From Niche to Ubiquitous - the $1.8 Trillion space economy

“The other part of this story, and this is probably the more significant part of it, but for us it's still very much part of the space economy and also much more relevant probably for a lot of industries that we talk about today is the space data part. And that's actually going to be growing a little bit faster than two times the GDP. And that's actually going to represent a significant part of that 1.8 trillion market.”

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Welcome to the Space Capital podcast. I'm your host, Chad Anderson, founder and managing partner at Space Capital, a seed stage venture capital firm investing in the space economy. We're actively investing out of our third fund with 100 million under management. You can find us on social media at Space Capital. In this podcast, we explore what's happening at the cutting edge of the entrepreneurial space age and speak to the founders and innovators at the forefront.

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Chad Anderson

This is The Space Capital Podcast, and today we're speaking with Nikolai Khlystov. He's the lead for space at the World Economic Forum based in Geneva. Nick, thanks for joining me.

Nikolai Khlystov:

Thanks so much, Chad. Great to be here with you.

Chad Anderson:

To kick things off, can you tell us about your role at the World Economic Forum? Why is the organization involved and interested in space in the first place and what does a lead for space do?

Nikolai Khlystov:

Well, absolutely. So the World Economic Forum is the international organization for public-private collaboration. So it's a very long name, but essentially what we do is bring together different stakeholders to look at the key challenges and issues facing the globe, from basically topics linked to industry development to obviously things related to climate, sustainability, to trade, to healthcare issues, and to technology. And so the topic of space actually has come up relatively recently, but I wouldn't say it's not new anymore. It's been around a few years and now we've grown from actually looking at it part-time as an issue to actually having a small team now around the world, I should add. And the reason why we've started looking at space more significantly is because of all the transformation, because of all the different industry activities that have been really taking place over the last 10 years.

A little bit longer than that, but really I think the transformation has been really kicking into high gear over the last 10 years. And that's come with a lot of interesting questions, some opportunity obviously, a lot of the benefits have come into the spotlight of space, which I'm sure we'll dive into a little bit deeper. But also some challenges as we know linked to sustainability, broader governance issues. And if you look even further out into when you start talking about exploration, even things linked to that. So as we have different industries that we work with at the Forum, we have access to governments, we have access to academia and think tanks. We really see ourselves as a neutral platform to bring together a key decision maker from whatever relevant area we think and work together, create this community and address some of these issues together and hopefully come up with something that can really shift a narrative or actually even provide some concrete things to move things forward in whatever field. In this case, obviously space.

Chad Anderson:

Great. And speaking of leadership, you have written a great report in partnership with McKinsey that was published earlier this year called Space: The $1.8 Trillion Opportunity for Global Economic Growth. So I want to get into the details and the key findings of that report, but first maybe tell our audience how the report came about, why did you decide to write it and what were you hoping to accomplish with it?

Nikolai Khlystov:

Absolutely, and I should say it's not the only publication we've done this year. We have a number of other publications that we've done, some smaller ones as well. We have another significant one that came out a little bit later that focuses specifically on valuing Earth observation data, but that's a little bit focused on that topic, which is also an interesting discussion. So when looking and thinking about the space economy, as I think you know yourself, there are a lot of exciting things happening. There are a lot of exciting things happening within the space sector. So when we think about space for space, but from our perspective, the other big part of the story and perhaps even more important one certainly at this moment is what space is doing for other industries on Earth. And of course a lot of that is about, or most of that for now is about space data.

And our kind of theory about this is, well, if we can communicate better the benefits of space, if we can have a better dialogue with all these other industries, and it's pretty much everybody else is in some way, shape or form, reliant or utilizing space data or services, if we build that dialogue, if we promote the discussion, if we promote the benefits, we can pull in these other industries to be more active in space and actually leverage more the benefits that space brings, which helps on efficiency metrics and increases resiliency and provides just new services that were not possible before, which in turn helps some of those industries tackle some of the challenges they're facing right now or will be facing but also grow probably the space sector overall in the future. If they're thinking about understanding space data now and maybe they start to see actually where and follow where the space sector is going 10, 20 years from now and maybe in the future, the idea is probably a lot of these industries will also have kind of a footprint in space themselves.

So I think this is an interesting narrative, but today it's a lot of it is about space data and that's what we really wanted to unpack with this report and actually say, "Well, look, over the next 10 years, so just a little bit beyond the horizon, what are some of those exciting opportunities, just numbers wise, economic numbers wise, and what does space sector represent directly and what is it directly responsible for actually on the ground? What are some of the things that couldn't happen without the space data?" And we can dive into that a little bit as well. And so that's a little bit why we picked the 2035 horizon, and I think we certainly had good positive feedback about folks looking at it and looking at the data and it's all transparent to try to make the methodology as open as possible. And if somebody says, "Look, well, I don't think this has really worked, so I don't agree with it," that's cool. You can actually say, "You can take it out and you still have the rest of the data to go by." And that was really the point.

