Space: The Final Business Frontier

T-minus 10, nine, eight, seven, six, five, four, three, two, one... The

space

race is no longer just about global superpowers fighting over bragging rights and technological supremacy. Private companies, many of them, are rushing to commercialize not just the

final

frontier

, but the act of getting there. I'm a sportsman, this is like March Madness for me. It's one and done, I have one chance to make it to the end or else I'll fail, run out of money, or get eaten by someone else. And whoever figures out how to make launching safe, affordable and convenient will take the next big step.

We choose to go to the moon in this decade and do other things, not because they are easy, but because they are difficult. 60 years after the

space

race, the way we leave Earth has changed markedly. Zero, all engine running. Takeoff, we have takeoff, 32 minutes past the hour. Space seemed like a vast black desert, but now we are ready to make the desert bloom. I mean opening space for

business

, for private enterprise. Opening space for trade and experimentation and development. Because? Improve the quality of life on Earth. 25 years after Ronald Reagan signed the Commercial Space Launch Act, the desert has begun to bloom.

I think if you're young in 1969 and you saw people walking on the moon, and 50 years later we still haven't been back, I think it's a little disappointing. I think they took that, the hopes and dreams of their youth, and are applying it to today's market. And I think they're having fantastic success. In the world of rocket launching, there are two very different careers. The first are the large rocket companies such as SpaceX, Virgin Galactic and Blue Origin. Jeff Bezos has reportedly already invested billions in Blue Origin and will invest billions more. Take off. SpaceX has also raised billions of dollars and acquired major contracts from NASA to fund both the development and operations of its vehicles.

SpaceX Falcon-9 rocket takes off. But they are not the only players in the game. A heated race is intensifying among small and medium-sized startups. There's a subset of the community not called SpaceX, not called Blue Origin, that's trying to figure out, how can we get there quickly? Companies like Rocket Lab, Relativity, Firefly and Virgin Orbit. Right now, there are more than 100 small launch companies competing not just to get to space, but to see who can get there most reliably and cheaply, and then do it again and again. And ideally, end your

business

in the black. Because over time, new industries depend on these launch companies putting payloads into orbit.

And any misstep can spell disaster. Not just for a rocket, but for an entire company. There is currently a more than $200 billion commercial space industry. There are a couple of huge markets that have been very profitable. The most profitable is the satellite industry. In 2018, the global space economy was estimated to be around $360 billion. $277 billion of that figure is accounted for by the satellite industry, which has actually grown by more than $100 billion in the last decade. And for these satellites to reach space, it is necessary to launch them on a rocket. Global launches in 2018 increased 46% over the number of launches a decade ago.

In many respects, it has never been easier to put a satellite in space, in terms of cost and availability of rockets to put it into orbit. And a new era of smaller, cheaper satellite technology is creating this boom. Once a year, in a desert north of Utah, the Small Satellite or SmallSat Conference comes to Logan. It has all the hallmarks of an industry trade show—shiny laces, tons of swag—but the deals being made here are defining what the future of the space economy will look like. I've been attending this conference for 20 years and have seen it grow from 300 people to over 3,000.

So it's exciting to see that transition as we move into the next phase. Traditional satellites are typically powerful behemoths, the size of school buses, and cost hundreds of millions, if not billions, of dollars to build. Today, the proliferation of small satellites, CubeSats and even nanosats, can cost as little as $10,000 and can be built with hardware similar to that included in your mobile phone. They range from the size of a Rubik's cube to about the size of a dorm refrigerator. And that is a big difference. So some of these launch companies want to launch a few dorm-sized refrigerators and others want to launch dozens of CubeSats.

And that's why they're trying to divide the market that way. Those satellites are providing images of the Earth, they are potentially providing telecommunications services, and they are attracting huge investment of tens, hundreds of millions of dollars, even billions of dollars. Earth's insatiable need for communications and Internet is really what is driving this huge number of satellites that will enter orbit in the next five to seven years. There will be thousands, if not tens of thousands, of new satellites in orbit in the next five to seven years. The question is: are they really capable of delivering successful business services?

The idea is that the data these small satellites collect will underpin entirely new business models and revenue streams. The images and data collected by these small satellites will be used by everyone from hedge funds to telecom giants to the US government. Just think about how much the photos you can take with your Android or iPhone have improved from the first generation to the current one. Similar things happen in small satellites. Market research says small satellite manufacturing will nearly double by 2020, with nearly 8,000 new small satellites in space by 2026. The problem is always that small satellites have a lot of capacity, but there is no good, affordable way to put them into orbit.

And that's where small startups see promising business. The fact that a small launch vehicle is much cheaper in total than a large launch vehicle, on the order of five or 10 million dollars, versus 50 or 100 million dollars, and that there are more customers. Let's say you have a small satellite that you want to put into orbit. Think of large companies like SpaceX as a bus and small and medium-sized launch companies like Rocket Lab as a taxi. On large launches, you're in the back of the bus, after the needs of what's called the primary, which is the main payload of the rocket, like a large government satellite.

