Is space equity poised for a boom?
by Sam Dinkin
|Using a hybrid rocket engine to literally burn rubber to space is fine for a prize flight or a low-volume, high-priced tourist operation, but is not the basis of a cheap point-to-point or orbital technology.|
Elon Musk is certainly rattling some cages with his Falcon rocket. At about $2,850 per kilogram to orbit for the Falcon 5, things are getting interesting. It might not be enough to spark a huge boom in demand for space, but that’s a lot less than $16,500/kg for the shuttle. However, SpaceX’s Falcon is not particularly reusable with its salt-water parachute landing of its first stage. There is not likely to be a repeat of Moore’s Law without a rocket that can land back at the launch pad and just refuel.
Dennis Tito, who made his first fortune in the mutual fund boom, says he is ready to write a check to invest in space as soon as the Senate passes HR 3752. “HR 3752 is precisely the kind of legislation Congress should enact in order to give investors like me confidence that our space tourism ventures will be regulated in a fair and streamlined manner,” Tito said in a statement when the House passed the bill in March. “I hope the Senate takes up this bill soon and sends it on to President Bush for his signature.” That will probably still be early enough to precede the boom by a fair bit.
The antecedents of a boom are quickly forgotten once the boom gets started, so it is not so easy to cash in on the next boom. If you can think back ten years, the Internet was not yet commercial, the big three in online commerce were AOL, CompuServe, and Prodigy, and everyone thought that the biggest opportunity in broadband was interactive cable TV. There were several developments that democratized the Internet and paved the way for a boom. The first is that the Internet was freed from the big three dialup companies. Early ISPs BBN, Netcom, and the Pipeline made way for the long distance companies and Earthlink to really put competitive pressure on the proprietary content providers. Later, cable companies and local phone companies divorced Internet access from dialup. So one of the critical ingredients of a boom is to have many infrastructure providers. With the Ansari X Prize hatching entrants like a Wack-a-Mole game, a few of them should hang around to provide passenger service.
|With the Ansari X Prize hatching entrants like a Wack-a-Mole game, a few of them should hang around to provide passenger service.|
Another antecedent of a boom is a sexy story. There were lots of sexy stories about Internet startups. Recall the stories of Wozniak and Apple, Fairchild Semiconductor, Levi’s Jeans: they have to play well on Wall Street and Main Street. If you have been following all of the AST licensees and X Prize participants, every one of them has a sexy story. That is not too hard a hurdle. It is not too hard to find struggling tenacious industrialists setting up garage operations and beating the big players at their own game. The jury is still out whether Elon Musk of SpaceX fits the bill given he is not exactly a pauper any more, but if his Falcon flies, it will be revolutionary. Another hero of the PC boom is Jeff Greason, instrumental in getting the Pentium chip together. His XCOR Aerospace certainly has a garage Horatio Alger feel to it. (I’m an investor so you should consider I am putting my mouth where my money is.)
Another requirement for a boom is for the product or service to hit a price point that makes it attractive for the mass market. Internet service was introduced there and the product became more useful over time. At $20 million per ticket, orbital is not likely to be much of a boom for a while. But at $100,000 per ticket, suborbital might be. Are there enough people who want to blow a hundred grand on recreating Alan Shepard’s 1961 flight? Maybe not, but there are plenty of people who would pay $10,000. At that price point, that is a lot less than a mid-life-crisis sports car, a first-class trip to Europe, or an SUV. These firms do not need to serve a million people to spark a boom. Netscape closed its first day at $58/share with quarterly revenues of $11.9 million. That’s less than 1,200 folks flying fewer than 600 flights a quarter, or just six spaceships in service for one flight/day with two passengers or two spaceships in service with three flights/day. At the $100,000 price point, that’s 120 tickets or 60 flights a quarter for a three-seater. Hmm, that makes Mojave with its application for 56 flights/year seem downright bullish.