial space and the supply side, this from the perspective of a launch service provider.  This reflects my personal perspective as a career launch guy, but it is also instructive to see how each sector influences the other.  Any space business counts launch as one of the largest costs as well as one of the highest risks.  Access to space remains a significant barrier to entry for any prospective commercial space business.

            Commercial Space 1.0   This is the beginning of commercial space from the launch of the first Intelsat spacecraft in 1965 to the present day.  It is dominated by communications satellites in geosynchronous orbit and has benefitted by large synergies and cooperation with the government satellite and launch sectors.  Growth in this marketplace stimulated the first round of entrants into the commercial launch sector in the mid to late 1980’s, including Ariane, Proton, Atlas, Delta and even Titan—a classic case of strong demand stimulating supply.

            Commercial Space 2.0  This was the age of the big LEO constellation.  The timeframe was the mid to late nineties.  It was commensurate with the rise of the internet and several visionaries dreamed of an “internet in the sky.”  Names like Teledesic, Iridium, Globalstar, Celestri and Skybridge and talk of hundreds or even thousands of spacecraft stimulated a lot of activity and investment on both the supply and demand sides of the market.  The USAF EELV program was born during this time and was shaped by dreams of this burgeoning commercial market.  Other commercial launch business came into the marketplace such as Sea Launch. Fundamentally flawed business models and the bursting of the dot-com bubble doomed Commercial Space 2.0.  Some of the wreckage of Commercial Space 2.0 survived and was transformed including Atlas V and Delta IV currently operated by the Lockheed-Boeing joint venture, United Launch Alliance (ULA).

            Commercial Space 3.0  This was the time of COTS, NASA’s commercial orbital transportation services.  The driving force was the retirement of the Space Shuttle and the opening of new market to the US private sector.  NASA’s promise of new demand to service the international space station stimulated private sector investment in new launch systems, Falcon and Antares, as well as cargo and crew carrying vehicles, Cygnus, Dragon, Dreamchaser and Starliner.  We are currently part way through Commercial Space 3.0, with several of the new vehicles yet to fly.  Commercial Space 3.0 is a long way from pure commercial but it reflects a large shift in the commercial direction from a government owned and operated space shuttle to private sector owned and operated systems, funded with a mix of government and private investment, servicing a government market.  Hopes that these Public-Private Partnerships would stimulate other commercial demand-side enterprises remain unfulfilled.

            Commercial Space 4.0  This is the most recent set of developments and is characterized by the phenomenon of the billionaire space entrepreneur, the emergence of the smallsat/cubesat, and round two of the big LEO constellation. 

            As with any simplistic organizational scheme, there are aspects of commercial space that don’t fit cleanly into any of these categories.  And there are companies and programs that span all the phases.  For example, SpaceX was born in 3.0 but clearly extends into 4.0 and has reached in to disrupt the (launch) supply side of the communications market (Commercial Space 1.0).

            My next post will provide a more detailed look at Commercial Space 1.0 and extract some lessons learned.

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.

Introduction to Mad Scientist Musings

           

Welcome to my blog!  Those that know me need no introduction.  Those that don’t can see my professional website SowersSpace.com for my qualifications as a scientist and engineer or my personal website GeorgeSowers.com for my book, The Philosophy for the Future, and some of my other writings.  Or you can follow me on twitter:  @george_sowers

My intent with this blog is to express my opinions on a wide range of topics including Space, Philosophy, Science and Politics.  Any ideas contained herein are my own, not those of my former employers or current clients—or anyone else for that matter, unless expressly indicated. 

As a matter of orientation, I come from a pragmatic-scientific point of view.  Debate is useful as a means to approach truth. I will often take a contrarian stance just to see how the arguments play out.  But as a local talk show host was fond of saying, before I tell you where I stand on a particular issue, I need to tell you where I sit.

I’ll start with philosophy, for that is the subject that underpins all else.  I am a pragmatist in that I believe that outcomes and consequences are what ultimately matter.  This belief functions as judge and jury in most debates.  I spent twenty years building a philosophical edifice based on the principles of logic and science and pragmatism.  In it, power, defined as capability to effect outcomes and deliver consequences, becomes the highest value for humanity.  In fact, the quest for ever increasing power, on multiple levels is a fundamental aspect of human psychology, which I call (after Nietzsche) the Will to Power.  If that intrigues you, see my book.  A warning, however, it is heavy going.

My views of science follow.  Science is the combination of logic (math) and empiricism that is the best approach yet discovered for acquiring power. It’s offspring, technology, is pure power, simply put.  Sad to say, I believe the institution of Science is in a (mild) crisis.  Politics has infiltrated, turning some scientists into political activists and turning science from a pursuit of knowledge to a tool of the state.

My political philosophy is libertarianism.  I believe it follows from my philosophy of power and the ethical theory it engenders, that individual freedom should be among the highest social values.  As such, I am an advocate for a smaller state and very suspicious of “well meaning” encroachments on liberty.

Space is easy.  From the philosophy of power, it is imperative we harness the infinite resources of the wider cosmos to the benefit of humankind.  My thirty years in the industry has provided me a perspective how to do that most effectively and expeditiously.

Finally, I welcome comments and suggestions so long they are in the spirit of a productive debate, with the express purpose of inching closer to truth.  To quote Chapter 1 of the Philosophy for the Future:

I believe in the anarchy of ideas—ideas battling it out in the arena of selection.  The selection criteria: pragmatism!

George Sowers, May 2017.