Beginner's Guide to the Space Economy

Introduction

Who's writing this?

Hey, my name is Maxim. I'm a double-major in Economics and Physics at UC Berkeley (where I am involved in growing the NewSpace community), a Supply Chain Intern at Rocket Lab (one of the largest commercial space launch providers), and Co-founder & CEO at Tour, a travel planning platform that makes it easier to plan trips with friends.

More broadly, I'm a futurist who has been interested in the space economy since middle school. This article is part of a series on how we are using space to build a better future for everyone on Earth. I believe that more people should know about the impact space is having on helping us fight climate change, food insecurity, and humanitarian challenges today. In the end, it is my hope that by the end of the series more people learn about the tremendous potential that space infrastructure has for all humankind, and persuade people to get involved in building a better future.

Why does it matter?

CNBC recently published an article going over new research on the space economy by Citi Bank, which predicted that the space industry will grow from its current estimated size of roughly $424 billion to $1 trillion by 2040, driven predominantly by new use cases unlocked by lower rocket launch costs. But what exactly is the space economy? What does it actually consist of? Who benefits from it? What are "launch costs" and why are they important? Today, I will try my best to help answer these questions, and I hope to leave you with a comprehensive big-picture understanding of what is happening in the space economy today.

I would like to begin by defining what the space economy is, the major players and industries within it, and what activities in space are currently being conducted. Since the industry is infamous for having a ton of highly specific jargon and terminology, I will try my best to keep this overview as beginner-friendly as possible. Please don’t hesitate to reach out with questions and/or suggestions on how to improve the accessibility of this article. With that, let’s get started.

Defining the space economy

Before we dive into what the space economy is made of and how it helps us solve problems on Earth, let’s first define what it actually is.

Definition

Broadly speaking, the term "space economy" captures everything people do and use to create value to humanity via space. Essentially, think of space as a medium that people, companies, and governments can use for the benefit of humankind, and the space economy is what captures the value of our activities to do so.

Major players

Currently, the space economy consists of two main players: governments & companies. In many industries, the government and companies tend to compete. In space, they collaborate often, as it is vastly more beneficial to do so. In fact, it is this exact collaboration that has opened access to space for thousands of new companies and allowed for the formation of an entire economy over the past decade. In turn, the formation of a space economy has benefited both private companies and governments. 

Governments around the world have benefited immensely from reduced launch & satellite costs, technological breakthroughs, and broader access to space as a place, which has allowed them to fulfill their standard interests—be it science, defense, or soft power—at both a greater scale and lower cost to the taxpayers. In exchange, private companies got their first, critical contracts from the United States government (which played a critical role in the start of the space economy). Without those contracts, the first space companies would likely not have been able to get off the ground.

Today, many companies are able to find customers for their services across both terrestrial and space-based industries and largely no longer require the government to grow. The government still plays a major role in the formation of new industries, notably via the Artemis program & the formation of a lunar economy (which deserves its own article altogether).

An important consideration here is that while the first space companies needed the government to survive, the government already had an existing interest to put things into space. It chose to support companies like SpaceX because they promised to be able to do what the government wanted at a lower cost, not because of philanthropic intentions. In other words, the government was willing to take a risk on new ventures due to the immense long-term savings if they succeeded. Similarly, programs like Artemis fund partners that are able to prove technological ability and economic viability to the US government in the long run.

Industries in the space economy

Industries in the space economy can be broken down into two broad categories: Earth-focused and space-focused. Let’s start with covering the former.

Earth-focused industries

Space is used in climate monitoring (including forestry, wildlife management, emissions monitoring, and similar), weather services, navigation, telecommunication (internet, cellular, and similar), agriculture, disaster management, insurance (risk assessment), aviation, energy, defense, science (including geography, geology, urban development, and similar), and many more in development. This is by far the biggest sector of the space economy, with space-for-earth services comprising as much as 95% of the space economy according to Harvard Business Review (HBR) research.

