The New Game in the Space Industry
The space industry as we know it today has been the result of a revolution that began at the beginning of the last decade. Until very recently, space was considered a domain for the few, where only governments of the most powerful nations on Earth could set its course. This article takes a quick and brief look at the transformations of the sector in recent years and explores the amazing opportunities that both now and in the future, the space sector can reach to change humanity for good.
It is no secret that the vast majority of space exploration in the last century was funded by the public sector. The governments of the two superpowers of the second half of the 20th century (USA and USSR) found in space a source of geopolitical power. If we go even further back in time to the 19th century, we will find that the resources allocated for space-related research were invested by millionaires who served as patrons to important scientists.
The space industry is highly risky and demands large capital investments, so it is entirely reasonable that only governments can afford to make such risky, large, and long-term investments. However, this picture changed when, once again, billionaires interested in the space industry started what is now known as Commercial Space.
The first wave of Newspace
It is difficult to give an exact date as to when the new era of space commercialization began, what is clear is that the first launch and delivery of supplies to the Space Station by the Falcon 9 and SpaceX’s Dragon Capsule marked a fundamental milestone for this purpose, as NASA Administrator Charles Bolden said: “We are now back on the brink of a new future, a future that embraces the innovation the private sector brings to the table.
Since then, the space industry has seen increasing private sector participation. Initially, concentrated in the large capitals of billionaires (Elon Musk, Jeff Bezos, Sir Richard Branson, Yuri Milner, among others) but gave room to investments from Venture Capital (VC) Funds, M&As of big players in the industry, and the incipient movement of startups in all parts of the value chain of Commercial Space.
The first wave of Newspace has left great innovations and changes in the space industry, three of the most important for their consequences are the significant reduction in the cost of shipping per kilogram to Low Earth Orbit (LEO), the standardization of satellites under the CubeSat standard, and the lowering of barriers for entrepreneurs to raise capital from VCs, Family Offices and other investors.
The launch cost per kilogram was reduced by orders of magnitude, going from hundreds of thousands of dollars with vehicles such as the Saturn V and Space Shuttle to hundreds with the implementation of reusable rockets such as the Falcon 9, and what is estimated with SpaceX’s Starship. If we look at the trend of the number of launches we will see an exponential curve that is expected to continue to rise. We go from 134 launches in 2012 to 1807 in 2021, which represents an increase of more than 13X in less than a decade.
While in the first wave we could see an increase in investments by VCs in Space Tech, it is still highly concentrated in a few companies such as Planet, Spire, SpaceX, and a handful of others. The last decade has seen the emergence of large LEO constellations mainly focused on Earth observation and, more recently, on the generation of connectivity via satellite internet. This infrastructure requires large amounts of capital and patience for a long-term return.
VCs were more focused on companies that could develop infrastructure for the acquisition of large volumes of data and take advantage of economies of scale with mass-produced satellites and a robust network of ground stations for downloading data from anywhere in the world. The creation of these constellations has unlocked a new layer of business based on data from space, these have been focused on sectors such as insurance, retail, and agriculture mainly.
The second wave of Newspace
We are currently witnessing the beginning of the second wave of Newspace. If the start of Newspace paved the way for the consolidation of a huge satellite infrastructure in LEO, the second wave will bring the rise of startups whose models are based on SaaS but with data coming from space. Additionally, due to the growing number of launches and the emergence of new space applications, companies focused on Space to Space Business (S2SB) are expected to enter the scene with force, offering services to other companies with large infrastructures such as those that operate remote sensing and communications constellations and those that offer launch services.
The space sector is highly sensitive to changes in risk and liquidity in the economy, we are currently (2022) seeing a reduction in VC investment in Space Tech of 44%. This is due to a normal contraction given the global financial situation, but in the long term the future is promising for the space sector, Morgan Stanley and other firms such as PwC project a space economy that will reach USD 1 trillion in 2040, this would mean an increase of more than double compared to the current $469 billion.
The second wave will take advantage of what was achieved in the first wave and will be able to migrate strongly into the software world. The falling cost of going to space is opening the door to applications that previously could only be considered science fiction. The next few years will see the sector consolidate its position as a major player in the data economy and start deeper transformations that will come in the following waves.
The next waves
There are several applications of the space industry that can profoundly change the future of the human species. Among all the potential of the space industry, three focuses stand out as having the greatest impact. In the next two decades, we will see shy and limited developments in these fields, but by mid-century and especially in the second part of the century we will witness the blossoming of Mainstream Space (MS), which will mean that activities in and from space will have a significant impact on everyone on the planet. These three areas of development are as follows:
Currently, companies such as SpaceX, Blue Origin, and Virgin Galactic have inaugurated pathways that will take humans safely into space and bring them back. Space tourism is here to stay, but it is still very expensive and far from becoming the first choice of family tourist plans in the coming years.
To achieve these goals, more space tourism service providers are needed to offer different ways to travel and experience, and at the same time reduce costs due to competition. High-altitude balloon fly is one of the methods to go to space for space tourism that is yet to be tested and may become a strong rival to the current rocket launch approach. Undoubtedly an arduous task but one that can become more cost-efficient. World View the global leader in this strategy has already developed a spaceport infrastructure and is flying recurrently large scientific payloads for days in near space. World View plans to have its first space tourism flights by 2024 at a value of USD 50K.
Space tourism will have to wait at least two more decades to become a multi-billion dollar business. The good news for this area of business is that the question is not whether it will get off the ground but when it will scale to a broader public.