Their small satellite is simply taking advantage of that primary because they bought most of the rocket. With small launchers like Rocket Lab, you and your small satellite can dictate more terms about when and how to fly. And you will pay for the entire trip. Therefore, booking a small satellite taxi gives you more flexibility on when and where exactly you want to go into orbit. But it's more expensive. Sometimes, sharing a ride on a large rocket and the ability to save on launch costs is more appropriate depending on the satellite, your mission, and your budget. Much more important is the orbital inclination, or the angle of the satellite's orbit with respect to the equator.

It is much easier to move a satellite to a higher or lower orbit than to change its inclination. And that's why all launch customers have to decide how their mission priorities and budget can align when choosing how to get to space. It's getting to the point where traveling on really big rockets works for some people, it doesn't work for every business case. And then there are small satellite companies that say: we want our own trips. Those customers will determine which of these small rocket companies will succeed and which will fail. This isn't the Internet, where you build a huge user base and then figure out how to monetize them.

Launching doesn't work that way. You have to build up a backlog of clients. Of the more than 120 small and medium-sized launch companies in existence, only one is successfully launching rockets for its customers right now. And that's Rocket Lab. People can come to us and we will fly them out. That's a huge competitive advantage over, you know, people who are still developing a vehicle. Peter Beck's Rocket Lab has raised more than $280 million from outside investors, at a valuation of more than $1 billion, and currently flies a rocket every 30 days. It seemed that the most difficult thing was to go from zero to the first successful orbital flight.

But in reality, going from the first successful orbital flight to producing one every month has required the same amount of stress, energy, complexity and toughness. Obviously, we completed our test flights and moved into full commercial operations with the first flight of its commercial time. And then immediately after that, we flew our NASA mission, and now, you know, we're building and launching a vehicle every 30 days, every month. And while other rocket companies look to build their customer base, Rocket Lab cannot meet the growing demand for launches. Our biggest problem is that we cannot expand profits. That is our challenge.

We've built four and a half acres of new factories and, you know, we're pushing in every direction possible to build more capacity. We're afraid there won't be, you know, we're the only dedicated solution available on the market right now. You know, at an affordable price. And so what we see is an enormous amount of demand. So the demand is there, that is not the problem. The question is figuring out how to deliver reliability, scale, and cadence while keeping prices as low as possible. And each company has its own approach. Every company has a unique way of building their rocket.

You know, whether they use liquids, solids, fuels or a combination of both. Whether they're 3D printing their sets, each has their unique approach to getting to a rocket. However, the bottom line is that good business in space is exactly like good business on Earth. A focus on customers, incremental successes, and a vision backed by a real business model is what works in space, just as it works on Earth. One of the companies that believes has a successful business model is Firefly, a mid-sized launch company based in Austin, Texas. So I'm going to go over this part of the procedure, okay?

Set the alarm, hit logic for the next pressure increase and we will proceed in 10 PSI increments, starting from room temperature, with a window of one. And then in the next six months, Firefly will launch this rocket. We've been working on it for years and we'll have that cathartic moment where we launch the rocket and everything will be great. But the prospects for Firefly were not always so rosy. This is a very difficult business. There are much easier ways to make money in the world than starting a rocket company. And you have a lot of setbacks, you have technical setbacks, you have financial setbacks.

But the biggest challenge for me has been the financial setbacks. Firefly, like many other rocket companies, is no stranger to financial setbacks. Vector, one of the best-known startups, ran into financial trouble in the summer of 2019 and saw its CEO leave amid uncertainty about the company's future. In 2017, Firefly, then known as Firefly Space Systems, was hit by financial instability and filed for bankruptcy. That's when Silicon Valley investment fund Noosphere Ventures came in, bought its assets and renamed the company Firefly Aerospace. I've learned a lot about the types of investors you want to involve in this. I think that this learning has made us very strong to move forward at this moment.

As an investor and kind of the financial person behind the company, I try to encourage the company to think beyond just creating a product, but to build a business. Thank God we went bankrupt, frankly. Now we have a better product. I have a better partner, who lets me do what I do well and he finances the project, and I'm not going to, you know, fuck the legs of the dot com guys, please give me another $100,000. Now, after two years of R&D, they are about to launch their first rocket. Our plan is to have five releases next year.

All five will be from Vandenberg Air Force Base in California. But the next thing is to start adding technology as an established company, and reuse, and continue reducing costs. And we want to do things differently. Companies like Firefly struggle to differentiate themselves to stand out to investors and attract customers. We differentiate ourselves by our payload class. Even among small launchers, we are large and small launchers, so our first rocket, the Alpha, is capable of carryingthousand kilograms, while our competitors weigh more than 500 kilograms and less. Such a large payload means they can serve larger customers, such as NASA and other federal agencies like the US Air Force.

