SpaceX, or How to Disrupt the Space Exploration Industry
“Make humans a multi-planet species”
We have all heard about SpaceX. Whether because of Elon Musk, its current CEO or because of its disruptive approach to space exploration, SpaceX is on the verge of creating technological miracles.
First and foremost, let us remind ourselves what we are dealing with here. SpaceX was created in 2002 by the modern genius Elon Musk, founder of PayPal, Tesla Motors, and SolarCity. After revolutionizing the way we make payments, the world of solar power and solving the autonomous driving problem, Musk leaps into the space industry.
Their vision? Rethinking space technology with the ultimate goal of enabling people to live on other planets. But rather than explaining why and what they have done so far, we would like to focus on the How.
How does a private company manage to develop a business model so disruptive in the spaceflight industry with such barriers to entry?
… Well, let’s have a look, shall we?”
Here’s a quick brief on SpaceX’s history :
Two key success factors — simplicity and costs innovation. SpaceX is the first private company to launch vehicles into space and return them to earth using reusable rockets. This massively reduces spaceflight costs, making trips into space much more accessible than ever before. Think of Musk as the Henry Ford of space exploration; when asked how he changed the rocket equation and revolutionized space travels, he simply answered: “I read books”. A habit that all successful businessmen have in common (Bill Gates, Warren Buffet, Mark Zuckerberg…).
The SpaceX model is built to offer an “all-in-one” space launch service for both governmental and private companies. Instead of reaching out to external suppliers, the SpaceX operating system consists of the combination of numerous stages in the production process which include, amongst others, designing, manufacturing, and launching. This vertical integration is the keystone of SpaceX’s cost model. Centralizing most of the production process under one roof (Hawthorne, California) allows them to share information, data and materials instantly, reducing costs at all stages of the production process.
And that’s where the magic happens. It costs (no more than) US$60 million to launch a rocket into low Earth orbit in contrast with an average of US$380 million charged by United Launch Alliance (ULA), SpaceX’ major competitor for U.S military launches.
But scepticism grows over reduced-cost rockets, and it is understandable. Low-cost products and quality exhibit negative correlation. In other words, you can’t have both… What if we could?
According to Musk, their price policy is not “meant to lure in an eager market only to be increased later. These prices are based on known costs and a demonstrated track record, and they exemplify the potential of America’s commercial space industry.”
Very well Elon, and regarding a potential increase in risk? We have neither forgotten the explosions of the Falcon 9 in August 2014 nor the most recent ones in both June 2015 and 2016… As much as those crashes were considered a “huge blow” to SpaceX you will be surprised to hear that its failure rates are still below 5%.
One little thing that sets SpaceX apart is their ability to put their money at work. SpaceX’s customers make upfront payments to finance future launches. Still, it usually sits in a bank account for a year or two. What SpaceX is doing is investing in SolarCity bonds (US$165 million last year) that pay way more than government bonds — 4.4% interest for a one-year investment. Nice move !
SpaceX may have won a battle but definitely not the war. Other competitors like ULA, a joint venture of Boeing and Lockheed Martin, are investing millions in R&D to decrease their costs. Blue Origins, another “space-startup” managed by Amazon’s CEO, Jeff Bezos, just announced that they plan on sending humans to space by 2018, using reusable rockets. The spaceflight industry is attracting big sharks, not to mention Virgin Galactic from Richard Branson.
Lots of competitors, numerous innovative challenges, and one huge promise to eventually send humans to Mars. SpaceX has a lot to do but is definitely on the verge of success.
Co-written by Victor Gardrinier & Loïc Souetre
