While SpaceX’s development of the Falcon 9 with its reusable first stage is innovative, it’s not clear that the vehicle is truly disruptive to the space transportation industry. (credit: SpaceX)
by Patrick J. G. Stiennon
Earlier this year I stopped by NASA’s Ames Research Center at Moffett Field, California, to get some information about their latest reentry heat shielding. I ended up talking with Dan Rasky, director of the Space Portal, a NASA industry outreach program. In addition to sharing some insights into how SpaceX operates, Rasky strongly recommended reading the book The Innovator’s Dilemma by Clayton M. Christensen. This book has long received attention from promoters of commercial space. Tim Fernholz’s Rocket Billionaires, published earlier this year (see “Reviews: Rocket Billionaires and The Space Barons”, The Space Review, March 26, 2018), mentions that Alan Marty, a venture capitalist working with NASA, was handing out dozens of copies of The Innovator’s Dilemma. Rasky also recommended the concept of “blue ocean” markets (thosse without competitors) versus “red ocean” markets with competitors, which is set forth in Blue Ocean Strategy by W. Chan Kim and Renée Mauborgne.
The Innovator’s Dilemma, subtitled “When New Technologies Cause Great Firms to Fail” and originally published in 1997, introduced the term “disruptive technology.” Christensen points out that there are some innovations that are almost impossible for well-run market-leading companies to adopt. These are products their customers don’t want. These innovations serve the needs of small or nonexistent markets, offering products that are less capable and have lower gross margins than the products then being sold by the market leaders. The classic example is the disk drive business, where over and over it proved difficult for existing disk drive manufacturers to succeed in each successive generation of smaller and smaller disk drives. The reason market leaders could not compete in these new markets is that they were captive to their customers, supplying them with what they wanted. This is normally a good thing, but with each new smaller drive a new market was found—minicomputers, desktops, or laptops—which at first was small, and which continued to have lower gross margins than existing markets. However, the nature of technology is such that the smaller disk drives eventually improved to the point where they met the requirements for the larger disk drives, and so replaced the larger disk drives for all applications. Similar examples are mini mills in steel manufacturing, and hydraulics in earthmoving equipment.
Successful large companies need to identify disruptive technologies if they want to avoid being driven out of business by a new technology that at first is not economically significant. Entrepreneurs are keen to identify these disruptive technologies because startups using a disruptive approach employing a product made with existing technology which serves a small or nonexistent market (Blue Ocean) are most likely to succeed. Market-leading companies need to identify disruptive technologies if they want to avoid being driven out of business by a new technology that at first is not economically significant.
This raises the question of what NASA and Rasky are hoping to encourage. The Innovator’s Dilemma points to the attributes of a disruptive product. SpaceX seems a disruptive innovator, introducing commercial practices and vertical integration to what has been hitherto a for-government-only business. But SpaceX’s innovation does not meet the profile of serving a small or nonexistent market with a lower gross margin, with a product with less capacities. SpaceX, although it has won most of the commercial market for space launch, still has competitors (Red Ocean) who could follow the path shown by SpaceX to lower cost. Blue Origin appears to be positioning itself to do just that.
Small satellites and small satellite launchers also don’t seem to meet the criteria for a disruptive product launching into a new market (Blue Ocean). At the beginning of the Space Age, small satellites and small satellite launchers were a new product using new technology. Today established players in the satellite industry typically employ large satellites in geosynchronous orbit. In 2017 the global revenue from orbiting satellites was approximately $270 billion.
In 2016 the small satellite market was about $2.5 billion. A report in the July 2018 edition of Via Satellite estimates the demand for small satellite launches may grow by 2030 to over 10,000 a year, with revenue of over $62 billion. That report also says there are more than 40 launch vehicles with lift capacity of less than two tons currently under development and set to be operational in two to four years. If such projections are correct it looks like small satellites and small launchers are disruptive, but are they really?
