A Netscape moment for the commercial space industry?

August 2, 2009 | Michael Mealling | Comments | |

The commercial space industry has seen some interesting developments over the past weeks. Statements last week by members of President Obama’s human spaceflight review committee (The Augustine Commission) suggest that commercial providers may be taking a significant role in how NASA accesses low Earth orbit and how missions beyond low Earth orbit use orbiting “gas stations”. At the same time, two commercial space companies, Virgin Galactic and SpaceX, have received significant investments from well known funds (more on that below), suggesting that capital markets see a fundable new industry developing.

Some of these developments are reminiscent of the Internet industry in the early 90s. Prior to 1993, the National Science Foundation ran the Internet as an exclusive tool for university and government research (commercial speech was completely banned from the Internet prior to 1991). The NSF then decided to turn over the operation of the Internet to the private sector. Just two years later, Netscape’s IPO set records for first day gains. Despite the bursting of the dot-com bubble in 2000, the Internet industry has been one of the largest economic drivers of the last 15 years.

The suggestions coming from the Augustine Commission are somewhat reminiscent of NSF’s decision. By relinquishing its domination of low Earth orbit and partnering with commercial providers for beyond low Earth orbit infrastructure, NASA can better accomplish its exploration goals and foster a whole new industry. While we won’t see a space startup in every garage the way we did with Internet startups, the returns for using and developing space resources can be very interesting.

spacexdragonAssuming the Augustine Commission proceeds with these recommendations, commercial providers would be responsible for all low Earth orbit launch capability. The current example of that is the Commercial Orbital Transportation Services (COTS) project where NASA is helping both SpaceX and another commercial player, Orbital Sciences, build the systems and launch capacity to resupply the International Space Station. These resupply contracts represent about $1.75 billion in revenue for each company. If funded, a final phase to the program, called COTS-D, will require private firms to demonstrate their capability to carry human crew members to and from the station, representing another large market that could lead to further commercial contracts. This would represent significant revenue for SpaceX’s Dragon capsule system and could shorten the seven year gap in American-crewed launch capability. This is the gap between the Space Shuttle’s retirement in 2010 and the first flight of its replacement, Ares I. During this gap the US will depend on Russia for access to the space station. Congress and NASA have so far refused to fund the COTS-D portion of the project, but this may change in the coming months.

In addition to access to low Earth orbit and the International Space Station, the Augustine Commission is considering commercial providers for a wholly new capability: fuel depots. Current launch architectures for anything past low Earth orbit require the rocket to launch everything all at once. This means that very cheap fuel (roughly $2 per kilogram) is launched on the same rocket as billion dollar payloads. Fuel is also heavy. This means the actual payload is constrained to make room for that fuel. Rocket costs rise faster than their size so simply building bigger rockets is economically unsustainable. The idea is to separate the fuel from the payload by using cheaper and more frequent launches of just fuel to depots (or what normal people call “gas stations”). These fuel depots would be situated at interesting points around the solar system, enabling larger robotic missions and human missions without new budget-busting rockets. An organization that launches and resupplies these depots could bring in significant revenues from anyone using them, whether that be NASA, international space agencies, or commercial missions.

In order to meet the expected demand, commercial providers are going to need capital markets to help fund the development. For much of the commercial space industry’s history, one of the hardest challenges was attracting enough capital to bootstrap the business. Potential investors noted the lack of documented exits at interesting multiples. But recent investments by well known and experienced funds suggest this is changing.

Earlier this year Draper Fisher Jurvetson led a $15 million (possibly $60 million) round with Elon Musk’s SpaceX. Musk will be using that cash to finish up his Falcon 9 launch vehicle and the Dragon capsule. The closer SpaceX can get the Dragon capsule ready for crewed access to the International Space Station, the more likely Congress and NASA will fund COTS-D. Crew transport contracts represent additional billions in revenue for SpaceX. Not bad for a $60 million investment.

whiteknight2Virgin Galactic released details earlier this week of a deal with Abu Dhabi’s Aabar Investments for a $280 million equity stake. Virgin Galactic will use that cash to begin building its WhiteKnight2 planes (pictured right), designed to carry small payloads into orbit. While the suborbital tourism market usually receives the most press, nearly every player in the industry is developing the ability to carry scientific and educational payloads and to put small payloads into low Earth orbit. In exchange, Aabar received exclusive rights to develop a space port in Abu Dhabi, exclusive rights to the Middle Eastern market, and a 32% stake in Virgin Galactic. This values Virgin Galactic at about $900 million, roughly 40% of Netscape’s market cap after its IPO.

