Transterrestrial Musings

Comments

Customers. They need customers. Seven unicorns--pardon me, space-happy billionaires--won't cut it.

Posted by Karl Gallagher at January 23, 2006 07:48 AM

Laf

Even with customers the perceived risk of commercial space ventures puts most even good ideas outside the bounds of the traditional funding sources, especially in the venture capital world.

That is why it takes visionary capitalists like Elon, Bigelow, and others to prime the pump. They have other issues but at least they are bringing money to the table. We would have never gotten as far as we have in Orbital Recovery without Walt, and he has his own issues.

Dennis

Posted by Dennis Ray Wingo at January 23, 2006 10:17 AM

Investors do worry about risk; nobody wants to lose his money. However, many many folks lost lots and lots of money in the dot com boom and bust. In other words, people do make risky investments.

Investing in space continues to be a risky investment for a lot of reasons; regulatory risk, PR risk from exploding rockets, risk of raising enough capital, technological risk, program management risk, etc, etc. Anyone of these can kill your company.

(as an aside, what killed Iridium? Obviously they had some issues with coming to market cheaply enough, and getting enough customers, but I would say that they made a few technological mistakes in designing their phones). Satellite phones, or wireless communication in general is a great market.

Having a market (or two) that exists in orbit is what will jump start the launch industry.

Posted by Fred K at January 23, 2006 10:38 AM

In other words, people do make risky investments.

Yes. The key comes down to having a credible prospect of making sufficient money to justify the risk. We need to see somebody have a big business success in this new industry to draw in the venture capital in interesting amounts.

Posted by Rand Simberg at January 23, 2006 10:43 AM

I came to the same conclusion. We need demand and the technology and the business case work. So I am working on growing demand.

Posted by Sam Dinkin at January 23, 2006 10:54 AM

Good points Sam! Interesting that NASA really hasn't had to worry about demand, and their business cases have been comparitvely weak to private industry, so they have spent much of their money in growing technologies (not to suggest they did this efficiently or successfully in all cases). Thus I understand the private guys pushing for developing demand and business case. I hope they aren't as cavalier about the need for technology as the interview suggests. This would bother me as investor:
The problems for which there aren’t such straightforward solutions, like heat shields and recovery systems, are ordinary engineering challenges not requiring any large technology development program.
I worked with a startup in the telecom industry. The COO would regularly make statements about technology growth as "Hard Now Do Later". He even abbreviated during meetings with HNDL. He had demand, he had a business case, but after a year, the company went under because his technology never become easy enough to do.

Posted by Leland at January 23, 2006 01:01 PM

I think the biggest stumbling block for a 'dot-com moment' (forgive me if I've said this before) is that the public interest-profitability ratio is so high. Every project of any size that involves space launch gets an incredible amount of press and public interest, even when no results are forthcoming.

Getting a 'big business success' in space flight may be possible, but it will be so overexposed even before it comes to fruition (like Iridium or Globalstar), that even moderate success will be a crushing disappointment compared to public expectations.

Posted by cuddihy at January 23, 2006 01:08 PM

Actually, with today's technology, we could mount a intersteller robot probe to one or more of the nearby stars. All it would take is the money and the patience to wait a few centuries for any feedback.

Rich

Posted by Rich at January 23, 2006 02:43 PM

"as an aside, what killed Iridium?"

Telephones like a brick, high pricing structure, delays in implementation and a launch around the time the economy was tanking. IIRC, they are still operating, mostly on government contracts.

Posted by Fred Kiesche at January 23, 2006 02:50 PM

On Iridium:

It seems to me that the market for Sat phones is actually quite real, although it may not be lucritive enough to pay the bills for Iridium.

Iridium locked its protocols into hardware (its 66 sats) it later found out that people needed smaller handsets, better connections and robust digital data capability. Today Thuraya phones (and others) provide this need at a cheaper price while Iridium doesn't (although Iridium works near the poles -- well actually everywhere ).

My point? There are markets in space, and the commerical sector will try to capture them, but they won't necessarally succeed, and their failures may be due to very terrestrial, mundane reasons.

Posted by Fred K at January 23, 2006 03:49 PM

> Thus I understand the private guys pushing for developing demand and business
> case. I hope they aren't as cavalier about the need for technology as the
> interview suggests.

Please list the new technologies you think are needed. Explain why each of them is needed. Saying "private guys" are "cavalier" isn't proof, it's just namecalling.

And what about government guys? Milt Thompson and Wernher von Braun proposed flying an M2 or HL-10 lifting body on an early Apollo mission. The NASA review board rejected the proposal because, in the words of one member, "If it's as straight forward a development as you say, why should we bother doing it?"

If a reusable lifting-body spacecraft was a "straightforward" development 40 years ago, why do reusable vehicles require new technology today? Were Thompson and Von Braun "cavalier"? Did they have better technology than we do today?

> He had demand, he had a business case, but after a year, the company went
> under because his technology never become easy enough to do.