These industries use satellites—spacecraft with specialized equipment and instrumentation (essentially computers optimized for existing in space)—predominantly in Low Earth Orbit (abbreviated as LEO; refers to orbital planes around 2,000km/1,200mi above sea level) or Geostationary Orbit (abbreviated as GEO; 35,768km above sea level, wherein the satellite is always above the same point on Earth across time). Space Foundation has a great, short article showing the different types of orbits and their use cases visually, available here. These satellites are put into orbit by space launch providers—the companies that build and launch rockets.

Illustration of different satellite orbits. Source: https://mjginfologs.com/types-of-satellite-orbits/

Prior to the formation of the space economy, most of the industries above were unable to benefit from the use of space due to prohibitively expensive costs, limited access, and lack of technology. Rockets were single-use, and built exclusively by governments through the use of preferred partnerships with hundreds of contractors. Satellites were also large, expensive, and predominantly government-owned or operated, utilizing the same public-private model.

SpaceX and similar launch providers fundamentally changed the game—commercial launch providers built rockets mostly in-house (almost entirely without the use of contractors for components), made them reusable, and developed new programs (such as the rideshare program) that accommodated smaller, cheaper satellites that any company (and even high school teams) could build, called cubesats. In turn, launch costs have fallen by 90% between 1980 and 2020, and by 97% between 1960 and 2022. I will expand more on the role of space launch providers in the space economy in next week's article.

Broadly speaking, space launch providers enabled companies to:

1. Launch more things into space thanks to reduced cost of launch, broadening the scope of what space can be used for
2. Use significantly smaller and less expensive satellites to accomplish mission objectives

As a result, today's companies in Earth-focused industries use what’s known as the CubeSat standard, developed in conjunction by Stanford & California Polytechnic State University (CalPoly) professors in the late 1990s.

Helpful diagram to illustrate standard CubeSat sizes. Source: https://www.nasa.gov/content/what-are-smallsats-and-cubesats/

They are cheap and efficient to manufacture, costing as little as $50,000 for a 10x10x10cm satellite, with some people even managing to build tiny satellites for less than $1,000. For comparison, a traditional public-private satellite program cost at least several $10s of millions, around $100 million for observation satellites, and upwards of $200 million for specialized weather satellites. Governments and companies still develop and launch large, expensive satellites for specific use cases and benefit tremendously from reduced launch costs. The savings can be transferred to make the actual satellites more useful or simply accepted as reduced costs to taxpayers. 

“The average size, or launch mass, of commercial communications satellites is declining. After the average launch mass reached a peak of 4,424 kilograms in 2012, it declined to 3,578 kilograms in 2013 and 2,755 kilograms in 2014. Even the launch mass of geosynchronous satellites, which are typically heavier than LEO spacecraft, declined in 2014. The launch mass of GEO satellites peaked in 2013, when it reached 5,288 kilograms. The average launch mass of geosynchronous satellites declined to 4,276 kilograms in 2014.”

— DSM International, July 13, 2015.

So, the majority of new satellites are small, relatively inexpensive, and work together in the form of constellations—groups of satellites that work together to perform tasks in space. Notably, thanks to the reduction of satellite sizes, launch providers were able to even further reduce launch costs for clients by launching these satellites using a rideshare system — think of it like a bus for satellites vs. each satellite driving its own car.

The amount of space needed to transport 60 people for a bus vs. individual cars. It’s not only cheaper, but more efficient, especially when most passengers go to basically the same destination. Source: wasn't able to find; popular meme.

Of course, even satellites that help solve problems on Earth still require servicing, or else they have to be de-orbited (sent to burn up in the Earth’s atmosphere) or placed into graveyard orbits (special orbital planes dedicated to hosting inoperable spacecraft while their orbits decay). The immense growth in deployed satellite counts over the past decade gave rise to space-focused industries, which aim to both help satellites already in orbit and advance longer-term missions for humanity.