Chad Anderson:

So you're meeting the audience where they are, which I think is super important and we'll definitely get into that in a little bit because I think that's a really interesting point. So CNBC has called space Wall Street's next $1 trillion industry. Morgan Stanley, Citi and UBS all expect space to be a $1 trillion industry by 2040. Some analysts are even more bullish. Bank of America expects the commercial space market to exceed a trillion by 2030. Space Foundation anticipates it nearing 800 billion by 2028. So you got all these folks throwing their hat out in the ring. And one of the key findings of your report, which to me really stands out amongst all of these, is that space will be a key part of the global economy by 2035.

And you were kind of teasing this just now, but that is the key driver here. It's going to be a key part of the global economy and that the space economy is going to be worth 1.8 trillion by 2035. This is growing at a rate that is twice the rate of global GDP growth so just to sort of put things into context. So tell me how you think that is possible, particularly for folks out there who might see space as a niche category.

Nikolai Khlystov:

Yeah, absolutely. And I think a lot of the numbers you mentioned, they've been around already for a few years or most of them have. And also one of the things we wanted to do is provide another perspective on this, another kind of neutral perspective on this and certain extent, updated perspective, I would say. I think the key thing with this number, it's probably not about the number itself. I think what's important is to say, you referred to it, what is it doing compared to the rest of the economy? So it is about two times the growth that we expect to happen over the next 11, 10, 11 years. But there's really two narratives here. So this is the big number, the 1.8 trillion, but we really kind of look at it in two parts. So one part is the backbone, what we called in the report, which is essentially all the core space activities, space services, space infrastructure, ground stations, rockets, satellites, et cetera.

And the value of data that goes from satellite and back up. And that's traditionally been kind of the core part. That's what sometimes analysts look at more as this is the real space economy and that's going to be growing as well, but that rate is going to be actually a little bit slower. So if you take that half, which is about half now of the 630 billion we estimate to be today, so that is probably going to be growing at one and a half rate the GDP. So it's still going to be increasing significantly. And in that you have things that start to appear that we see start to appear by mid-30s, like on-orbit manufacturing, on-orbit service and removal, space tourism, which we know is happening now, but to a lower extent. But all those things are happening to relatively small levels. So there's a single digit billion markets, the ones that I just mentioned, and we highlight them a little bit in the report.

The other part of this story, and this is probably the more significant part of it, but for us it's still very much part of the space economy and also much more relevant probably for a lot of industries that we talk about today is the space data part. And so we call this the enabled, the reach, the enabled economy, what it enables, what are the things that space enables on the ground, so the reach of the space economy. And that's actually going to be growing a little bit faster than 2%, than two times the GDP. And that's actually going to represent the significant part of that 1.8 trillion. A lot of that is coming and reliant on one of the key space technologies, which is positioning navigation and timing, which is responsible for, as we know now, a lot of the ride-share services, delivery services, increasingly big part of the supply chain transport sector, but also a number of other industries.

And without that technology, which a lot of those folks actually don't pay for, it's kind of public good in a sense, public service, the business model wouldn't function. So for us, that's a big part of it. Obviously Earth observation also brings in an element, connectivity is part of it, but those are really the two tracks that really make up that bigger number. And it's probably important to differentiate a little bit between them.

Chad Anderson:

Yeah. And at Space Capital, we view the opportunity through a very similar lens is that you've got... We just use a little bit different terminology, but the infrastructure and the applications and the growth and the infrastructure side is really interesting. Just to sort of corroborate what you said, at a recent event, we had a panel conversation about the growth of satellites in orbit. And a great quote from the CTO of LeoLabs said that if you look at the doubling time over the last eight years, it's about 24 months. If you look at the last four years, it's doubling the number of satellites in orbit is doubling every 18 months, which means that the growth rate's now actually faster than Moore's law, which is pretty wild to think about. And then to your point, that's an important piece. You can't have software without hardware to run it on.

So the hardware and the infrastructure is really important, but it's way more about how that infrastructure, how that backbone is being used and the applications being built and the reach, the different industries that it's powering. So one of the sub-points here in your report is that the space economy is going from niche to ubiquitous, creating value for multiple industries and solutions to many of the world's most pressing challenges. And that like the internet in its early days, it is standing at an inflection point. So your report really leans into the fact that we are at an inflection point that things have been growing for the last number of years, but are about to get even more interesting.