Do these developments mean the commercial space industry is going to duplicate the meteoric rise that the Internet industry? Our ability to recognize stock bubbles should suggest not. But it does indicate that knowledgeable investors think the industry is ready to generate financially interesting returns. Especially if NASA and the Obama Administration follow the Internet model and help create a new and profitable industry.

America could use a new, profitable, and uniquely American industry right about now.

meallingMichael Mealling is the VP of Business Development for Masten Space Systems and a member of the Space Frontier Foundation’s Board of Directors. Prior to joining the commercial space industry, he was involved with several Internet standards organizations as part of VeriSign’s research division.

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  • The internet bubble, ultimately had a foundation of tremendous productivity increases and a complete transformation of the way individuals interact with each other and with businesses. There were so many killer apps for the Internet we still haven't tapped into them all.

    My main question, and I am a complete space novice, is what is the killer app for space that will drive a corresponding explosion of innovation and investment. If all it is is tourism, then I find it hard to believe it will ever evolve beyond a small niche businesses servicing the top .001% of the worlds population.

    Instead of just the costs and technical details of making the industry work, I would like to hear a little more about what will drive demand for the commercial space industries' services. You spoke a little about scientific payloads. Is this the key driver of the potential of this industry?

    I hope this doesn't come across as negative, as I am fascinated by the possibilities.
  • Scott, there are many: space based solar power, nanotech research & manufacturing, platinum group metals minings, scientific research, pharmaceutical research, comsat refurbishment/refueling, settlement, and yes, entertainment. No one in the industry is suggesting that tourism is the "killer app". We view tourism as a bootstrapping mechanism that produced revenue with lower cost suborbital flights that you then use to build out other capabilities and markets. One of the major impediments to those businesses taking off in the past high launch costs caused by low flight rates. All of those businesses need regular, reliable and "cheap" access to space that currently doesn't exist. Tourism helps build that launch rate up.

    Lets take platinum group metals (ruthenium, rhodium, palladium, osmium, iridium, and platinum) mining. The current worldwide production of platinum is around 214 tons per year at $1200/ounce and production is dropping. Platinum is rare on the earth's surface but is available in much higher concentrations in space. It is in two forms: nickel/iron asteroids and impact craters on the moon. Since the moon lacks significant geological forces those nickel/iron impact sites are completely undisturbed. Here's a good book by Dennis Wingo on lunar PGMs: http://is.gd/20D7t

    Several nanotech research and manufacturing techniques require very cold temperatures and high qualify vacuum. These conditions exist "for free" in space. There are several highly efficient solar cell designs that require these conditions for manufacturing and that can be made out of most of what you find in lunar regolith. By beaming the power from the moon you could build large solar cell farms on the moon much cheaper than you could here. I'm not convinced you can make an orbital solar power business case close if you launch the solar cells from the surface of the earth. Launch costs would have to drop to impossibly low levels to make that work.

    Those are some examples. I'm going to compile a list of links to more in depth analysis for each one and post that here once I get reliable Internet access.
  • Thanks for the additional details Michael. This is great information on a domain completely outside my area of expertise. I look forward to your future contributions.
  • windbourne
    We actually NEED to start exploring right away. There are a number of elements on earth that are rare and located in unfriendly places. In particular, China holds the majority of rare earth that we can use. They are already playing games with them, at one point not selling them to companies outside of China, and now charging a great deal more. I think that if we do NOT start looking all over the moon as well as the asteroid belt, that we will see a time where China and other countries will simply stop access these. When that happens we are VERY likely to see a war. OTH, if we go to space and can find large deposits in various locations, then we send them back to earth. Yes, they will be expensive, but we will learn to lower the costs as well as build around these items. We are also likely to find new minerals that will produce some interesting changes.

    Between SpaceX and other ventures, combined with Bigelow and VASMIR, I think that we are ready to start exploration of these and avoid war.
  • Robert Horning
    While I do like this response, it still doesn't address the original question: What is the "killer app" that in and of itself can justify the installation and development of a transportation infrastructure to places in various places around the Solar System.