Space-focused industries

Space-focused industries include in-space manufacturing (of medicine, in-space vehicles, parts, or other goods), space tourism (people traveling to space for fun), space habitats (people living in space), space automation (mostly in use for space habitats & science), science experiments (primarily focused in research for food, medicine, and biology), and in-space services (such as debris removal, refueling for satellites, satellite maintenance, and space tugs, which position satellites launched using rideshare in more specific orbits). 

Despite being a relatively small part of the space economy for now, these industries are still important. For example, satellites already in space can benefit significantly from in-space servicing, in-orbit refueling, and the reduction of space debris. All of these factors reduce the risk of accidents in space and significantly extend mission lifespans, making space around Earth less expensive and more sustainable. Moreover, a non-trivial amount of everyday items, tools, and scientific breakthroughs have come from science conducted on the International Space Station and by the earlier years of the space program. It is estimated that the value of the US space program has had an overall return on investment of >800% for the US government.

In addition to the space-for-space sector, there are hundreds of Earth-based companies that provide satellite manufacturing, collision avoidance, consulting, and insurance services, among other things, which make it a lot easier for new space-for-Earth companies to get started.

Space-focused industries—especially space tourism—grab a lot more headlines than Earth-focused industries. This makes sense—they’re much more exciting and sensational. We're already used to the convenience of seamless GPS navigation, mostly-accurate weather forecasting, and take for granted the deep knowledge of atmospheric composition, global maps of the Earth, and ability to see everything in the entire world at once.

Naturally, there is also a lot more potential for new companies on this side of the market, as there are very few companies in the space. For example, there is only one commercial orbital refueling startup—OrbitFab—and only a handful of companies facilitating space tourism (Blue Origin, SpaceX, and Virgin Galactic). It’s a lot riskier and technologically challenging to start new companies in this space, but the prospect of capturing an ever-increasing market share is alluring, and we can expect to see a lot more growth in these industries moving forward (notably, the NASA-run Artemis program is likely going to be a major contributor once again).

“Revenue from manufacturing, launch services and ground equipment will make up the majority of the revenue growth in the satellite sector,” Citi said. “However, the fastest growth rate is expected to come from new space applications and industries, with revenue forecast to rise from zero to $101 billion [between now and 2040].” 

— Citi Bank, May 21, 2022

It is worth noting that space tourism—which generated a lot of negative press, impassioned discourse, and sensational headlines for space launch providers—only comprises 0.01% of the overall space economy ($44.5 million in 2021 compared to $424 billion in 2020). 

In 2019, 95% of the estimated $366 billion in revenue earned in the space sector was from the space-for-earth economy: that is, goods or services produced in space for use on earth. 

—Harvard Business Review, February 12, 2021

The vast majority of the space economy—quite literally hundreds of billions of dollars—is dedicated to helping solve problems on Earth, which affect everyone, including the least and most fortunate people in the world.

Conclusion

To summarize, the term "space economy" captures the value of activities in space by companies and governments. The space economy was able to develop thanks to a reduction in the cost of putting things to space and through developing small spacecraft. Today, governments use space to fulfill national goals such as scientific development, defense, investment into the future, or simply soft power on the international space. Companies use space predominantly to help clients on Earth address problems like climate change, food insecrutiy, human development, and societal wellbeing. In fact, 95% of the space industry is dedicated to Earth-based challenges. A small but growing share of companies focused on helping customers in space through orbital refueling, satellite maintenance, and other in-space infrastructure.

Now that we're clear on what the space economy actually is, the next article will take a look at how it was made possible. Specifically, I will give an overview of the major players in the space launch provider sector and cover in depth how that industry has enabled the space economy to develop.

I sincerely hope you've enjoyed the first part of my space infrastructure series. As mentioned earlier, please feel free to share your thoughts and back - and share this article so that more people can learn about the impact of space on Earth.

Best wishes,

Maxim Kraft