Okay, so your company failed because it relied on risky, nonexistant technology. But the people you criticize are not advocating new technology -- quite the opposite. So, how is that failure an argument against systems that rely on mature proven technology?

Posted by Edward Wright at January 23, 2006 06:10 PM

I think Karl's right above. While visionary billionaire investors are certainly one way to finance space development, odds are generally in favor of such investors losing lots of money. It isn't really going to happen unless someone can identify a market to justify larger investments.

Sam's interested in growing demand. I hope that works, but I don't think you can market your way into profitability. It'd be cool if I were wrong, though.

Posted by Jane Bernstein at January 23, 2006 09:52 PM

what killed Iridium?

Global GSM roaming and apparently a dreadful sales service.

The problem for them is the market of people who needed to make calls from remote(ish) locations is small in comparison to the need for general mobile services. Once GSM really got going with decent roaming systems, it covered the bulk of the later market.

There's certainly a healthy market for sat phones, but for me it's massively overkill. In 5 years the US has gone from having dreadful global roaming options to pretty good - you can now roam with a standard 3G handset in Japan, which is only leaving Korea as a place where you'll need to rent a cellphone on arrival. That will probably change when the next generation of handsets emerge.

Posted by Daveon at January 24, 2006 01:52 AM

There's a market for satellite phones, but it's a small one. The problem is most people live and work in areas of population density high enough to support superior terrestrial systems. Remote areas are, by definition, niche markets.

Satellites are better suited to broadcast operation, as we are seeing with digital TV and radio services.

Posted by at January 24, 2006 05:34 AM

this one actually ties in here very nicely:

http://blog.guykawasaki.com/2006/01/the_top_ten_lie_1.html

Posted by kert at January 24, 2006 07:31 AM

Jane writes:

Sam's interested in growing demand. I hope that works, but I don't think you can market your way into profitability. It'd be cool if I were wrong, though.

Mike Griffin has said (often) that the prospect of colonization, of creating new human societies "out there" is the only long term sustainable why for human exploration. I agree. And a serious effort to colonize would create staggering amounts of demand for Earth to LEO lift. Once that demand exists, the creativity of the private sector will produce solutions to low cost access. As always, chickens and eggs.

As for marketing, how much revenue might be created by developing "brand value" linked to these colonization efforts? "X is the official sponsor of the first city on Mars - - Buy clothes with our logo to express your support for permanent human expansion into the solar system."

Posted by Bill White at January 24, 2006 07:47 AM

PS - - We don't need no stinkin' technology. We need creative salespeople and we can use the rockets we have (Russian) and not the rockets we wished we had.

Get the ball rolling and alt-space will have a gadzillion customers to fund SSTO space plane R&D.

Posted by Bill White at January 24, 2006 07:49 AM

If your goal is to develop technology (like NASA), then by all means spend tons of money on R&D to build new technology. Your engineers will love you.

If you goal is to develop an affordable launch vehicle, use off-the-shelf technology to the greatest extent possible, saving a fortune on R&D.

Unless you can realistically expect to launch a lot of rockets, you'll have a hard time amortizing your high R&D costs. There's something to be said for the "Big Dumb Booster" idea.

Posted by Larry J at January 24, 2006 07:52 AM

Good discussion; I can't resist weighing in.

It's just not practical to embark on a colonization program without an existing infrastructure of reliable, affordable space transports. Thus, I don't think you can create demand that way.

Likewise, the cheap(er) expendable Russian vehicles are evidently - as determined by the marketplace - too expensive, too unreliable, too inflexible to get the ball rolling. Otherwise, why is no one doing it?

A big dumb booster may reduce those costs somewhat more, but you are still going to be stuck with the limitations inherent in throw-away rockets.

To really get the ball rolling, at some point someone or some company is going to have to bite the bullet and build a real, honest to goodness space transport. Maybe that can be done with profits from one of the new expendable or suborbital vehicles, but I just don't think any market served by the existing vehicles is going to be able to *justify* the development of the space transport. A real, flying space transport is necessary for it to be possible to discover and develop new markets.

Posted by Dave Hoerr at January 24, 2006 10:22 AM

> As for marketing, how much revenue might be created by developing "brand
> value" linked to these colonization efforts? "X is the official
> sponsor of the first city on Mars -

That's the problem, Bill. You ask "how much revenue..." like that was a rhetorical question. It isn't. It's a real queation with real answers that can be determined by real research.

The licensing industry generated total revenues of $172.7 billion worldwide in 2004. About 9% of that goes to licensors -- just under $15.5 billion.

Planning to capture 100% of the world licensing market is not realistic. If you had the most wildly successful marketing campaign in history and captured 10% of the world licensing market, that would give you $1.5 billion.

If your Shuttle-Derived HLV costs about the same as the Saturn V -- $2 billion per flight -- $1.5 billion in annual revenue will support one launch every 15 months.

One rocket eveyr 15 months is not enough to "colonize space."