    The quote here is that Platinum is currently going for about $1200/ounce or about $12,000 per pound. Using Apollo-style launch systems, it costs about $100,000 per pound (being wildly optimistic here.... Apollo itself cost more in 1960's dollars depending on how you sliced up the budget picture) to bring mineral samples back from the Moon to the Earth. Yeah, you could set up a mining operation up there, but it wouldn't pay for the expense of even trying... assuming that you had already finished and processed bars of Platinum that simply had to be grabbed and returned to the Earth. Perhaps some resources on the Moon could help reduce that cost somewhat, but that is a financial gamble that still isn't a proven fact.

    Yes, some nanotech research can and has been conducted in space. Even so, it still remains pie in the sky in terms of something an investor would want to get involved with.

    Solar farms from the Moon would be a near disaster in terms of the mechanics of beaming the power to the Earth... particularly given the distances. Geo-synchronous orbital solar power arrays might be a bit more economical (being an order of magnitude closer to the Earth with correspondingly lower energy loss rates) but the problem is still trying to get the panels up there in the first place. Perhaps lunar fabrication facilities, but that takes a huge amount of capital to get going and still doesn't rationalize why you need to put all that equipment up there in the first place. The power received from even the most optimistic solar power satellite for terrestrial usage is going to be easily an order of magnitude more expensive than even "clean" alternatives like terrestrial solar power, wind turbines, or tapping tidal energy. Pointing to existing examples like the 150 kW solar power generation facility on the ISS should at least provide some of the foundational basics to look at in terms of an actual solar array farm that is in actual use. It is almost never mentioned by pro-solar power satellite proponents.... because such power is so incredibly expensive that its value is only useful when no other means of providing power are available (like to the astronauts on the ISS).

    The only things that have proven themselves in terms of absolute value that is unmatched from other technologies is telecommunication satellites (including interesting variants like Iridium that are barely profitable with discounted hardware recovered from multiple bankruptcies), navigation equipment like the GPS constellation, and orbital reconnaissance equipment (aka satellite photos and weather monitoring equipment). All of these are considered "mature" technologies, and including well established companies that run this kind of equipment. Nearly all of the non-government launches and even most of the government launches over the past decade that weren't pure fiscal black holes like the International Space Station involved a launch targeting one of these areas. I guess another area is planetary science investigations, but that is R&D as a sunk cost and not necessarily a profit center. Money can't be found (yet) to sell private photos of the surface of Mars, at least to justify the cost of sending a vehicle there.

    What is the killer app for spaceflight and in particular manned spaceflight? The only legitimately new application that is emerging is the role of space tourism, making flights by wealthy individuals who don't necessarily want to spend a year training to become an astronaut/cosmonaut just to spend a two-week vacation in space. That is also where new companies are emerging to provide services that until now are non-existent. There are some marginal businesses that once transportation costs drop will become viable, but those aren't killer apps.... those are merely marginal businesses carried along for the ride once everything else is already going. Indeed one minor segment of the spacecraft industry being hurt by "new space" is the role of sounding rockets... that will be all but eliminated once vehicles like Space Ship Two come on line.
  • Loki
    There probably is no "killer app" in the short term, which is one of the main reasons why it's taken so long for commercial space to get off the ground (no pun intended). Space tourism is probably not going to generate huge amounts of cash by itself, however the lower launch costs compared to existing launch systems will be a huge help for the satellite industry. Thanks to that even relatively poor countries may be able to afford to have their own weather, reconnaisance, etc. satellites. We may also see lower telcommunications costs due to cheaper launches for telecom satellites, which will also make it easier for poorer countries to afford. So I think the immediate impact could be the lower launch costs enabled as a side effect of the industry.

    IMO Bigelow Aerospace, with their somewhat ambitious plans to launch orbiting "space hotels" for tourists is sort of the forgotten man, but potentially the most important player of all in the "new space" industry. Don't forget that the ISS is currently scheduled for de-orbiting in 2016, with a possibility of extending it to 2020. Whenever the ISS is de-orbited there will need to be a destination to go to in LEO, which is where Bigelow comes in. The price for a suborbital flight on Virgin Galactic is ~$200,000. It's probably safe to assume the cost of an orbital flight would be at least an order of magnitude higher. 2 million dollars is still a lot of money to the vast majority of us, but it's a lot cheaper than the 20 million dollars that some have already forked over for trips to the ISS. Research scientists would be very interested in flying experiments to a Bigelow station for that price (hypothetically speaking), so in the somewhat short term (a couple of decades) space research may become more affordable and common place. Probably still not a "killer app" though.

