At World Satellite Business Week (WSBW) this September, a panel of founders and chief executives in Earth observation (EO) and hyperspectral explored a noteworthy tangent while discussing their priorities in defense markets: Is the evolution of EO technologies through advanced innovation reliant on defense budgets?
While Earth observation is not a new technology, the mass commercialization of its products remains a developing field, which several panelists described as experimental. Imaging the planet from space using visible light and through hyperspectral bands is undoubtedly useful to all manner of industries and organizations, but businesses seeking to normalize the predictable delivery of actionable insights are still finding out what does and doesn’t work.
To an extent, this remains the case for governments and militaries.
“Looking at defense today, [EO and hyperspectral has] been gaining demand,” Jarkko Antila, the CEO of Kuva Space, told WSBW attendees. “When we started, we didn’t have defense in our strategy at all, and we do quite a bit of it today. Hyperspectral is really efficient at finding the right stuff over big areas.”
The notion of this customer mix swept across the panel, prompting a number of conversations about the economics of this market.
“If you asked me a year ago, I would have insisted EO needed defense,” said Chris Robson, CEO & Co-Founder of Wyvern. “[This August], 80% of our revenue came from commercial sources, which surprised me. We’re going to continue to rely on defense customers to fuel our growth, but I was very surprised to see our customer base flip from majority defense to majority commercial.”
In space, virtually everything started out as a government or military application, which slowly entered commercial viability.
In space, virtually everything started out as a government or military application, which slowly entered commercial viability. Space economist Pierre Lionnet, managing director of research at Eurospace, spoke to that trend.
“It is fair to state that military investment was the number one driver behind EO systems technology development and deployment,” Lionnet told Constellations. “In fact, according to our market assessments, EO military satellites procured directly by military or intelligence entities represented 70 to 86% of the total annual demand for EO satellites since 2000.”
The moderator of the panel, Romane Prouteau, Earth observation senior consultant at Novaspace, had similar conclusions, agreeing that defense customers have been anchor clients to Earth observation and hyperspectral technologies due to their demand for advanced data.
“The standard of EO technology results from both market needs (future commercial use cases) and institutional requirements from entities such as Ministries of Defense, the European Commission, NASA or ESA,” she told Constellations. “Historically, there has been strong permeability between defense and civil requirements, with operators typically targeting institutional clients first before expanding into commercial markets.”
Emerging and Complex Applications
In space imaging, consumers face an array of unprecedented solutions.
“In hyperspectral, you don’t just see a forest, you see the species of tree,” Wyvern’s Robson said on the panel. “You would see the chemical composition of a mountainside to figure out what materials are there. It’s not an image so much as a direct measurement technique.”
“In hyperspectral, you don’t just see a forest, you see the species of tree." -Chris Robson, Wyvern
He described a customer in agriculture that directly measured hydrogen, eliminating the need to measure on the ground by collecting samples that then needed to be processed in labs, going on to mention wildfire prevention and insurance.
“Some of our customers are spending millions of dollars to send assessors into the field to understand claims,” he said. “We can save them a lot of time and manpower.”
Currently, Wyvern has four satellites in orbit as part of its Dragonette constellation, with more to come. The applications they deliver don’t seem to lack for hypothetical utility, but seem to have the opposite kind of problem, with methodology complex enough to require retooling of the industries they serve.
“Key growth areas include mining, agriculture and environmental monitoring, where hyperspectral imagery offers unparalleled information density,” Novaspace’s Prouteau said. “The main challenge lies in demonstrating value to customers and integrating hyperspectral data into practical, scalable service chains.”
Speaking to Constellations after the panel, Robson said all this is possible because of Wyvern’s revenues from defense.
“The defense industry, and the associated budgets, are responsible for the EO industry as it stands today,” he said. “It has aided Wyvern, but it certainly hasn’t been the primary source of contracts or revenue to date. That being said, I suspect that will change in the next year.”
Doing Without Defense
What made the World Space Business Week panel’s debate so fascinating wasn’t its deliberators so much as its contrarian in Tristan Laurent, CEO & Co-Founder of Absolut Sensing.
“If you want to sell to defense, you have to become a defense company,” he stated in September. “You have to wrap your business around that use case, and that costs you commercial agility.”
Absolut Sensing is a Toulouse-based startup whose initial satellite was launched this January and had been validating and optimizing the performance of its hyperspectral sensing and data-processing architecture.
