The Financial Frontier

When Dr. Doug Ross (George Clooney) changes the direction of our world, it’s a sign I should return to my knitting and discuss business. I don’t know if it’s age or common sense, but it feels as if this world is getting increasingly unstable. So let’s take a break, and venture to space.

Space Spoils

We won the space race. Our Nazi scientists were smarter than their Nazi scientists. Getting to the moon first and planting our flag was a cosmic branding event — literally and figuratively. It wasn’t cheap: Between 1960 and 1973, NASA spent more than half of its budget, about $28 billion ($280 billion adjusted for inflation), on the project. Spending on NASA at the peak of the space race accounted for more than 4% of the total U.S. budget. 

Spacecraft vs. Griftvessel

The worst branding events for space were the Challenger disaster and Virgin Galactic. Space tourism hasn’t yet transported consumers to space, but it did shuttle retail investors’ capital (SPCE has shed 98% of its value) to Richard Branson’s cruises and airline and Chamath Palihapitiya’s bank account.

Today many believe there’s a space race between the U.S. and China. While our return trip to the moon has been delayed, China successfully retrieved soil from its far side. And this new space race has given way to space spoils. Instead of bragging rights, the stakes are profits and power here on the moon’s billion-year sibling, Earth.

PR Stunts, Profit Motives

Businesses are either supply-constrained (e.g., rare earth minerals, 1945 Château Mouton) or demand-constrained (pretty much everything else). Space tourism is both, which is why it isn’t a business. Jeff Bezos is not my astronaut, and Virgin Galactic is (see above) stupid. As stupid as space tourism is, the space business is rational. Valued at $630 billion in 2023, the space economy is projected to reach $1.8 trillion by 2035. But describing space as a business sector is similar to using “Europe” as a descriptor. There’s a big difference between Ireland and Greece.

Satellite

Satellites are, at this point, ground zero of the space economy. Your television signal, nearly everything on your phone, and anything that relies on GPS all depend on satellites. Just as machinery and IP were the source materials for the modern economy on Earth, satellites will likely be the backbone of the space economy.

What’s driving the growth in satellites? One company: Starlink. The number of active satellites increases weekly, so it’s difficult to get up-to-the-minute data. At the end of 2022, the Union of Concerned Scientists was tracking 6,718 operational satellites — roughly half, 3,394, belonged to the SpaceX subsidiary.

And more are on the way. The FCC approved SpaceX’s bid to deploy up to 7,500 satellites for now. Starlink has plans to launch 30,000 more. The idea of one man controlling the world’s high-speed internet access is unsettling. Hawaiian Airlines and T-Mobile have already partnered with Starlink. The Texas firm is on the verge of becoming this generation’s ultimate ingredient brand (e.g., Intel, Nutrasweet, Nvidia). 

The addressable market is cosmic in size. Currently, Starlink beams internet access to 2.7 million subscribers in 75 countries. It has kits for residences, boats, and RVs. Monthly plans range from $120 to $5,000; the basic hardware costs between $499 and $2,500. There are hundreds of millions of people on Earth who can afford Starlink, and many are already paying for internet service that’s tied to their home.

Starlink has a moat the width of Saturn’s rings (see above: 51% of satellites). Its network already outperforms Hughesnet and Viasat. The reviews are getting better as the network scales. The 20th century saw the manufacturing age cede ground to the brand and service era. This millennium, thus far, could best be described as the “10x” era, where products that leverage digital technologies are rendering current offerings defunct. Profits, and their potential, attract more competitors to the water’s edge to try to cross the river. The water level of Starlink’s moat, however, is rising, and there appear to be crocodiles, too — evidenced by Amazon delaying the launch of Kuiper to next year. 

One pillar of the 10x economy is verticalization — lowering costs — and SpaceX’s Crane Kick is mundane yet dramatic. In 2010 the company drove down launch costs, with its own Falcon 9, to $2,500/kg, and it went further still with the Falcon Heavy in 2018, to $1,500/kg. The requisite expenditure is 30 times lower (adjusted for inflation) than NASA’s space shuttle in 1981 and 11 times less than the average launch costs from 1970 to 2010. 

Nolan Ryan

In his 27-year career, Nolan Ryan threw approximately 250,000 pitches in exchange for $25 million, costing his various team owners $100/pitch. If the Los Angeles Dodgers started Shohei Ohtani at pitcher, they’d pay him $23,000/pitch. The “Ryan Express” was the SpaceX of his era; propelling things into the atmosphere for less. Fun fact: I named my youngest son after the fastballer.

Business Beyond Starlink

Last year the world launched seven objects per day into space, with SpaceX accounting  for a staggering 73% of the global total. Note: The most valuable company in the world (NVDA) has an 80% share of AI GPUs. Does SpaceX have a 73% share of … space? The remaining 27% of launches are a mix of non-SpaceX telecommunications satellites, defense, navigation, and scientific research satellites, as well as craft that monitor the weather, observe the oceans, and track wildfires. Not everything in this miscellaneous category is a business, but hauling stuff into space is.

There’s real competition for reusable rockets. The European consortium Arianespace is testing its Ariane 6 rocket to reduce its reliance on SpaceX. Blue Origin, SpaceX, and ULA (a joint venture between Lockheed Martin and Boeing) each garnered a piece of a Pentagon contract worth $5.6 billion. The startup Relativity is developing a way to use 3D printing to speed manufacturing. Stoke, another startup focused on building clean-fueled, rapidly reusable rockets, raised $100 million at the end of last year. Then there’s Rocket Lab’s Electron rocket, which recently celebrated its 50th launch after seven years and one month in service — a record for a commercial launch vehicle.

