Davids vs Goliaths in the small satellite industry:

Abstract

In this paper, a conceptual framework of the nature, structure, and dynamics of technological innovation is developed and applied to the small satellite industry. Important components of this framework include: a) the speed and acceleration of technological innovation, and b) the linear and non-linear interactions between technology producers and users (technology and market push and pull mechanisms).

We conceptualize technology development and commercialization as an ongoing cooperative and competitive (co-opetitive) process involving enabling and inhibiting factors or mechanisms which govern the speed and acceleration of technological innovation. Enabling factors may include CRADAs, strategic alliances, spin-offs, intellectual property rights, SBIRs, and mentor-protege relationships. Inhibiting factors may include excessive regulation at state, national, and international levels, technological, structural or financial barriers to market entry, competitor response to market entry, and culture clashes such as engineering versus marketing culture or firm versus government versus university cultures. These enabling and inhibiting factors influence and are also influenced by technological and market pulling and pushing forces.

We postulate that the size of a firm, in addition to its ability to adapt to and/or absorb technological and market discontinuities, determines the rate at which it innovates (speed of innovation), as well as the rate at which it varies its innovation speed (acceleration of innovation). It is also postulated that a firm's speed and acceleration of innovation are directly proportional to its long-term competitiveness and market success.

This conceptual framework was employed to evaluate the capability of small and large firms to develop and commercialize new technologies in the small satellite industry. Three firms that are active players in the small satellite industry were examined. These firms are small relative to the large aerospace giants (such as Lockheed Martin and Boeing) but they vary in size and age. Two of the firms studied are US start-ups and one is a British university spin-off. Our findings were synthesized to derive insights that could be generalized for the benefit of technology entrepreneurs as well as policy makers in other technology-driven and alliance-rich industries

Introduction

The purpose of this paper is to evaluate the capability of small and large firms to develop and commercialize new technologies in the small satellite industry. To aid in this evaluation, a conceptual framework focusing on the nature, structure and dynamics of technological innovation was developed.

Typically, government-led technology life cycles tend to be longer and they shrink slower than commercial-led ones (although recent government initiatives such as the Advanced Concept Technology Demonstrators or ACTDs aim to reduce the gap). This tendency can act as a barrier to entry for small start-ups in government-dominated market niches as will be discussed in our case studies. Moreover, in technology areas where the speed and acceleration of innovation are significant competitive factors, such barriers to entry can become truly prohibitive for small or even medium size companies leading to the creation of oligopolistic or even monopolistic market profiles. Hence, understanding and evaluating the presence and competitive importance of the speed and acceleration of innovation in a given market where government presence and regulations are significant, can have serious science and technology, as well as competitiveness and national security policy implications.

The space industry has been one of the most pioneering sectors in terms of high technology development. Technological spin-offs from the space program ranging from advanced life support systems to direct broadcast TV have infiltrated directly or indirectly into almost all aspects of our daily life. However, the vast majority of the research and development efforts over the last four decades were almost entirely funded by the government for national security purposes. Government funding provided the fuel for the technology development engines, and aerospace companies greatly profited. Almost all current big businesses in the space industry such as Lockheed Martin and Boeing (which now includes two former key independent companies, North American Rockwell and McDonnell Douglas) were pioneers in the Space Race starting in the late 1950's and were nurtured in the Cold War environment by the deep pockets of the government military and civil space communities. While a degree of competition was present, US concerns over maintaining a strong industrial base and the urgency of the Space Race with the former Soviet Union kept these industries in a sheltered position. With the end of the Cold War and subsequent declining government budgets as well as industry consolidation (see Fig. 1), the emergence of small startup firms with new ideas and a fresh entrepreneurial spirit has begun to change the landscape of the space industry.

In broad terms, the space industry can be divided into three sectors: (1) activities relating to launchers and launch services; (2) satellite providers; and (3) activities in ground segment services. Companies in launch services develop rocket launchers that loft satellites (produced by the satellite providers) into orbit. The ground segment sector encompasses operations and control centers to monitor and control satellites for customers that may be using the broad range of space-based services such as remote sensing, communications, or navigation. Historically, the launch and satellite sectors have contained more “high technology” components than the ground segment and hence this paper will concentrate on these two areas.

The space industry provides an interesting arena to investigate the differences in technological development between large and small businesses. Recently, there has been growth in the development of two areas: (1) small “micro-satellites” based upon advances in miniaturization and performance; and (2) fully reusable and other innovative concepts of rocket launchers to drive down the cost of placing payloads into orbit. Aggressive startup firms are now competing with the established giants on the basis of their technological advantages, as well as a strong emphasis on cost versus performance. In the launcher arena, large firms such as Lockheed Martin are engaged in new launcher development, but still continue to aggressively market expensive launchers that have their heritage from the Intercontinental Ballistic Missile programs of the 1950s. On the other hand, new start-up firms such as Orbital Sciences Corp. and Kistler Aerospace are marketing smaller, newer, and less expensive launchers. For satellite development, the large companies such as Hughes Space and Communications are competing with small firms such as Spectrum Astro and Aero Astro. Hughes builds very large, expensive satellites, while Aero Astro has entered the market with small, cheap satellites that take advantage of miniaturization.

We investigated what structural advantages, if any, small high-tech firms enjoy over large businesses in these space sectors. For example, the government provides funds to promote the transfer and commercialization of technology through programs like the Small Business Innovation Research Programs (SBIRs) housed at Federal Government agencies such as the DOE, DOD, NIH, NSF, and NASA, that foster the creation of high technology start-ups. Similarly, NASA's recent emphasis on “faster, better, cheaper” approaches coincides with the business philosophies of many of the new high-tech space firms. It is important to examine what hurdles and barriers to entry from the financial and regulatory points of view small businesses must overcome to gain a foothold in this industry. In addition, it is important to understand how companies approach incremental versus breakthrough technologies, and to gain a better appreciation of how the corporate cultural differences between big and small businesses influence technology development, as well as the rates of technological change.