Small satellites and small launchers are not completely new, although the market is still small and undoubtedly gross margins are smaller than for existing satellites. However, even the possibly optimistic revenue projections for small satellite constellations in 12 years is less than 25 percent of the current revenue for existing satellite systems. This at least indicates that large satellites are unlikely to be completely displaced and will continue to compete against the new smaller satellites.
Another difficulty is that the level of debris in low Earth orbit may be approaching the point of initiating the Kessler Syndrome, where a destructive chain reaction could be set off. If so, this would produce so much debris that lifetimes for low Earth orbit satellites would be severely limited. Thus, it appears likely that large constellations of small satellite will be restricted to low Earth orbit with lifetimes of only a few years so that the satellites and any collision fragments are rapidly removed by atmospheric drag.
The small launcher market also raises some questions. Operation and control costs don’t scale linearly with satellite weight, as is evident in the high cost per kilogram offered by smaller launchers compared to larger launchers. SpaceX, with much of the world market for commercial launches, charges $2,700 per kilogram for a Falcon 9 launch to low Earth orbit. Contrast this with the Electron launcher of Rocket Lab, which charges about $22,000 per kilogram to low Earth orbit. It’s possible that SpaceX could develop an on-orbit transport flying at regular intervals and capable of deploying many small satellites, using its cost advantage to make small plane changes and to visit multiple orbital altitudes to compete with small launchers, if the market proves significant. Next month’s SSO-A mission, where a Falcon 9 will launch dozens of small satellites, could be a pathfinder for such a service.
While small launchers may facilitate small satellites, they do not provide transportation of passengers or bulk commodities such as fuel and consumables for missions to the Moon or asteroids, much less Mars. The solution to the problem of high transport costs to orbit may be solved by a completely reusable Falcon 9 or the SpaceX BFR.
So the question remains: is there a disruptive innovation in launch vehicles with a realistic probability of greatly reducing the cost of orbital transportation? Beyond reducing the cost of getting to orbit, could such an innovation also address another problem with space operations, which is the cost of doing anything once you are in orbit? That is, if you want to go to the Moon, a near Earth asteroid, or repair the James Webb Space Telescope at the L2 point, you must build a special craft to do those things, inevitably costing $1 billion or more to develop and requiring nearly that much for each craft deployed.
I believe a small, fully reusable launch vehicle is the disruptive innovation that will lead to the demise of the expendable launcher. SpaceX has proven rocket recovery of the first stage. Rocket landing of a blunt reentry-body-shaped second stage, perhaps shaped like an enlarged Soyuz capsule with one of NASA Ames’ heat shields, appears to be within the state of the art. Purchasers of small reusable vehicles would not have to bear all the vehicle development costs, and could achieve much lower operational costs than expendable small vehicles.
A small reusable vehicle will improve over time to meet the requirements of all markets for space launch. Infrastructure developments, such as orbital fuel depots, on-orbit assembly of large satellites, and orbital platforms will expand the market for the small reusable vehicle. With high usage, real data on safety will make transportation of persons a reasonable step and will lead to incrementally larger reusable launch vehicles and to cislunar and even interplanetary transport.
The small reusable vehicle meets all the criteria of a disruptive innovation: a non-exciting market (Blue Ocean) for fully reusable launch vehicles; a new product using existing technology, i.e., a two-stage ballistic vehicle with both stages recovered at the launch site; an a product that does not serve the existing customers on which the market leaders depend, i.e., would not add significantly to the market leaders’ bottom lines, and yet would eventually replace existing space launch.
My co-author David Hoerr and I described such a disruptive small fully reusable launch vehicle in our book, The Rocket Company (See “Review: The Rocket Company”, The Space Review, February 23, 2004.) Since the book’s publication, SpaceX has shown that the development costs can be much lower than they have been historically, and that rocket landing can be done reliably with 15 to 20 percent of the mass of the landing stage. Perhaps we will start to see a few startups going after this more ambitious goal.