“We’ll be big, we’ll be bought, or we’ll be dead” – Circa 1995ish, Doug Mohney, talking to a reporter about the future of the ISP he worked for.
SpaceX’s low cost to delivery payloads into orbit is brutal and will crush most of the current crop of small launch providers seeking business. There’s just not enough customer business kicking around to support all the launch providers out there with SpaceX providing regular rides to desirable orbits. Survivors need to raise money for building bigger reusable launch vehicles or they will die – end of story. The luckier ones will be bought up for technology and talent, but few are offering unique bits that can integrate into firms that are already on a roll.
Today’s math is simple. SpaceX Falcon 9 rideshare puts payload into LEO or SSO for around $5,000/kilogram today. Rocket Lab Electron is around $25,000/kg while ABL and Terran 1 say they’ll hit around $9,000-$9,600/kg whenever they start operations. But SpaceX’s actual cost to LEO translates to $2,700/kg on a new flight and $1,300/kg on a “flight-proven” vehicle. SpaceX has a lot of margin to lower costs today, with Starship (eventually) dropping that price down further.
Further, SpaceX’s costs are so much lower that a rideshare broker/reseller can pick up a Falcon 9 rideshare mission today, add a space tug for delivery into the proper orbit along with markup, and still come at a price competitive with a “dedicated” orbital mission through a small launch provider. Unless you are NASA or the U.S. military and really don’t care about price due to mission and schedule requirements, rideshare is the cheapest option.
Step One – Raise money, a lot of money
Rocket Lab’s emerging strategy is a prime roadmap for survival. Its just-announced SPAC (special purpose acquisition company) in combination with existing funds will give it around $750 million in cash to do what it needs to lower launch costs. Peter Beck continues to demonstrate a strategic talent to do the right thing at the right time both in terms of engineering and business – and he’s not going to tell you about it until he needs to.
Step Two – Build an affordable (meaning reusable) launch vehicle
The keystone to Rocket Lab’s survival at this point in time is the newly announced Neutron, a reusable “8 ton payload class” launch vehicle right-sized to LEO constellation deployment(s), interplanetary missions and “human spaceflight.” Neutron is sized to deploy satellites in batches to specific orbital planes, presumably providing the best cost/benefit trade to putting up a group of satellites into the right orbits in the most efficient manner.
Rocket Lab is not talking about cost/kg to orbit, but it has to be within the ballpark of today’s $2,700/kg Falcon 9 new flight. Smaller rockets don’t have the mass fraction (i.e. cost & overhead of all the hardware) for reusability. Certainly Rocket Lab plans to reuse the Electron first stage, but it won’t lower the costs to the point of being in the SpaceX rideshare range.
Reusability is key to affordability, especially in being able to rapidly fly a launch vehicle like an airplane. Rocket Lab has likely very carefully watched what SpaceX has been doing with Falcon 9 flights, will gain more experience with Electron and apply those lessons learned to Neutron.
Neutron has been in the works
Rocket Lab has been working on Neutron for a while, despite previous disclaimers from Rocket Lab CEO Peter Beck. The company plans to have first flight from NASA Wallops in 2024. This would suggest that Rocket Lab has been, at a minimum, working on larger engines to build a medium-class vehicle, since engine development is the “long pole” in the construction of any new vehicle.
Peter Beck has surprised the industry more than once, with the Photon upper stage/satellite, construction of a second launch pad in New Zealand, and going back on his vow of Electron reusability. He’s always thinking forward and doesn’t pre-announce anything he can’t deliver – you’ll hear about it when he’s ready for you to hear it.
Further, launch people as a culture like to start small and grow big, building on their knowledge base and successes like the automotive industry started small and moved to V-8 engines with superchargers, over time. Rocket Lab isn’t the only company that started small and later announced a larger vehicle, with Terran recently announcing its bigger-and-reusable vehicle last week and Astra proposing an upsized version of its vehicle for a Department of Defense Contract. SpaceX has grown from Falcon 1 to Falcon 9 to Falcon Heavy and is now working on Starship.
Step three – Diversify and integrate
Being a one-trick-pony – launch – is not a good business model. A diversified portfolio of services, preferably integrating multiple products, provides a proper mix of risk reduction (not dependent upon a single source of revenue) and the ability to access a range of customers and to upsell customers, increasing revenue and average revenue per user.
Rocket Lab was clearly on this path when it announced the Photon to be a customized “satellite,” with “satellites as a service” the next building block and applications the top of the pyramid of value the company will offer. While offering satellites as a service can be perceived as competition by some customers, it is also an opportunity to offer others turn-key services. Astra and Firefly have suggested they will also move from launch provider upward to satellites and services.
What a lot of people don’t get at first glance is that “as a service” businesses have recurring (monthly) revenue. Companies aren’t dependent upon one-time launches and (Often overblown) 5 year predictions of launch growth for success.
Rocket Lab is also emphasizing it can go beyond LEO to the Moon and Mars (and presumably other destinations in the future, such as asteroids and Mars perhaps). Firefly has announced it will conduct a lunar mission in the future, so one might expect other small launch providers to “discover” this NASA/government niche in the future.
Space company or applications company? It’s about the apps (stupid).
Planet Labs recognized from the beginning that it wasn’t a satellite or space company, but a data company, with imagery at its core. Rocket Labs is evolving to that mindset and I suspect others will be trying to adjust their investment stories accordingly. Whether or not those stories match reality…
Survival of the fittest
Money alone does not guarantee success, but the ability to execute. Companies that can’t gain enough market share and be profitable in operations will either be acquired by larger ones or simply go bankrupt and be dissolved.
However, money provides the ability expand faster and reach more customers. Expect other New Space firms – both in and outside of vanilla launch services – to take the SPAC route because they realize they both need the cash to continue to compete and to remove the cash from the table so others can’t grab it.