Space infrastructure as a service
Despite the huge constellations that have been deployed in LEO for remote sensing and new ones for communications going to space is difficult, expensive, and risky. The International Space Station (ISS) has demonstrated that it is possible to have a permanent laboratory in space with multiple applications to various industries, among the most important of which are those related to the development of pharmaceuticals and biotechnology products.
NASA wants to extend the operational life of the ISS until 2030, and then use all its experience to support private companies beyond that date that want to build space stations. The next decade will see the consolidation of the use of space for space-based applications. The space station infrastructure, coupled with the increased ability to transport cargo to space and the rise of space tourism will create a new economy based on the daily and permanent use of space with in-situ operations.
Private space stations will democratize access to space for companies and individuals from developed countries initially. The rise of private space utilization will maintain the hegemony of the richest and most powerful nations on earth, at least for the next two or three decades. In the second half of the century, we will see access to space by a wider group of countries and people, and we may even witness the use of labor from low- and middle-income countries as the new space workers to finish building the new infrastructure.
Space Resource Extraction and Geoengineering
NASA is focusing its efforts on the sustained return to the Moon with its Artemis program and others that will continue its legacy, companies like SpaceX headed by Elon Musk are aiming their efforts at the colonization and subsequent terraforming of Mars. To achieve these ambitious goals we will need to use the natural resources available in space, whether from asteroids, moons, or planets.
Early in the Newspace era, several companies initiated ambitious programs to extract natural resources from near-Earth asteroids. The timing for such adventures is still very early, but by the second half of this century, this idea will be a reality. As we travel to space regularly, have a robust infrastructure in orbit around the Earth, space tourism takes off and we successfully take the first human on the surface of Mars, everything will be in place to take the next step and exploit the abundant natural resources of the celestial bodies around us.
The first to invest in this sector will again be billionaires, it has been speculated that the first trillionaire will emerge from this business, but much of the dying oil and mining industry will set its eyes on new ways of extracting key minerals for multiple economic activities and space mining will be among its priorities, despite this, its involvement will be very limited waiting for pioneers and visionaries to show the technical and economic feasibility of this adventure. International organizations will have little time to align their expectations and reach agreements to design clear and equitable rules of the game.
Takeaways for the second half of the century in the space sector
We are in a time of transition from almost exclusive funding by the government and a few billionaires, to the strong, recurrent, and leading incursion of VCs and corporations through M&As
Within the next 10 years will see the consolidation of the ecosystem of startups that are building end-user applications through the use of remote sensing data. We will see more IPOs such as Spire and Planet and, despite the current decline in VC investment in Space Tech, the trend for the next decade is double-digit growth
Startups in the Space to Space business (S2SB) will see significant growth. As we develop applications for and from space, this will be a segment of companies that will be on fire and will attract a lot of VC resources
The next decade will mark the beginning of space tourism as a sustainable business, and private infrastructure will be built and integrated to turn space into a major R&D laboratory for large corporations
In 20 years space tourism will be a real travel option for many people around the world and will become one of the most important sources of value generation in the space industry
The new waves of Newspace will deepen the inequality in access to the benefits of space between developed and emerging countries. Low and middle-income countries will see the emergence of some startups, but these will be mainly focused on developing applications for local customers using space data from constellations in LEO
The role of governments in the space industry for the next decades of this century will be focused on two things: space governance and securing resources for R&D in high-risk projects such as deep space exploration and the search for extraterrestrial life.
Taking actions now to establish an efficient future Space Governance
The current space industry is setting many precedents that could have significant impacts on the future of space exploration and utilization. One of the most significant is the increasing role of venture capital in funding space-related projects. As more VCs become involved in the space industry, future civilizations will likely develop more loosely regulated markets and weaker regulated structures. This could have significant implications for the way we use space, as it could lead to a more decentralized and competitive environment, with fewer barriers to entry for new players. It could also lead to a more chaotic and unpredictable marketplace, as companies and organizations may be more focused on short-term profits than on long-term sustainability or the common good. Ultimately, the way we use space will be shaped by the precedents set by the current industry, and we must consider the potential consequences of our actions as we move forward.
In order to mitigate the risks associated with the concentration of power in a few private companies and venture capital firms in future space colonization, it is necessary to develop a Space Governance system that prioritizes risk mitigation. To achieve this goal, the following principles should be focused on:
First, establishing clear and transparent regulations for space-based activities, including the licensing and permitting processes for private sector actors, is crucial. This will ensure that all players in the industry are operating in a legal and ethical manner and prevent any potential harm to the public or the environment.
Second, robust oversight mechanisms need to be put in place to monitor and enforce compliance with these regulations. This could involve the creation of an independent space regulatory agency or the implementation of a comprehensive system of inspections and audits.
Third, fostering a culture of transparency and open communication within the space industry, both between private sector actors and the general public, is essential. This will help to build trust and promote collaboration, as well as identify and address potential risks or challenges in a timely and effective manner.
Finally, establishing mechanisms for resolving disputes and conflicts that may arise within the space industry, such as an independent dispute resolution process or an arbitration system, is important. This will help to ensure that any issues are resolved fairly and efficiently and prevent the escalation of tensions or the risk of conflict.
Diego Jimenez is an entrepreneur who has founded multiple startups and has experience in the private space industry, prediction markets, and human-space systems at NASA. He is based in Medellín, Colombia, and has a Master of Science (MSc) from International Space University.