“The Weirdest Delusion”--Smallsat Market Incongruities and Changes

Jeff Foust reported some engaging smallsat industry executives’ comments at last week's Satellite Innovation conference. Predictably (sadly), their comments had less to do with innovation and more with protecting the businesses they thought they were catering to. In this case, the businesses were the smallsat launch services and the carnage SpaceX’s smallsat rideshare program inflicted on them. But is that the case, or is there something else going on?

Those Meddling Customer Values and Expectations!

One quote from one executive caught my eye (and prompted this analysis): 

“I don’t think they had to go that low to have a commanding share of the market,” he said, estimating SpaceX could have gained significant business at prices of $10,000 to $12,000 per kilogram. “That had to have a hugely chilling effect on any other money flowing into startup launch companies.”

The executive, Curt Blake, is inadvertently spelling out some (probably most) smallsat launch companies' non-competitive sentiments. Based on his comments, at least one problem (which is also an innovation source) afflicting some smallsat launch businesses is incongruity. The incongruity is between what these smallsat launch companies perceive and actual customer values and expectations. They don’t even know who their competitors are, based on comments Steve Jurvetson made at the same event. From the article:

He claimed that many investors in startups working on small launch vehicles were unaware of the scope of competition, many thinking there were no more than 10 other companies in the field. “It’s astounding,” he claimed. “It’s the weirdest delusion and lack of knowledge I’ve seen in the investment sector.”

Delusion is another aspect of incongruity. Also, Jurvetson is being charitable in his description of some smallsat launch startups’ industry ambitions.

Based on Blake’s and others’ comments at the conference, they seem to believe that offering limited launch capability for a high cost per kilogram is valuable to customers. They seem to think that customers should be attracted to their high-priced service, even if smallsat-dedicated rockets don’t launch as often, can’t carry as much, might explode occasionally, or not even exist. Smallsat launch service launch costs are high even when compared to an Ariane 5 or Delta IV launch. But, as Jurvetson pointed out, few startups are aware of their competitors.

On the other hand, actual customer values and expectations, the reality that grounds businesses, are sending signals to those executives and startups. They show that perhaps even “$10,000 to $12,000 per kilogram” is too much for smallsat companies to charge as more customers choose to launch their smallsats on SpaceX’s rocket for $6,500 per kg.^[1]

From SpaceX’s perspective, $6,500 per kg is more than double what a single commercial customer pays to launch a single payload on its Falcon 9 (at base price). It’s enough to encourage the company to offer the rideshare program. The company’s rideshare customers seem content with even that doubling of price.

Worse for smallsat launch companies, SpaceX is running the program as a side business (like Amazon initially did with AWS), not really competing. SpaceX doesn’t NEED smallsat customers to keep its business alive, but every little bit helps. Of the 76 launches the company has conducted in 2023, 49 deployed Starlink satellites, 14 deployed dedicated commercial payloads (Intelsat, Jupiter-3, etc.), six deployed civil spacecraft (Dragon, Euclid, Psyche, etc.), four deployed military spacecraft (GPS), and then three Transporter (rideshare) missions.

Basically (not counting Starlink launches), so far, SpaceX has launched 27 times in 2023 (which is more than ALL of SpaceX’s 2020 launches). The rideshare missions are 11% of those launches, which isn’t large but seems large enough for SpaceX to keep offering rideshare. The three rideshare missions deployed over 210 smallsats in 2023, whereas (not including China’s, Iran’s, and Israel’s services) ten dedicated smallsat rockets deployed about 40 smallsats during the same period.

That’s triple the number of launches to deploy less than a quarter of the smallsats SpaceX’s three launches deployed. If customers were forced to rely on dedicated smallsat launchers only, then, based on their current launch cadence, customers would be waiting for launches for three, possibly four, years. That goes against one of the significant benefits of using smallsats: the relatively quick manufacturing and deployment that the platform enables.

So, there are good reasons why more customers are drawn to SpaceX’s rideshare option instead of choosing to launch with the other smallsat launch service providers. We see this in the large number of spacecraft deployed on the company’s Falcon 9, and yes, its per kilogram price is a factor. Coincidentally, another article came out nearly the same day, with a SpaceX customer, SwRI, providing reasons why it appreciates the company’s rideshare program:

“We certainly have more opportunities to win contracts,” he said. “Rideshare opens up a whole lot of opportunity for research and development missions. The fact is that launch vehicles of all shapes and sizes have increased and the price per launch has gone down.”