Any investor can easily do these calculations -- and they will. They don't invest just because of some sound bite from Mike Griffin. When you make wild-eyed claims that don't stand up to the most cursory analysis, you just turn off more investors.

Posted by Edward Wright at January 24, 2006 03:15 PM

> Unless you can realistically expect to launch a lot of rockets,

And why is that unrealistic? There are millions of people who want to go into space -- enough to keep a lot of rockets busy for a long time.

> you'll have a hard time amortizing your high R&D costs. There's something
> to be said for the "Big Dumb Booster" idea.

A big booster is going to have big development costs -- and almost nonexistant flight rates. Do you know what that does to amortization?

To reduce amortized costs, you must control development costs and increase flight rate.

One way to reduce development costs is to develop smaller vehicles. Another is to reuse hardware during development and testing.

The unspoken assumption here is that reusable vehicles will cost more to develop than Shuttle-derived monster lifters. There's no reason to believe that's true.

Nor is there any reason to believe the argument that monster lifters will generate a market for cheaper launch systems. They haven't done so for the last 40 years.

Big boosters only lead to big payloads (like the 28-ton CEV), which in turn require big boosters. Concentrating all demand onto a few huge vehicles eliminates the market, rather than creating it.

Posted by Edward Wright at January 24, 2006 03:48 PM

t/Space needs $500 million in R&D or so I read. Nike has signed a $485 million endorsement deal with the English football club (soccer) Manchester United.

If Nike & t/Space signed a long term deal that all t/Space employees would wear Nike logo gear while on orbit, t/Space could pledge those rights to an investment banker and borrow at least a chunk of the money needed to build their CVX.

I like the potential slogan: "We don't talk about space, We Just Do It!"

Posted by Bill White at January 24, 2006 06:13 PM

> t/Space needs $500 million in R&D or so I read. Nike has signed a
> $485 million endorsement deal with the English football club (soccer)
> Manchester United.

That's sponsorship. It's not licensing -- which is what you were talking about before.

t/Space not an English soccer team. They do not have millions of fans who watch them play every weekend. What on Earth makes you jump to the conclusion that Nike will give t/Space the same deal that they gave a leading soccer team?

> If Nike & t/Space signed a long term deal that all t/Space employees would
> wear Nike logo gear while on orbit, t/Space could pledge those rights
> to an investment banker and borrow at least a chunk of the money needed
> to build their CVX.

The keyword there is "if." There is no evidence Nike intends to sign a deal with t/Space, much less the $500 million deal you're talking about.

*If* Nike signed a contract with t/Space, they will price the contract based on a sponsorship valuation. They don't just mindlessly pay every company the same amount they paid Manchester United.

And *if* Nike signed a contract with t/Space, t/Space would have to spend a large part doing *work* for Nike. A sponsorship deal is not a handout. It's a contract. The $485 million you talk about Manchester United getting is $485 million of *revenue*, not $485 million in profit.

I fear I waste my time. You don't seem to be interesting in learning how the numbers really work.

Posted by Edward Wright at January 24, 2006 08:24 PM

Sponsorship, licensing, logos, brand value, whatever. Try it all. American companies spend $500 billion per year on marketing and related efforts to sell stuff to consumers.

One famous guru is Sir Richard Branson who will be selling Virgin Galactic exposure to Volvo, 7-Up and anyone else he can. Betcha they make more money from that aspect than from selling tickets.

Posted by Bill White at January 24, 2006 08:36 PM

Be wary of Branson's "guru" side though. He has a really mixed track record. He has a small number of highly sucessful operations which have supported a high number of actual and relative disasters.

He's got a good side that he believes everything is possible, but occasionally has to walk away from deals. There are rumours that he may have to do this with his train business.

Posted by Daveon at January 24, 2006 08:51 PM

> Sponsorship, licensing, logos, brand value, whatever.

No, Bill, it's not "whatever." Sponsorship and licensing are no more the same thing than torts and contracts.

Is this the kind of attitude that got you through law school? Professor Kingsfield wouldn't let you get away with that guff.

> American companies spend $500 billion per year on marketing and related efforts to sell stuff to consumers.

Which is irrelevant unless you understand how they spend that money and why. You have shown that you don't understand that. Worse, you don't seem to want to learn.

Wanting something to be true doesn't make it true. If we wait for you to "develop a market" by colonizing the Moon, Mars, and Beyond with ELVS and Constellation capsules, that market will never develop. No one is going to give you the trillions of dollars you need to buy that many ELVs and capsules. Not the US government and not Nike. We have to replace those ELVs and capsules before all the Moon mining, Mars colonies, and other things you want can happen.

But again, I'm talking to the wall.

> One famous guru is Sir Richard Branson who will be selling Virgin Galactic exposure to Volvo,
> 7-Up and anyone else he can. Betcha they make more money from that aspect than from selling tickets.

Bill, I couldn't care less what you bet on. I only care about the facts. Show me some actual numbers.

Posted by Edward Wright at January 24, 2006 10:17 PM

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