The Growth of the Private-Sector Space Industry

CURT NICKISCH: Welcome to the HBR IdeaCast from Harvard Business Review. I’m Curt Nickisch.

I’m beginning with an announcement. This episode is my last episode as a regular host of the show. It has been a privilege and honestly, a blast. Over the years I’ve talked to hundreds of insightful people on this show. Creators, builders, researchers, deep thinkers, future thinkers, leaders you’d love to follow, managers you’d love to work for, coaches and mentors. All these people have cast too many valuable ideas to count, and I with a fantastic team, have been able to engage with these ideas, interrogate them, employ them, and present them in conversation to you, and I could not ask for a better audience to work for. Speaking of the show, IdeaCast, it’s not going anywhere. It’s in the best of hands, and I’ll be listening and learning and getting inspired with you.

Now for today’s episode, we’re going to look beyond the near horizon and explore the economic frontier of space. In the last decade or so, the space industry has evolved into a more privatized one. Government still plays a big role in financing contracts, but increasingly, its job is to foster a market where competition and innovation can flourish. This shift, generally in the U.S., from NASA doing everything to hiring everything out, is creating new opportunity for businesses and individuals in their careers.

We’re joined today by two guests who have studied the public and private sector aspects of the space industry. Matthew Weinzierl is a Senior Associate Dean and Professor at Harvard Business School. Brendan Rosseau is a strategy manager at Blue Origin. Together they wrote the book, Space to Grow: Unlocking the Final Economic Frontier. Matt, thanks for coming on the show.

MATTHEW WEINZIERL: Thanks, Curt. I’ve been listening to your voice for many years, so it’s a real pleasure to be talking with you.

CURT NICKISCH: Brendan. Thank you, too.

BRENDAN ROSSEAU: Yeah, great to be here.

CURT NICKISCH: We’ve seen the rise of private sector space companies like SpaceX, like Blue Origin, where Brendan, you are. In your book you argue that this isn’t privatization per se, but a decentralization. What do you mean by that? What are the implications of what’s happening?

MATTHEW WEINZIERL: I think it’s a really fundamental distinction, partly because there’s a misunderstanding that’s easy to have out there in the world, which is, we hear so much as you said about SpaceX and Blue Origin and various other space companies, and it seems like the days of NASA and the Department of Defense and other international space agencies playing a big role in space might be over, and there’s a sense in which that role has changed a lot, but the role is definitely not over.

Why we call it decentralization, is that the way you think about the first 50 years of the Space Age is that it was really run from the center, whether it was NASA or the Department of Defense or other agencies, they set the agenda, they operated the vehicles. They really decided where we were headed in space, why and when. But what’s happened over the last 20 years is that we’ve brought more decision makers into the fold. Private companies are being asked to develop vehicles and services that are valuable not just to public sector customers, but to private sector customers. And so, it’s really becoming much more of a marketplace like our decentralized marketplaces are for most goods.

The role of the government is still incredibly large in space, both as a customer for those services that those companies are providing, and for setting some of our key social priorities in getting them done, but now there’s many other players.

BRENDAN ROSSEAU: And actually, if you look at NASA’s history, it’s a really great case study in just those two things. What can the government be good at versus the private sector? The origins of NASA, of course, are the post-Sputnik space race, that culminated in astronauts landing on the moon. NASA was so good at doing that, it was such a remarkable achievement pulling off a goal that even a decade earlier to NASA insiders had seemed completely crazy.

Why were they able to do that? And part of the reason is because they were rallying the country to provide national goods. Things like basic science, research, exploration, things that the market left to its own would grossly under-provide. What we call NASA’s act one, The Apollo era, was a great example of what the strengths of that system can be. Fast forwarding to what we call act two, which was the space shuttle and International Space Station era, it’s kind of ’70s and beyond. The goals changed remarkably. Space flight was too expensive, and so the idea was to create reusable space planes and destinations in space that would be reusable.

So the idea was, okay, iteration, get efficiency, bring down costs, and these are things that we don’t typically associate with government programs. And in theory, that would create an opportunity for the private sector to come in and compete and bring all those gains of private sector involvement that we’re familiar with elsewhere.

But the model struggled to evolve. We kind of put all of our eggs into the space shuttle and ISS basket, and it was only the space shuttle was retired following the 2003 Columbia accident, that the private sector was given a real opportunity to try to be an agent in directing the U.S. space enterprise. And of course, that’s worked out remarkably well and we’re frankly just living in the ripple effects of that, where launch has now been largely commercialized with astounding effects even just in the past decade or so.