    In the long term (I'm thinking several decades to a couple of centuries here) PGM mining of the moon and NEOs may be profitable, but probably not until the supply here on earth dwindles to the point where it would be cheaper to go to space for them, which is probably a long way off. As for the idea of solar farms on the moon being used to beam power back to earth via microwaves, my understanding was that the primary loss was due to atmospheric absorption, which will be a problem whether beaming the power from the moon or GEO. Maybe I'm wrong, RF isn't my specialty afterall. Since the raw materials to produce high efficiency solar arrays already exist on the moon, at least you don't have to launch all that tonnage to the moon, "only" the equipment required to manufacture the solar arrays and transmit microwaves back to earth. While that's still a lot of mass I don't think anyone's done a cost comaprison of launching several hundred if not thousands of tons worth of solar power beaming satellites to GEO vs. the cost of launching the equipment to make the solar arrays and other associated equipment to the moon (probably because both ideas are still far fetched).

    Bottom line: there is no "killer app" which is one reason why there are still only a handful of "new space" companies out there. In fact most of them were mentioned by name in the article. Compare that with the literally hundreds of internet startups that were around prior to the .com bubble burst. The main reason is that there is no "killer app", and space is literally rocket science, so it's not like just anyone can start a space launch business in their garage
  • Very Good Article.
  • Well put Michael.
  • john
    I would say no to the question posed by the article
  • manchesterescorts
    I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.
  • NMN
    You have well researched information in your posts. You're building great credibility. Cheers! http://AppUseful.com
  • One additional point I would like to make is that Netscape ended up being a poor representative investment. Revenues grew quickly in the first two years but as more of the industry came on line other business models proved to be better investments. The original investors in Netscape made money by simply being the first publicly available representative for the industry. The term "Netscape-moment" in no way suggests that investing in Netscape itself was a good idea.
  • mikearnett
    "The suggestions coming from the Augustine Commission are somewhat reminiscent of NSF’s decision. By relinquishing its domination of low Earth orbit and partnering with commercial providers for beyond low Earth orbit infrastructure, NASA can better accomplish its exploration goals and foster a whole new industry." With all due respect, the suggestion to relinquish domination of LEO and partner with commercial providers didn't come from the Augustine Commission. It was direction fom Mike Griffin in 2005 and was the genesis of the Commercial Orbital Transportation System (COTS) program that Space-X and Orbital Sciences Corporation are now participating in. I'll never forget being at the luncheon at the first and last annual "Florida Space" conference/symposium at Kennedy Space Center in November 2005 when Mike declared that NASA "does first things first," then went on to say, "We've done LEO. It's time to turn LEO over to commercial enterprise and get NASA back to doing what it does best: exploration." He went on to describe both the commercial benefits and the benefits to NASA. I thought, "He's right. This guy gets it." I've recounted that moment to numerous friends, family and colleagues. The rest of your article is a well-documented validation of Mr. Griffin's vision and leadership.
  • Mike,
    As a Board Member of the Space Frontier Foundation I would point out that the "suggestion to relinquish domination of LEO and partner with commercial providers" didn't come from Griffin either. It predates Goldin by at least a decade. I never suggested that anyone else hadn't made that suggestion. I was simply pointing out that a currently standing committee with the backing of the President was also making that suggestion. I applaud Mike for COTS. I think that will be his lasting legacy as Administrator. I was disappointed that he viewed commercial companies incapable of crew transport but it is what it is.
  • massebloomfield
    I keep wondering why I hardly ever hear any of the space advocates mentioning Gerard K. O'Neill"s book "The High Frontier; Human Colonies in Space." In my mind, NASA has done what it could to avoid using O'Neill's ideas for extending the human occupation of space. The space tug, one of the ideas in the book, has been neglected by everyone. Why?

    It is time to consider using O'Neill ideas to extend man in space and one the Moon and Mars.
  • The Augustine Commission has published its Summary Report here:
    http://www.nasa.gov/pdf/384767main_SUMMARY%20RE...

    This does include some of the recommendations I discussed in the article. The next step is for the Obama Administration to decide which of the options to go with. This is expected to be sometime in October.