Business models in the space sector – an introduction

Regardless of the industry you operate in, what you produce, and who your customers are, if you are a commercial company, you need to make money. Anyone who has tried their hand at business knows that it is not that easy, and acquiring and retaining regular paying customers is a stage that for many remains only a dream. The way in which a company generates revenue and profits is called a business model, and the more consciously you approach its design and optimization, the greater your chances of success. At this point, it is important to emphasize that there is no fully functional company without a business model. In many cases, it is simply not fully realized or described, but some formula for building profitable added value works in every case. So we are not talking about a purely academic discussion, but about real business planning and development. In this and several subsequent posts, we will look at this topic from the perspective of the space sector.

What does a business model in the space industry include?

“A way to make money” does not explain much, so let's break the topic down into its constituent parts. To do this, we will use a simplified version of the famous Business Model Canvas by Y. Pigneur and A. Osterwalder. At the most general level, two large blocks can be distinguished: generating revenue by delivering value to the right customer groups and managing the cost structure without which the company's operations would not be possible.

The revenue side is the area where you need to understand your target market well (really well), i.e., the customer segments you will ultimately serve. Who are these people or companies? What are their needs? What problems can you help them solve? How much will they be willing to pay you? These are all questions you need to ask yourself constantly at this stage. Along with these questions, you should immediately refine your value proposition: what do you actually deliver to your customers? Why should they choose you?

An example? Starlink offers Internet access in hard-to-reach places, and its customers are institutions – such as the military, intelligence agencies, etc. – but also private individuals who live outside the range of popular mobile networks and fiber optics. SEOPS Space provides services that integrate various aspects of orbital transport, including ordering rocket launches, process support, and communication with objects in orbit for satellite manufacturers and other entities operating in space. Their advantage is the unique comprehensiveness of their services, primarily in the area of communications.

The next step is to define customer relationships and channels for reaching them. In the case of the B2B and B2G sectors, these are most often direct and long-term relationships maintained by employees of both organizations - the supplier and the customer. The channels of communication will then be direct sales, participation in trade fairs, communication on services such as LinkedIn, but also lobbying, participation in chambers of commerce, etc. In the case of B2C, relationships are usually less intimate and often even require an intermediary in the form of a retailer. Communication is then of a “one-to-many” nature, although it can be tailored to the specific characteristics of narrower customer groups.

The end of the revenue section raises the question of the structure of our earnings. How are fees charged to customers? Do you do it once and transfer ownership of the equipment? Or do you add support and servicing after the purchase, thereby increasing the customer's value? Or perhaps your product is subscription-based and you charge a monthly fee for the entire duration of the contract?

How should you think about costs? How should you manage them?

Whoever you are, you don't operate in a vacuum and you need various resources and capital to function. These can be divided into key resources, key activities, key partners, and cost structure.

Key resources are all the elements necessary to create and deliver value to the customer. These can be tangible resources (IT infrastructure, servers, equipment), intangible resources (patents, licenses, software), human resources (think of all the skills you will need), and financial resources (VC, revenue, working capital). In the context of technological solutions, the costs of maintaining cloud environments, data security, and access to know-how may be particularly important.

Key activities are actions that a company must perform in order to actually deliver and maintain the promised value. In space projects, these include software development, system maintenance, satellite construction, rocket construction, construction and maintenance of ground structures, etc. Each of these activities involves specific expenditures, both operational (e.g., specialists' working time) and infrastructural (e.g., fees for development tools, physical materials, space rental, etc.).

Key partners influence costs by providing resources or performing parts of the process. These can be cloud providers (AWS, Azure, GCP), outsourcing companies (e.g., SpaceX, whose Falcon 9 will launch your satellite into orbit), data providers, or system integrators. The cost structure should take into account both fixed costs resulting from long-term contracts and variable costs depending on the scale of operations. From this point of view, it is crucial to determine which costs can be optimized through automation, scaling, or renegotiating terms with partners, and which cannot be reduced in any way in the short term.

In summary

A business model in space industry is how a company generates revenue and profits. A very useful way of thinking about it is the Business Model Canvas, which covers two large areas: revenue and costs. The first part requires answers to questions about customer segments, value propositions, channels, relationships, and revenue structure. The cost section defines the key resources, activities, and partners without which the company's operations would not be possible. The whole thing allows you to better assess the company's potential, look at it from a bird's eye view, and optimize its operations.