CURT NICKISCH: Let’s underscore this – launch being shorthand for just getting stuff up into space. How much have costs come down?

MATTHEW WEINZIERL: It’s difficult to compare perfectly across time, across different vehicles, but at the highest level, one way that we summarize it and that’s commonly used in the industry is for the act two era that Brendan was just talking about with the space shuttle, you can think about the cost of getting a kilogram of mass to what’s called low earth orbit where a lot of our internet and telecommunication satellites fly, as being on the order of $20,000 to $30,000 per kilogram to what’s called LEO. With SpaceX and its Falcon 9 rocket, which is now the workhorse launch rocket in the world, those costs have come down essentially 90%. So we think about a range of somewhere more like $2,000 to $3,000 a kilogram.

SpaceX’s newest rocket, the Starship. The hope is that once that’s flying routinely, it will bring costs down another order of magnitude, down to something in the hundreds of dollars per kilogram to LEO. So all told, that would be a decline of 99% in launch costs. And it’s not just SpaceX, they’ve been the driving force, but there’s a whole host of other launch companies and startups forming, trying to also bring costs down and in different ways provide access to space for satellites and other equipment at much lower cost.

BRENDAN ROSSEAU: We focus on the cost because of course that’s the most important thing. I mean, a 90% reduction in cost is hugely important, but what I think is sometimes harder to capture is just how much that change in costs and increasing access to space really transforms the community and the thinking and who does space.

So for example, in the early two 2000s, we had maybe 50 launches, and if you look at who is actually launching on those, it was all national security satellites and commercial satellites from large conglomerate companies, and that shaped the ethos and the approach of everyone in the industry. It was extremely risk averse, planning took years, and it was meticulous and every little bit of risk really had to be burned down before the launch could happen. Part of that just came down to launches were so expensive, if you’re going to pay the 100-plus million dollars to launch this thing, you better be sure that it’s going to work.

If you fast-forward, last year we had 263 orbital launch attempts from across the world. Not only are launch costs going down and launch availability going up, but because launches are so frequent and it’s less of a huge hurdle that you have to cross to secure your launch spot and everything, it allows this whole cast of characters who really had no entry point into the space industry before to jump in and say, “You know what? I’ve had this idea for how space and a constellation of satellites could be useful for us. Now’s the time for me to jump in because I think my business plan can close and I think I can actually get a launch. So, let’s try it out.”

CURT NICKISCH: So what is the government’s role in this market now? National security is still there. What’s the mix of priorities that’s now sort of at the forefront for the government’s role in this market?

BRENDAN ROSSEAU: Yeah, that is really the question ahead of us. There’s so much excitement and opportunity, but also with a new model come new challenges. So the way that Matt and I have tried to break it down in the book is a three-pronged framework that we think are really the three critical steps that it will take to not only create a robust and growing space economy with huge benefits for everyone back here on earth, but also to make sure that it’s taking us to a place that we want to go.

The first step is to continue to establish and reinforce this market approach to space activities, recognizing the strengths of what the private sector can do, and increasingly allow more and more private activity, encourage more and more private activity through different government programs and smart investing. We’ve seen already the launch sector become more and more commercialized, and that’s been a real success. More and more we are seeing the satellite sector, satellites that provide connectivity and internet and data and all sorts of things. We’re seeing a huge amount of experimentation and value creation in the satellite sector now, so that’s an area where there’s strong market presence and market growth.

CURT NICKISCH: I think most consumers have known that TV programs and everything come over satellite, but now it’s like you can’t go a day without-

BRENDAN ROSSEAU: Oh, yeah.

CURT NICKISCH: … seeing in your inbox that an airline is partnering with Starlink or a mobile phone company is using it to get better access in remote areas. I mean, it’s brought the technology to just a lot more companies.

BRENDAN ROSSEAU: It’s remarkable. And for me, I think it’s reinforcing the idea that at its core, space is just a place. It’s a place that we can do certain things and use certain technologies to create value back here on earth. I think that’s a different way of thinking about it than we did say, during the Apollo era when space was, we celebrated that it was kind of foreign and dramatic and everything, which it still has that frontier allure.

