Tech: Why space is the last frontier for billionaires

This article first appeared in The Edge Malaysia Weekly, on July 2, 2018 - July 08, 2018.

Bezos, who is pouring billions into Blue Origin each year, is serious about making breakthroughs in space

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WHAT do Amazon.com’s founder Jeff Bezos, ­Tesla’s CEO Elon Musk, Virgin’s Richard Branson and Microsoft’s co-founder Paul Allen have in common, apart from their billions? The legendary entrepreneurs all share a love of space travel and are not shy of spending big chunks of their self-made wealth to boldly go where no one has gone before and conquer the final frontier.

As the fictional Captain James Kirk might put it, the billionaire “rocket men” are blazing a trail, helping to “explore strange new worlds; to seek out new life and new civilisations” and make space travel affordable for the masses, just as airline pioneers before them made air travel affordable. And it is not just Bezos, Musk, Branson and Allen who are dabbling in space. Sixteen of the world’s 1,000 or so billionaires, including ­Facebook’s Mark Zuckerberg, Microsoft’s Bill Gates, Google’s Larry Page and Tencent Holdings’ Pony Ma, now have investments in the sector — everything from commercial satellites to launch start-ups and asteroid mining.

Space is big business. It was a US$339 billion market in 2016 and is expected to grow to US$2.7 trillion by 2045, notes Bank of America Merrill Lynch in a recent report. Global government spending on space programmes is expected to surpass US$79 billion annually by 2026, according to consultancy Euroconsult. The US accounts for just over half of all government spending in space. In early June, the European Commission unveiled plans to spend €16 billion, or US$18.6 billion ($25.4 billion), on a space programme to boost the European Union’s space capabilities by 2027.

However, space is no longer the sole domain of Americans, Russians or Europeans. People from 40 countries, including India, China, South Africa and ­Vietnam, have flown into space. Ten countries including India and China have independently launched satellites into orbit successfully with their own launch vehicles. Indeed, over 80 countries including Bangladesh and Ghana now have their own satellites in orbit.

 

Private funds driving sector

The real driving force in space is innovation, with tonnes of money being poured into start-up ventures. Since 2000, about US$20 billion has been invested globally in space start-ups such as Bezos’ Blue Origin, Musk’s Space Exploration Technologies Corp (SpaceX) and Branson’s SpaceShipOne and Virgin Galactic. A total of US$2.8 billion in new investments was made in 2016, over US$3.4 billion invested last year and US$4.2 billion expected this year. Private space companies raised nearly US$1 billion in the first three months of this year, with Musk’s SpaceX accounting for about half, or US$500 million, of that in a financing round led by mutual funds giant Fidelity. Abu Dhabi’s sovereign wealth fund Aabar Investments is another key investor in SpaceX — which Musk likes to joke he started so he could someday retire on Mars. ­(Bezos has been been funding Blue Origin by selling US$1 billion worth of Amazon stock every year for some years now).

Most of the money in recent years has flowed mainly into rocket launch companies, followed by satellite-related start-ups, with space flight start-ups a distant third. The pool of venture capital in Silicon Valley has grown so big that just about every kind of space venture is getting a shot at raising funds. Over 200 VC firms have invested in space-related start-ups. And the more money they can raise, the more innovation we are likely to see in space.

To be sure, few industries are more ripe for disruption than space. For one thing, spaceships, rockets and even satellites are expensive. With high capital expenditure requirements, frequent delays, failed launches and accidents, the economics of the business are challenging, to say the least, and it has traditionally been difficult even for better-funded companies in the sector to make money. Yet the challenge attracts bold and audacious players, and for those with long-term time horizons, space is now akin to the final frontier of investing.

In many ways, the fledgling space industry is at a similar stage as the internet was in the mid-1990s, says Chad Anderson, who heads Space Angels and Space Capital, which help fund space ventures. Investors in the sector believe they are getting a lucrative early ground floor opportunity by making a leap into space just as it is poised to take off.

Five decades ago when the US and the former Soviet Union were in the midst of a Cold War, the race in space was just another front to showcase technological superiority. After the Russians took the lead with Yuri Gagarin becoming the first man in space, the Americans played catch up, pouring billions into a project to send a man to the moon. Yet, even the successful Apollo project faded away in the late 1970s. Since then, the space business has gradually moved away from state-sponsored ventures funded by the likes of US space agency, the National Aeronautics and Space Administration (Nasa), to commercially driven ones backed by billionaires or VC money.

Having disrupted industries ranging from retail and auto to payments and air travel, billionaires such as Bezos, Musk, Allen and Branson are now focused on upending the space sector in an array of projects, from space tourism to asteroid mining. Yet, space ventures are not just another vanity project or a new plaything for these billionaires. They are serious about making breakthroughs in space and focused on getting a decent return on their investment. Musk’s SpaceX, which according to PitchBook was valued at US$27.5 billion based on its latest fundraising earlier this year, aims to get listed in a couple of years. Musk needs the money to invest in an array of other moonshot projects that he is working on, including the Hyperloop, which aims to move people and  products in low-pressure tubes.  

