Much has been said about the revolution in small satellite technology and the copious number of constellations already in orbit or being prepared for launch.
Certainly the amount of capital that has flowed into small satellites has been stunning with industry estimates at nearly $1 billion in the past three years.
But is that capital investment justified?
Many observers wonder if we aren’t destined for oversupply and financial folly on the scale of the commercial failures of Iridium, Globalstar and Teledesic in the 1990s. Looking at the small satellite market from an investor point of view, we must ask a question that’s slightly different than whether a particular constellation is justified. Instead we should ask what is the value in its final form of nearly perfect, real-time, hyperspectral information?
In other words, it is in the aggregation of all smallsat telemetry that the value will emerge.
Taking a step back, if you think about current analogs to companies built on large-scale data sets the most obvious one would be Google.
Google has essentially built a company with a $500 billion market capitalization by organizing, structuring and in some cases creating known terrestrial information.
The key words here are “known” and “terrestrial.” In addition to traditional search, Google’s scope ranges from indexing and digitizing books, to indexing and rating restaurants, to providing mapping data.
The Earth observation data set in my view is an opportunity that is much, much bigger than this. Why? Because of the sheer amount of data and the potential wisdom that can be extracted from that data. With the advent of artificial intelligence and machine learning, the ability to make predicative observations and have “emergent” knowledge be created from large amounts of unstructured data is more powerful than we have even begun to realize.
Very simply, the currency of the global economy going forward is data sets and the Earth observation data set will dwarf by orders of magnitude, in terms of scale and value, the data set Google has built their business on. Call it the “mega-set” if you will.
It is this end state, the pot of gold at the end of the rainbow, that the capital sources investing in Earth observation are betting on.
Think of it as analogous to the early investments in e-commerce, not necessarily knowing which storefront would emerge as the biggest winner but knowing that the opportunity would be a tidal wave of value creation.
From this point of view, the interest in small sats is not only justified, it may be undervaluing the opportunity.
One final thought: where will small sat investors find the exits that will provide near-term financial returns?
Certainly some public company exits are ultimately likely, but to do that the industry will need some aggregators that can build sufficient scale to make an IPO both attractive and successful.
We will cover this in more detail in the next column.
Dylan Taylor is a leading angel investor. He has several investments within the smallsat and Earth observation sector, including OmniEarth, Cape Analytics, Planet, RBC Signals, Ardusat, York Space Systems, and LeoLabs.