But I think the real crux of what’s happening now and why we’re so excited about it, why two folks who like us who think from an economics perspective are excited about it is because we think with the market coming in and more and more companies seeing space as a place of opportunity and value creation, those companies need customers. And for 99% of them, the customers aren’t going to be other space companies, it’s people on the ground, it’s people like you and me. So when you have an army of entrepreneurs and engineers and brilliant space technologists who are all laser focused on using space to create value for you and me and everyone else on earth, that for me has got to be a recipe for success.

So the first step, as I mentioned, was to realize the potential of the private sector and continue to expand the role of markets in space. So that’s step one, what we call establish the market. The next step is to recognize that markets are not perfect by any means. They’re often very far from perfect, as we all know in our daily lives. So the next step, and this is a real key place of government intervention, is to refine the market by addressing market failures. So that’s through policies that address market failures, like let’s say orbital debris or other externalities that aren’t priced into company’s decisions, address those as they come up.

And also, capture the opportunities that the private sector can’t do on its own. The government still can play a really powerful role as an organizer or a coordinator of activity across different companies.

And then step three recognizes that the role of markets is really just to create efficiency, but there are things that we care about in society beyond just efficiency. So step three is what we call temper the market, which is aligning it with society’s moral and ethical judgments. And for us, this means answering really hard and fundamental questions about what should happen in space and why. Who has property rights and over what? Who sets the rules and who enforces them? That gets back to the national security question. As we celebrate that space as becoming more and more prosperous side of value creation, but who should benefit from the riches that we reap in space? And what is an equitable distribution of those benefits look like? These are huge questions that for a long time felt kind of sci-fi-y, but more and more by the day they are feeling pressing.

CURT NICKISCH: Is there an example from history – I’m thinking here, I mean, you often hear people mention the railroads, right? Building railroads across the North American continent. The internet. There’s also, to stay with trains, there’s also, there are places where supply and demand curbs maybe never meet, and that’s where government can step in and create public transportation that people otherwise just can’t afford. So, what do you liken this to or what do you like to liken this to?

MATTHEW WEINZIERL: Well, you’ve already named a couple of the areas that we often do talk about Curt, and then semiconductors, because that’s another example that we sometimes make reference to.

I think there’s no perfect analogy, as you would guess. There’s been some interesting work done by some NASA historians, in fact, to explore some analogies to space. The railroads is an interesting one maybe just to spend a moment on. There are a lot of really important similarities. The railroads pushed out into frontiers, they built infrastructure that allowed businesses to flourish, businesses we could never predict would flourish. A lot of the common examples from the railroad age are surprising success stories, and that’s part of the beauty of market forces, and yet there are some major differences.

So railroads were generally connecting to existing sites of economic activity, and therefore creating the surplus and the synergies between them. Whereas here, we’re reaching out into places where at least there is not yet very much economic activity and trying to create it at the end of the line, so to speak. So we always want to be careful about reasoning from analogy.

CURT NICKISCH: Right.

BRENDAN ROSSEAU: The uncomfortable reality is, we don’t know and we can’t know. That’s one of the double-edged swords of market forces coming in, is we’re used to, especially in the space enterprise, five-year plans, ten-year plans, major programs where we can point at a calendar and say, “At this date the space shuttle will be flying or we’ll be doing XYZ, or the next space telescope will be coming up.”

I think increasingly, if we look at the commercial activity in the space realm, it’s going to be more and more unpredictable, and that makes it challenging, but also that’s where the beauty of markets comes from. The killer app that no one thought of can pop out of the blue and take over very quickly. I think even though this commercial space revolution that we’ve talked about is young, we’ve already seen a few of those kind of incredible unexpected ideas pop out of it, especially reusable launch vehicles.

They now dominate the world’s launch pads, and 15, 20 years ago, that would’ve been pretty much unthinkable. So I would say we’re cautiously optimistic about where this future space economy is heading. I think there’s strong tailwinds across the board, but we should also recognize that it’s still young, it’s still very fragile, particularly it takes individuals making decisions to continue the momentum of what we see today. So I think the worst thing we could do is just kind of slap ourselves on the back and say, “Okay, mission accomplished. We’ve got a commercial space enterprise.”

And also, it could be skewed at point. We could have setbacks the role of different public priorities because the public sector still plays such an important role in shaping the space economy. Different public priorities could really skew the direction of space activities. So we don’t really know where it’s going to go, but I think we’re hopeful that it will be a real source of value and one that we look back on and say, “We’re really glad that this happened.”