There’s also a related business in de-orbiting old satellites and space stations. NASA just awarded SpaceX an $843 million contract to safely de-orbit the International Space Station in 2030. There may even be a business in removing the 170 million pieces of space junk. That number will only grow as we continue to commercialize space. The FTC has already issued its first fine for space junk.

East India Company Redux

By treaty, nobody owns space, and the moon belongs to everyone. That’s a problem. Geopolitical competition, a growing private space economy, and the relative absence of rules make space the new Wild West/North/East/South.

Low Earth orbit, where Starlink is scaling its network, is congested and getting worse. Even a small object can do a lot of damage if it hits a satellite or space station. We’ve already had some near misses. A SpaceX satellite almost hit a manned Chinese space station. A Russian anti-satellite test sent debris hurtling toward the International Space Station, forcing astronauts on board to take shelter. This is the plot line of the movie Gravity, which starred Sandra Bullock and president-slayer George Clooney. 

What happens when someone takes out a satellite on purpose or an adversary puts nukes in orbit? When I was a kid, this happened in the James Bond movie You Only Live Twice. The axiom of all sci-fi eventually becoming reality holds: We now have a Space Force, though it’s not a budgetary priority for the Defense Department.

The fight over space isn’t limited to geopolitics. It’s also about commerce. As business booms and resources are unlocked in new regions, private companies will enter the fight. It’s happened before. We call it colonialism. At its height, the British East India Company had its own 250,000-man army and the right to wage war. The corporation ruled India. Its competitor, the Dutch East India Company, had a charter that empowered it to raise armies, build forts, and make treaties. 

Question: If someone threatens a Starlink satellite, does Elon Musk call the U.S. government to fight his battles, or does he arm his satellites with tiny projectiles that can neutralize the threat? Follow-up: If two companies claim the same spot on the moon, do they call lawyers, or does someone go all Nolan Ryan and throw a moon rock at a fragile piece of equipment and claim the resources for their shareholders? My prediction: The next battlefield for proxy wars between the West and its adversaries will be in space. The armies fighting this war will be well-paid mercenaries disguised as corporations.

Future Spoils?

Two asteroids sped by Earth recently. The smaller one passed between us and the moon at a distance of about 180,200 miles. (The moon is 238,900 miles away.) Practically a near-miss for space travel. All we could do was watch the rocks zoom by. But as the cost of space hauling decreases, new business categories will emerge. 

One possible commercial opportunity is mining asteroids and the moon. This is still a ways off, but the spoils could be galactic. The industry brings new meaning to the term “wildcatting.” It would be highly speculative and driven by the prospect of abundant booty — if you can reach it, mine it, and bring it back. Last year, NASA launched a probe to an asteroid that supposedly has a valuation of $10 quintillion. Note: That makes no sense, as any minable material of that quantity/value would result in a crash in value. But I digress.  

If asteroid mining is possible — a big if — it could leverage cheaper space-hauling costs to meet demand on Earth for the critical metals (cobalt, iron, nickel, platinum, and other goodies) used in electronics, electric car batteries, and solar and wind power. 

Creating energy off-planet is another compelling idea. Isaac Asimov first wrote about “space solar” in his 1941 short story “Reason.” But a recent NASA study concluded that it is feasible to generate solar energy in space and transport it to Earth. Last year, Caltech launched a prototype that demonstrated the ability to wirelessly transmit power in space, beaming a tiny amount of detectable power to Earth. This year, U.K.-based startup Space Solar tested a way to collect solar 24/7. On Earth, solar collection is limited to daylight hours. 

Finally, there’s the idea of relocating manufacturing — and the pollution that comes with it — to space. “This sounds fantastical,” Jeff Bezos told CBS This Morning, “but it will happen.” He’s right. It sounds fantastical. But if the choice is between shifting manufacturing to space or colonizing Mars, let’s hear the pitch for space factories. 

Tang®

At the height of the space race, NASA scientists realized that pens couldn’t function in space. To boldly write where no man had written before, they spent millions developing implements that worked in zero gravity. Soviet Scientists had a simpler, cheaper solution: pencils. Actually, the space pen story is a myth. Pencils aren’t great in space. They’re flammable, and the tips break off and drift away in microgravity, risking harm to the equipment and astronauts. The real story: In 1965 the Fisher Space Pen Co. patented a pen that could write upside down, in extreme heat and cold, and even underwater. They sold pens to the U.S. and Soviet space programs. Fisher is still selling pens to this day — about a million per year, ranging from $5 to $150 a pen. 

Fisher Space Pen found a business in the stars by serving a market on Earth. Anyone who wants to reap the spoils of space will have to do the same thing. Space is the collision of the business trends that have defined the last century: manufacturing, branding, 10x, and unexpected externalities. On a recent flight from Miami to New York, I was able to try Starlink. My phone rang — it was my son Facetiming me. The sound and resolution were flawless. During the call, our pilot announced that, peering out of the left side of the plane, you could see a SpaceX launch. It was one of those tech aha moments (e.g., the first time you called someone from a car, bought something from your phone, took a picture of a check to deposit it). It was also a moment to reflect on the teen depression, propaganda from bad actors, and coarsening of our discourse that technology has washed up on our shores.

It feels less than bold to posit that, if we aren’t more thoughtful about the externalities of the commercial development of space, it won’t be “the final frontier” … but our last.

Life is so rich,

P.S. On Prof G Markets this week, Ed Elson and I spoke with Anthony Scaramucci. Listen on Spotify or Apple Podcasts.

P.P.S. Section is sitting down with Every founder Dan Shipper next week to discuss his top 10 AI use cases. RSVP here — it’s free.