We are on track to be able to provide NASA lunar lander capabilities, landing on the moon in the 2021 period, when they would normally launch in early 2021. Firefly has restructured and rebuilt its organization from the ground up, but the question remains whether it can remain competitive when it comes to price. We currently have a backlog of around $1.3 billion and a backlog of over $3.5 billion just for our launch services. If we fly according to our projected flight rates, we expect to be cash flow positive by the end of 2020. We are very cost conscious, that is one of the core principles of Noospace, so Firefly will try to be competitive with anyone.

And we take all competition seriously. That competition comes not only from other small and medium-sized launch companies, but also from large ones. Like SpaceX, which announced a small satellite solution priced as low as $1 million for payloads up to 150 kilograms. Which is roughly equivalent to $15,000 per kilogram to put something into orbit. Coincidentally, that's exactly the same as the Firefly economy for our Alfa vehicle. Firefly believes they can offer something that Elon Musk's space giant cannot. Unlike SpaceX, where those satellites will be one of many, possibly one of 60, our partners will have the same economic unit, but they will have a much more personalized and dedicated offering, it could be one of four or one of five satellites at our destination.

Ridesharing is not the best opportunity for many small satellite customers. In a way, it's like hitchhiking. You can't go exactly where you want to go and you can't go on your own schedule, and that's important to many clients. Within five years, Firefly plans to launch not just one rocket, but a family of rockets. We are interested in building a multi-million dollar business. And to achieve this, we know that we must be cost competitive with whatever the market throws at us, not simply with what the competition is doing today. And one of those competitors is in Long Beach, California.

Virgin Orbit is a subsidiary of Richard Branson's Virgin Galactic space company. And while they are a mid-sized launch company, like Firefly and Rocket Lab, their approach to putting a rocket into orbit is a little different. Virgin Orbit is a dedicated small satellite launch vehicle that seeks to revolutionize the small satellite market. We are using our flying launch pad, it is a Boeing 747 400 aircraft that we modified and it has a rocket attached under the left wing of the plane. It is a two-stage rocket, a liquid oxygen kerosene rocket. It has been flown before and has many successes.

Some of those other successes are from their sister company, Virgin Galactic, which has used this launch pad launch technology for space tourism instead of small satellites, which they believe makes a difference in the industry. Everything we built around the airdrop system is intended to mitigate, you know, long-term delays. For example, an air-launched system can fly in most weather conditions. Because we're an air launch, our cadence is very fast, so it only takes four to six hours to actually fuel the rocket, you know, connect it to the plane and take off on a mission. And having that flexibility, having that fast cadence response time is critical to ensuring that payloads can get to orbit when they want to get there.

That flexibility is what most small startups hope will set them apart. That quick, responsive launch exactly where you want to go, which appeals to government users. Government missions, science missions, government military missions, and government intelligence missions are exploring the potential for lower overall cost small launch vehicles that can do exactly what they need, when they need it. And without even having a successful full test launch, Virgin Orbit already has a pipeline of customers pending. Of course, we see the market expanding. There is a lot of potential out there. So we could certainly see ourselves providing even more release support than, like, 20 to 24 per year, and of course, that's more of a medium to long-term goal.

Switched on. Take off. The future looks bright for companies like Rocket Lab, Firefly, and Virgin Orbit. But what about the hundreds of smaller launch companies out there? Will everyone survive? Probably not. There is not enough demand for the 100 or so rockets that are currently in development. We absolutely believe that the window to invest in the launch has now closed. There are some investors who made some good plays here. That's going to work out very well, but at this point, in our opinion, the industry is well past that type of venture capital investment stage. So we see that maybe 10 companies survive.

The pitching industry is unforgiving. He is not very tolerant of failures. On behalf of Arianespace, I would like to express my sincere apologies to our customers for the loss of their payload. And tell them how sorry I am. If you have a bad streak, you won't get much patience out of the market before people start using other rockets. The technology of space activities is fascinating, the technological challenges are extraordinary, the competence required to conduct operations in space is intimidating. The launch industry has a passionate and energetic group of engineers, venture capitalists and designers singularly focused on taking private enterprise off the planet.

It is not just a new industry, but a new way of seeing the world and working in it. Once you have that cheap access to space, you now have completely new business models that weren't closed before. You have completely new cases for space as an environment. It has a whole ecosystem of support services that are being developed to support satellites that will be launched in the next five to seven years. And so, that has an unlimited amount of economic development, possibility of economic growth there. You know, I like to compare the current situation to the early beginnings of the Internet, where we just started sending emails.

That's really where we are in the space, we're just starting to send emails. And if you think, if you go back to when you started sending emails and I told you all the things that were going to happen thanks to the Internet, you wouldn't believe me, would you? You'd think that's crazy. But I think that's where we are now: we sent our first email and now it's opening up space for innovators to try new things. That's why perfecting the world of throwing is just the beginning. Rockets not only provide a platform for space flight, but also a platform for innovation as we figure out how to get to space.

The next problem is where do we stay? In the next episode of Giant Leap, the International Space Station is about to retire. And NASA wants to open the door for commercial companies to develop the technology and business needed to create our next space habitats.