CURT NICKISCH: It’s funny, I mean, when I was growing up as a kid, I feel like the thing you would always hear is that, “Oh, someday there are going to be space stations where drug companies are going to be developing drugs in zero-gravity environments,” and I don’t think that’s happened, but all sorts of other things that people did not imagine did happen.

MATTHEW WEINZIERL: Well, and Curt, I don’t want you to lose your childhood dreams. I mean, the idea that we might actually do some really important pharmaceutical or other R&D up in space or even manufacturing, that may be also having its own renaissance. You’re right, those ideas have been around for decades, but very much as in where we saw launch costs come down over the past couple of decades, there’s now at least potentially on the horizon, an era of commercial space stations, which we hope will engender a similar decline in costs and increasing capabilities to make possible some of the things that people have been dreaming about for decades and to also make possible things we never would’ve really thought about 30, 40 years ago. For instance, data centers in space – there are startups trying to figure out how to make that happen.

CURT NICKISCH: That’s fascinating. And now they can afford to try it.

MATTHEW WEINZIERL: Right, exactly.

CURT NICHISCH: You now have a situation where SpaceX has been so successful. It’s almost like, is SpaceX a monopoly?

MATTHEW WEINZIERL: That’s certainly a question a lot of people are asking. I think with antitrust concerns, it’s always a tension because often you acquire that lead by doing really remarkable things that generate a lot of value for customers.

CURT NICKISCH: Right, to wit, costs coming down 99%.

MATTHEW WEINZIERL: Right, exactly. And SpaceX is yet another example of a company that went much faster, farther than I think really anyone could have expected or even hoped, in terms of opening up the space sector. The tension is between celebrating the companies that do really well and gain dominance because of that, but then making sure that they don’t turn into value capturers, rather than value creators. And our recommendation in the book is that we all, whether we’re government contractors or government agencies or people trying to build our own businesses, we try to keep people nipping at the heels of SpaceX and posing real challenges to keep competition. One of those key market forces, healthy. And so I think keeping that at the core of contracting is a key idea.

BRENDAN ROSSEAU: The concern becomes in those programs where they’re specifically trying to create competition and bring in new entrants and kind of let the new guys come in and bring in more competition, when even those contracts are going to SpaceX, as we’ve seen happen, then I think it starts to get a little bit concerning but right now, I think we’re still in a good point. And I think that the government has been forward thinking about this, about being intentional about bringing in competition.

CURT NICKISCH: It’s interesting, you talked about space as just another place, but you’ve also described yourselves as optimists. And in this arena there is, I don’t know, it seems like story and drama and the frontier of possibilities is a big part of what motivates people to work in the industry and what motivates people to fund it. And I’m just curious what you think of story and drama as part of the branding space enterprises, how helpful it is or is this an issue for you in the space industry that you yourselves kind of come to terms with?

BRENDAN ROSSEAU: I think a good place to start for me would be just kind of how I ended up here. So I actually, I’ve always loved space. I thought I was going to be an astronomer or astrophysicist. I just have always loved the space story. I mean, if you look at the relationship of humanity outer space, every culture across the globe, even before they were in contact with one another, seems to have had their own relationship with outer space.

And of course, it’s if I can be patriotic for a minute, I mean, it’s a particularly beautiful aspect of the American space story. The quest and sacrifices to push out beyond the frontier is something that I think is also uniquely American and I’ve always thought of it as kind of like our space story is this gilded thread in the American tapestry.

Like other things, it can be a double-edged sword. If we start doing space things from a commercial perspective or even from a public perspective, just because we want to be doing space things, I think that can be a distraction. And we have seen plenty of space companies start out with a lot of excitement and momentum only to later realize and have their investors later realize, oh, wait a minute, you guys kind of just wanted to do space stuff, and that’s not really a business plan.

I think the businesses and ideas that Matt and I are most excited about are ones where if you presented them to someone who really did not care about space, and you just said, “Hey, there’s this value that can be created in space, and it just so happens that space happens to be the best way to do this.” Whether it’s transmitting satellite internet around the world to billions of people at a low cost, or providing data that can really only be captured from space or a million other things. There’s a lot of things that space is truly uniquely good for. Ones that check that box are great, but also businesses that have that kernel of inspiration behind them, companies that even though they’re pursuing real business models are doing something hard, they’re pushing the frontier. They’re not just any other company. There’s many of those today, and that’s why we’re so excited. We see how motivated the founders and the workforces are, and that although they’re pursuing commercial business cases, they’re also pushing the needle forward.

