Analysis of SpaceX’s new rideshare offering
It’s been two years since SpaceX launched its rideshare program—offering a 200kg launch for $1M—which was massively disruptive to the entire market. On the other hand, it has given a dozen or more companies such as D-Orbit, ExoLaunch, Momentus, Spaceflight, Launcher, and others the chance to build businesses earning valuations upwards of several hundred million dollars each.
A good share of the market prefers to launch on SpaceX, since launching with them means good marketing, PR, and a tie to Elon Musk. It also helps that in general, the launches are cheap, reliable, and offer superb services. Companies of all sizes used to directly knock on SpaceX’s door, but they were usually pointed to resellers as their payload sizes were too small. The resellers could buy slots in bulk, cut them into pieces, and offer them to smaller market players with a margin. Many started to see this rideshare model as the status quo, and pretty much everyone has been following along with the practice ever since. Then you have distributors and retailers who can sell those same slots at a markup after cutting them into smaller pieces and offering add-ons such as dispensers, testing, etc. This model worked for a while, and served many companies well.
Dawn of rideshare 2.0
But SpaceX wouldn’t be SpaceX if they didn’t go further than simply disrupting the market. Over the weekend of October 15-16, they announced further development of the rideshare program, with the key event centered around lowering the minimum booking size to 50kg starting in 2024. Now, even though the price per kg remains the same, the minimum contract price is now just $275k. Not only that, they invite you to buy the slots and book the launch directly with them. In one fell swoop, SpaceX has challenged the “buy in bulk, divide, and conquer” business model. The middle man has effectively been made almost obsolete, and everyone is seriously questioning the viability of the rideshare aggregator model.
When we look into the future, it seems obvious that SpaceX will continue to grow its direct-to-customer business and will soon eradicate the old way of buying and selling launch slots.
Is this just the beginning?
Now, even if you only have an individual cubesat—say, 3U—you can buy a slot for under $300k. On one hand, the price is still a bit high, but on the other hand, it opens the door for many companies to directly book a launch with SpaceX. And this is just the start. It’s easy for SpaceX to start offering their dispensers as a single package, and add other valuable services as well.
Have we reached a dead end?
What we’re seeing from the communication with different launch providers—especially with micro launchers—is that there is no longer money to be made from launching. Now micro launchers and aggregators alike will be thinking hard about what future business model will work for them.
One possible and understandable business idea is OTV (Orbital Transfer Vehicle) aka space tugs, with the promise of last-mile delivery to the precise orbital slot after deployment form the upper stage on a Falcon 9 or other launcher.
But at the current stage of development of such markets, most commercial launches use the OTV service to offer so-called «zero delta-v» service to scatter satellites and make normal dispersion so they won’t cluster in orbit. The providers claim that their added value is that they can offer inclination change and altitude change, but it is very rare that anyone actually uses these services. Some market players say that for this business to mature, satellite operators sometime need to plan their entire constellation rollout together with one OTV company, but this is a difficult task. Not only is it a big burden on both the OTV and satellite operator’s teams, it’s not easy to trust immature companies with a short heritage and rely on them for a constellation rollout. Market players have been trying for years to close a deal with a constellation that would trust them to bring out all the satellites, do different inclinations and altitudes, etc., to no avail.
And even when (and if) the market for high delta-v missions matures, nothing can stop SpaceX from refitting their Starlink satellite bus to an OTV, offering best-in-class service, again.
Until then, the reality is that most of the OTV business today and for the near future is just serving an intermediary between the primary launch provider, which has been rendered unnecessary by the market leader’s latest offerings.
If OTVs cannot perform their core function (and their main added value) to display constellations in different orbits, then nothing prevents SpaceX from using existing technologies to make their own OTV, and sell it on better terms than its competitors. The other common use for OTV is used simply as an intermediate link to book launches on SpaceX, which has been rendered unnecessary by the company’s latest offerings.
So where is the market going? Many launch companies we talk to, including OTV providers, are starting to reshape their business models to capitalize on in-space transportation services or deep-space operations. In our opinion, by doing so, they can avoid the uncomfortable discussion of the rideshare problem from communications with their investors. With deep-space transportation, there is no unit economics known as of yet, so you can put off defending the sustainability of the business model for the time being.
Related services on the rise
In the search for a new business model, more and more companies are realizing that the launch service as such is not profitable and does not really solve the access to space problem. Making your payload flight-ready is not limited just to signing up with the launch provider.
Our experience with customer missions over the last 5 years shows that already a few years ago, the design&management portion of the satellite mission budget exceeded 50% in most commercial payload projects. More than half of the budget is spent on preparation for launch, communication among the supply chain, obtaining licenses, securing insurance, and so on. And this ratio will only go up.
For example, look at the SpaceX launch calculator: to launch a satellite—say, 50 kg with a cost of $300k—insurance for $1.5M sum insured will cost $90k, which is almost a third of the launch cost. Just like rising baggage fees and other extras on airlines, these high-margin services that surround the launch will bring in millions (or billions) in extra revenue.
Onward and upward
We believe that solving customer problems not directly related to the launch, but tied to the expensive ancillary services, is how we will accelerate the velocity of the customer missions and truly open the market for new players. Everything from satellite testing, choosing a component base, obtaining all the necessary licenses for the spectrum and remote sensing license, securing insurance, and general logistics around launch preparation is connected to this idea. By addressing these issues early on, we can help design a high-quality mission that will be ready for launch no matter which provider you choose.