Little wonder, then, that the world’s fascination with the billionaires’ spending spree on space ventures has spawned two new books on the subject in recent months — The Space Barons: Elon Musk, Jeff Bezos, and the Quest to Colonize the Cosmos by The Washington Post reporter Christian Davenport and Rocket Billionaires: Elon Musk, Jeff Bezos, and the New Space Race by Tim Fernholz, a reporter at Quartz, the respected US business news website.

Why space? And why now? These days, whether we use smartphones for international or regional voice calls, to access music or videos stored in remote locations (ironically dubbed “the cloud”), access TV broadcasts such as live Fifa World Cup soccer matches, access in-flight WiFi, and monitor weather, or use global positioning navigation systems in our cars or bikes, or smartwatches while hiking, we are using satellites. With the arrival of autonomous cars as well as a whole host of internet-connected devices that use satellite navigation, we are becoming increasingly dependent on space technology. Farmers use satellites to predict crop yields, governments use them for disaster response after serious floods or typhoons, and Uber and Grab drivers use them to access customers, traffic and road conditions.

 

Competition and innovation

Musk’s SpaceX and Bezos’ Blue Origin are the big kahunas of the space sector. SpaceX now employs over 7,000 people who make Falcon launch rockets (mostly to deliver commercial satellites) and Dragon space capsules. It has been undertaking missions on behalf of Nasa to resupply the International Space Station. It also has a contract with Nasa to transport astronauts to ISS and bring them back to earth.

In late 2015, Blue Origin, followed weeks later by SpaceX, launched and then vertically landed their rockets back on the ground. It was a breakthrough that not even Nasa with its billions and horde of scientific talent had been able to achieve. Sophisticated sensors, cameras and software now allow better manoeuvring of rockets.

In the past, the signature moment for spaceflights was the launch of the rocket, which can cost up to hundreds of millions of dollars. Once it has lifted its payload into orbit, the single-use rocket burns up in the atmosphere and plunges into the ocean.  Vertically landing the rocket on earth rather than crashing it in the ocean or allowing it to drift aimlessly in space means it can be reused, dramatically slashing costs. SpaceX last year became the first company in the world to reuse a commercial orbital rocket. Moreover, efficiencies now allow low earth orbit launch costs per kg to be cut 86% from US$10,000 to just US$1,400. That is what you get from competition and innovation.

Unlike the self-funded Blue Origin, SpaceX, which relies on VC funds,  is focused on making money and, as such, actively seeks new revenue opportunities. Earlier this year, SpaceX won its first big-ticket classified military launch contract for the Falcon Heavy rocket. The US Air Force recently awarded the company a US$130 million contract for the launch of the Air Force Space Command ­(AFSPC)-52 satellite. Indeed, SpaceX has been a key beneficiary of the Obama administration’s decision to privatise space shuttles. Nasa no longer sends its own rockets up in space. It uses private sector contractors such as SpaceX to build them. Driven by intense competition and their desire to make as much money as they can, firms like SpaceX can build rockets much more cheaply, efficiently and quickly.

Just five years ago, SpaceX and Blue Origin were being laughed at as “vanity projects” of billionaires by an elite group of long-time space contractors such as Boeing, Northrop Grumman and Lockheed Martin as well as former Nasa engineers. But Musk and Bezos have had the last laugh as they have upended the business in a span of just five years.

The holy grail will be space tourism. Since  Dennis Tito, a former fund manager who paid US$20 million to become the first space tourist in 2001, only six others have flown, all of whom have forked out between US$20 million and US$40 million. “My singular focus is people in space,” Bezos reportedly said a few years ago. “I want humans in space.” Musk wants everyone to be able to afford space travel soon. “We want to open up space for humanity, and in order to do that, space must be affordable,” he said two years ago. Virgin Galactic, which received a US$1 billion investment from Saudi Arabia last year, expects its first space tourism flights, which would cost just US$250,000 per person, next year.

The two mega billionaires got to where they are by being fiercely competitive — and they are showing that side of their personality in the space race as well. Although Amazon has yet to announce its maiden autonomous electric vehicle and Tesla, if it has any e-commerce and retailing ambitions, is still keeping them close to its chest, the two billionaires have openly derided each others’ ambitions in space. The chances of a “unicorn dancing in the flame duct” are greater than Bezos building a ­Nasa-qualified rocket that can circle the orbit, Musk is said to have remarked two years ago in a jab at Bezos when he thought the founder of the e-commerce giant might be trying to prevent him from using Nasa’s launch pad at Cape Canaveral in Florida.

Bezos started Blue Origin when his own net worth was just over US$1.5 billion. (According to Bloomberg Billionaires, he is currently worth about US$140 billion.) Musk was not even officially a billionaire when he first began dabbling in space ventures and launched SpaceX. Indeed, Tesla endured severe cash-flow issues in its early years. (Musk is now worth US$21.7 billion).

Musk’s and Bezos’ rivalry in space has helped dramatically to cut rocket launch costs, expedited technological innovation in space and, hopefully a few years down the road, it will finally make space travel affordable.

 

Assif Shameen is a technology writer based in North America

 

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