The hope is that yes, we can expand what space means to us to also be commercially viable and like a sea of true commerce, while also not losing that wonder and excitement and exploration. And today, the space economy has all of that. We’ve got people who want to settle Mars while also being dead set on very profitable businesses. So, I think you can do both.

MATTHEW WEINZIERL: We teach a course at Harvard Business School that has almost 100 students enrolled, we’ve been teaching it now for a few years. And one of the really neat stories that keeps coming out for many of our students is that they found their way to space from a different technological or tech-heavy sector. So whether it’s from various internet companies or other tough tech sectors, they find that space offers this combination of inspiration that Brendan was talking about, and really delivering practical value to people on earth through various different capabilities that just really excites them. And so it’s great to see some of that technical talent and business people interested in technical sectors finding their way to space.

CURT NICKISCH: There’s a new administration in the White House. It has a close relationship with a very space-friendly person, right? Elon Musk. This is the same president who created the Space Force. There’s also a climate of just, government shouldn’t be spending people’s money on things. If you could give advice to government leaders right now, what would it be? And alternatively, what about private sector CEOs?

MATTHEW WEINZIERL: Maybe I’ll actually start with the second one. One of the reasons we wrote this book, we wrote it partly for people in the sector already to try to give them a framework for thinking about what’s happening in space that’s informed by some of the basic ideas in economics. But one of the key reasons we wrote the book is to widen the circle of business leaders who are thinking about how they might create value in space.

We often like to say, if every Fortune 500 or pick your group of companies had someone in the C-suite whose job it was, at least in part, to think about how space might change what they do and deliver value to their customers. The ideas that we would have for activity in space would just blossom tremendously, because that’s where all the real knowledge is, is at the individual local level. And so we really hope that this book brings a large group of people in to just start thinking about what space might make possible for them through data, through manufacturing, through resources, and through so much else.

BRENDAN ROSSEAU: The key thing that I would love to, if I could just get everyone in a room, all the public sector decision-makers in a room, the key thing I’d love to get across is, if we can all arrive at an understanding of what the public sector can be good at, what its strengths are, what we need the public sector to be doing. Things like basic research, organizing, activity, exploration, science, R&D, these things that are in a lot of ways the engine of the commercial space activity that we see today. If you pull the rug of all that out, I think you would really hamstring what’s possible in space.

So to the public sector community, I would say we need you, we need you to be forward-thinking, we need you to be organizing your programs and projects in such a way that you are encouraging competition and ensuring that this tide that is rising, this space tide is one that will lift all boats. I think that’s really important, and especially now, because it appears that we may be at a fairly significant inflection point in the history of, well, I mean, our country and the government, but especially NASA and the Department of Defense and the relationship with space in particular.

There were fairly significant cuts proposed to NASA. There are many significant changes that are happening with the Department of Defense’s approach to space. I think some of that can be positive. I think that this change can be good as long as it is based in a solid understanding of, what should the government’s role be here and why are we doing it? So I’m hopeful that as we make potentially dramatic changes to NASA and the Department of Defense, that they’re smart, that they’re enduring, that they’re forward-thinking, they’re ones that allow the commercial sector to kind of have a platform and foundation and then build on that to thrive.

CURT NICKISCH: Matt and Brendan, this has been really, really fascinating and it’s been a pleasure to have you on. Thanks for coming on the show.

MATTHEW WEINZIERL: Well, thanks so much, Curt. What a pleasure to be with you.

BRENDAN ROSSEAU: Thanks, Curt.

CURT NICKISCH: That’s Matthew Weinzierl and Brendan Rosseau, the authors of Space to Grow: Unlocking the Final Economic Frontier. And if you have space to grow in your career, we can help. There are more than 1,000 episodes of IdeaCast, and HBR has more podcasts to help you manage your team, your organization, and your career. Find them all at hbr.org/podcasts, or search HBR in Apple Podcasts, Spotify, or wherever you listen.

Thanks to our team, senior producer Mary Dooe, Associate Producer Hannah Bates, Audio Product manager Ian Fox, and Senior Production Specialist Rob Eckhardt. Thank you for listening to the HBR IdeaCast. I’m Curt Nickisch.