Laurent was eager to qualify that Absolut Sensing possessed no projects with the defense market and had no revenue with them, a point he later reinforced.
“Working with defense slows you down by adding layers of processes on security and quality assurance and requires bespoke solutions.” -Tristan Laurent, Absolut Sensing
“Defense does drive the EO industry,” he told Constellations. “[Absolute Sensing is] a niche market player with a different strategy. Defense customers represent over 80% of the EO market, so in most cases, not working with them is not an option. But working with defense slows you down by adding layers of processes on security and quality assurance and requires bespoke solutions. All this decreases your competitiveness in commercial markets.”
Laurent invoked the conversation around sovereignty, a term that has become a mainstay of conversations in defense markets, which layers more complexity onto the high standards of technological performance required by defense developers. This has led to much of EO being the responsibility of governments and militaries.
“For private EO operators with public financial disclosures it stands very clearly that military and intelligence customers represent the most (when not the entirety) of their market,” Lionnet of Eurospace told Constellations. “In fact, privately owned EO infrastructure represents just 2 to 7% of total EO satellite developments in value.”
This can lead to a defense customer overshadowing the operation, requesting first look at all imagery, and potentially banning it from becoming available to third parties.
“This may defeat a commercial business model where, by its nature, the infrastructure is shared by many users who may want to access the same data,” Lionnet said.
Absolut’s Laurent had bolder conclusions about the path he saw the market taking.
“I think we are going to see a massive amount of EO infrastructure companies failing in the next 5 years – around 20% of the current total would be my prediction – those that didn’t make it past the pilot projects phase,” he told Constellations. “I also see consolidation happening, particularly on infrastructure businesses where scale is vital to compete.”
Survive or Thrive?
At the WSBW panel, the head of Pixxel offered a summarizing maxim as shorthand for his perspective.
“You can definitely survive without defense money—there are enough businesses to support that. Can you thrive without it? Sadly not—for the next few years at least,” Awais Ahmed, CEO & Founder of Pixxel told the audience. “Even in the best cases, such as with SpaceX, defense money was crucial to them finding their feet.”
Lionnet concluded is “extremely difficult” for a company to monetize satellite remote sensing data with civil and commercial customers, but only marginally easier with military and intelligence.
Absolut’s Laurent offered his own saying:
“You can survive with defense money, but not thrive off of it,” he told Constellations. “I see lots of one-off pilot projects that get investors excited, believing the defense opportunity will generate nine-figure annual revenue with a high profit margin for their company, only to then realize that that money only goes to the defense contractor that has shown an operational capability or has the strategic infrastructure already built and operational.”
As is often the case with satellites, especially in LEO, the problem comes with the territory. Constellations deploy all over the planet, pressuring them to deliver global solutions. Monetizing the full capacity of a system is a Gordian Knot that even the most successful operators struggle with.
“There may be a deep flaw in trying to privatize what may be intrinsically a public resource, unless it is for strategic reasons, hence the dominance of military-owned systems.” -Pierre Lionnet, Eurospace
“When implemented as a public good—for science, climate and meteorology applications for instance—EO systems have proven very effective and reasonably well-funded,” Lionnet said. “There may be a deep flaw in trying to privatize what may be intrinsically a public resource, unless it is for strategic reasons, hence the dominance of military-owned systems.”
Divide and Conquer?
An EO company may seek to compartmentalize their defense aspirations by spinning them out into a separate company, something Laurent advocated.
“There is certainly an image that comes with being a defense company, which might preclude business with NGOs or companies at odds with that image.”
Novaspace’s Prouteau isn’t convinced about the spinout model, though she said she noticied a trend of companies relocating their HQ to better access defense markets.
“It is uncertain that the benefits from a spin-out would out-weigh the risks of splitting operations with all the problems associated,” she said. “This would split the operations and might increase the total OPEX (and possibly CAPEX), limiting the possible benefits of the company.”
During the WSBW panel, Proutou as moderator drew her segment to a close with a one-word question and response, asking what set each executive’s company apart from the others.
Most offered considered statements punctuating a dedication to growth or innovation. The torch passed to Laurent, he turned to the audience with a smirk rare on the composed stage of a satellite industry conference.
“Profit,” he answered, to a wave of laughter and a number of claps, and a few grins from fellow panelists.
“Our shareholders want a profitable business case which is profitable today and not in three to five years,” Tristan later told Constellations. “Defense doesn’t enable that for us.”
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