Small satellites – the innovation that's disrupting the space industry
For the first time, the space industry is attracting Silicon Valley firms and entrepreneurs. Will these young companies disrupt the space industry with their lightweight, cost-effective small satellites?
In the past five years, the space sector has grown more than six fold, with ten new satellite manufacturers appearing since 2005.
Amongst the new entrants in the space industry are tech giants Facebook and Google, who have been developing a new type of satellite to provide space-based internet to emerging and developing economies.
Until recently, prohibitive costs associated with the industry have served as a barrier to entry, with the combined cost of building and launching satellites themselves often exceeding the $1 billion mark.
This has meant that the space market has been characterised by both a small number of a manufacturers, and a small number of customers.
But the development of SmallSats – lightweight satellites that utilise components that could be found in a smartphone – has shaken things up, paving the way for young companies and start-ups to disrupt the market.
The ability to develop lightweight satellites at a fraction of the cost of the established big players in the space industry would appear to threaten the market position of the industry’s incumbent firms.
Yet while new entrants start to produce cost-effective alternatives to the major industry players, this does not necessarily mean they will replace the incumbent firms and their existing, larger satellites.
The reason comes down to supply chain management.
Supply chain academics emphasise that business success is not a simple as just coming up with a new and cost-effective product.
Whether or not space industry disruptors prove successful will depend on their ability to optimize their supply chain strategy – not just on developing new products or technology.
First of all, there is question of how well these new entrants will relate to value networks – the contexts within which firms identify and respond to customer needs, solve problems, gather input, react to competitors, and seek profit.
Second, is the matter of the distinctive, hard-to-replicate resources and capabilities that existing firms have developed. These resources, made up of integrated combinations of assets and capabilities are cultivated slowly over time.
The incumbent space industry firms possess strong distinct outside-in-capabilities in design, testing, and manufacturing, as well as in the technology development and transformation processes required to build large satellites for institutional customers.
There are also specific questions surrounding the launch of SmallSats.
Initiatives from PayPal and the founders of Amazon are starting to work on reusable launchers, which are expected to reduce launch costs by 50%.
But at present, the are no reliable small launchers on the market. This means that companies that wish to launch SmallSats are dependent on existing large satellite launchers, forcing them to collaborate with incumbent firms.
What’s more, large satellite manufacturers are ultimately aware of the enormous business potential of space-based broadband internet and related services. They can appreciate the role that they themselves can play in building and launching hundreds or even thousands of their own SmallSats.
While a lot of excitement surrounds the new breed of space start-ups, they will struggle to bring about disruptive innovation by themselves.
The success of these start-ups will hinge on self-awareness, as disruptors seek to identify which of their distinct capabilities have the potential to generate value, as well as to develop the new capabilities necessary to capitalize on emerging opportunities.
Read more! This animation is based on “Taking advantage of disruptive innovation through changes in value networks: insights from the space industry”, published in Supply Chain Management: An International Journal.