It’s not just price, then, but opportunity that rideshare missions allow that some customers value. Falcon 9 rockets have been used in three Transporter missions in 2023 so far. They’ve carried 48 to 100 smallsats to orbit in those missions. The other smallsat launch services can’t match the Falcon 9’s sheer upmass capability. Customers would have to wait years for a dedicated smallsat launcher to be available. But SpaceX gives them an alternative.

Resisting Market/Industry Structure Changes

That per kilogram price also indicates another trouble spot (but also an innovation source) for smallsat launch companies: a change in market and industry structure. Several things changed in the market structure that made the situation of some smallsat launch startups some indigestion: more smallsat customers than thought; more types, not just government customers; lower pricing (largely from SpaceX); and higher launch availability (also, largely from SpaceX). The market then is potentially larger but has a competitor with a service that costs less and provides more.

A larger, untapped market with more customers should please any company serving the market. Those newer customers, however, are there because the costs are lower, and their ideas and plans can be implemented much more quickly than the many, many years that legacy manufacturers and launchers traditionally required. That’s a positive change overall, but those new companies with smaller budgets didn’t seem to be anticipated by these launch startups.

Instead, the conference commenters are attempting to keep the market in stasis, or worse, roll it back so that the market is favorable to their business plans–not the customers’ values and expectations. This has happened before (such as when high-priced carriages competed with cars).

However, the market has changed not just because of SpaceX’s pricing and what its rideshare program offers. The higher prices of SpaceX’s “competitors,” combined with their low launch opportunities, have also pushed customers to SpaceX (people are always looking for a deal), accelerating the change. Some smallsat launch companies, such as Astra, attempted to dupe potential customers by noting their rocket’s overall launch cost, not the cost per kilogram, was significantly cheaper.

Thankfully, no one seems to have bought into that.

Smallsat customers refuse to accept the smallsat launch providers’ higher prices and inherent limitations imposed on them. Why not go with a company that seems to want their business? There, again, is that incongruity between what some smallsat launch services perceive and what customers value and expect.

That’s at least a combination of two innovation sources, incongruity and market/industry structure changes, impacting the smallsat launch market.^[2] Both are confounding some of these supposedly “innovative” smallsat launch companies. They are fighting against the required changes because the customers’ values aren’t the point of their businesses.

Missing the Opportunities for Innovation

That’s the sad irony, as incongruity and structural changes provide plenty of opportunity for companies to become more innovative. Market and industry structure changes, in particular, should have companies scrambling to revisit their actual business. It’s their opportunity to show how clever and agile they are. They might take their competitors by surprise with some genius new approach.

The low-cost launch genie is out of the bottle, and while using up wishes can get the creature back in, wishes are only in fairy tales. Smallsat launch providers should become more innovative, not hidebound and beholden to business plans that don’t make sense anymore.

To be clear, these concerns about SpaceX’s impact on the smallsat launch service businesses only seem to concern startups from particular geographic areas. Others from India or China seem willing to compete. China’s smallsat launch providers have fielded at least five different smallsat rockets this year, launching 12 times in 2023. India is fielding a smallsat rocket that gets remarkably close in cost per kilogram to SpaceX’s rideshare pricing. What would these entrepreneurs complaining about SpaceX do if India’s SSLV offering gains popularity or China’s providers become more inclusive in the customers they approach?

One big thing to note: to have a commanding share of the smallsat launch service market, SpaceX needs to have competitors–preferably more than one. Companies that don’t have operational smallsat rockets, have blown up rockets more than launched them, and/or suck at math shouldn’t count as competitors. CAD mockups are not operational rockets nor an indicator of understanding rocket science and/or business–they are marketing aimed at the media illiterate.

Where does that leave the “market?” If a competitive edge were based solely on the variety of smallsat rockets available on the market today, China’s smallsat launch companies would be well ahead. They’ve launched more rockets in 2023 so far than the rest of the world’s smallsat launch services. But that part of the market is still off-limits for many potential customers.

That doesn’t leave many other launch options for smallsat customers. In the U.S., one company routinely launches smallsat rockets: Rocket Lab. However, three failures from 36 launch attempts yield a low reliability rate for Rocket Lab’s Electron. That doesn’t mean it’s not competitive, but its reliability history might give potential customers pause (while slowing down the company’s launch operations).

No other smallsat launch provider even comes close to Electron’s launch cadence. Most are slow or have paused not because of SpaceX’s rideshare pricing but because of technical or other issues. So, not only are customer values and expectations different, but there aren’t many current smallsat launch options to choose from, accompanied by the uncertainty of their availability. Whereas SpaceX offers the opposite, in a cheaper package, almost on a whim.

To say that the competition is not only outperforming your business but also offering its services for less is free advertising for the competition. To expect customers to pay more for less is delusional. A company embracing either is a sign that it might not be long for this world.^[3]