Nikolai Khlystov:

Yeah, absolutely. Absolutely, Chad. And I think it's hard to always say which point is that inflection point. I think it's much easier to do that retroactively and say, "This was the year or this was the five-year period." But there are just so many things that are happening right now, obviously, and again, you guys know this on your end, it's the price of launch, the price of connectivity, the amount of innovation happening vis-a-vis certain technologies in space but also on the ground. It's the diversification of capital, which again, you all play in directly. But it's also, I think the other interesting story is kind of the culture and enthusiasm in general in space which has been accelerated, I think, or been supported around the world. So it's also important to know that it's not just a western story. We are working right now, we have an initiative. We're working in India on an India national space dialogue series.

So that's very exciting. There's a lot of energy. I'm heading over there actually next week for Space Exposition for some sessions. There's a lot of energy, a lot of excitement, on the back of very successful exploration missions. So in that country, the narrative is very much a national topic, a big source of pride and national achievements, and there's a lot of momentum and obviously a lot of startups and just energy in the market. And there are other countries where we see this happening as well. So that culture is important. Obviously we had the first private astronaut spacewalk, I guess yesterday. Folks see that in the media and it makes space a little bit more accessible as well. I think it helps to demystify it. And so all these different things come together and make it that things are changing. We obviously need to see what happens, how SpaceX transforms the market.

And there are several other super heavy launchers that are perhaps in the making and hopefully will be out there soon. What does that allow us to do in terms of delivering payloads, bigger payloads, much more cost effectively? Yet to be seen how to what extent that price will continue to drop. It's dropped significantly obviously over the last decade or so, but that makes things possible. And of course I think we're also going through this commercialization aspect, and so agencies are looking to the commercial sector to solve some of these challenges. And of course there are some. It's not all clear sailing. I think there are some different national agencies and their local players are figuring out in their own ways, but things are moving in that direction. And so whether it's this two years, whether it's five years, but it is a really interesting moment. You can do it safely.

Chad Anderson:

Yeah.

Nikolai Khlystov:

That's a separate issue.

Chad Anderson:

So interesting to see all of these missions that are getting so much attention. The Indian Space Agency landing on the moon. They've got astronauts going up to the space station soon. You got Japanese lander, lunar lander that didn't make it, that didn't quite make it. And so they're trying again this later this year. You've got commercial landers that are multiple commercial landers going up this year and attempting to land. Some of them have soft landed and looking to kickstart operations. There's so much going on. And these types of things really capture the imagination. You got more people flying to the edge of space with Blue Origin, and so it is more accessible. And all of these things are really exciting.

I really want to dig into your second point though of the second key finding of your report, which is that space's impact will increasingly go beyond space itself and that the share of total space economy captured by incumbent space hardware and service providers like the traditional space companies will gradually decrease to the benefit of non-traditional players like ride hailing apps, which you mentioned earlier, satellite-based technology connecting drivers and riders, leveraging navigation services and communications. We couldn't be more aligned on this point, you and I, but we get a lot of mixed feedback. As this category has grown, we've seen a lot more investor interest, more coverage by the media, more analyst coverage from banks. But most people are looking at the opportunity, continue to look at the opportunity through a very narrow lens. And even you said at the beginning, we chopped up this report so that you can, if you are only interested in backbone, you can focus on that.

If you're interested in the broader applications of space-based technology, we've also got information there for you. It's not just us that are aligned either. The US Department of Commerce came out with a report a couple of years ago talking about GPS, the most successful space technology in existence. It wasn't the satellite hardware that generated trillions of dollars in economic value and some of the largest venture outcomes that we've seen. It was the applications that were built on top of that, on top of those really valuable signals from orbit. So I'm just sort of curious, do you get the mixed feedback as well, and how do you think about that?

Nikolai Khlystov:

It's a great point, and again, as I said before, building on your last point about global positioning systems or if you want to use kind of a neutral global term, I guess it's what? GNSS or positioning navigation and timing. GPS is the actual name for the US signal, and there are a number of them around the world because many countries are realizing the countries that have capability to put up their own satellites, to provide their own signal, they want to have that national capability. And that's actually the big part of the numbers that we've put out. What are they directly responsible for? But I think, yeah, I hear what you're saying in terms of feedback. Some folks kind of look at it and say, "Well, is this really space economy?" I've had that comment a couple of times. This is really a different business model on the ground.

Yes, it is a bit of a feedback into that business model. There's some data, but it's not a critical part. The way we build our methodology, we said, "Look, if it directly represents a critical element within that business model, ride-hailing, then it is responsible for that industry's revenue and it directly enables that industry." Without that technology, you don't have it. You basically would have your good old taxi services that are not optimized and you have a dispatcher on the phone. And it's a very different world. Technology then starts to innovate. Business models evolve, and there are other things that will probably come online, but they will still rely on these efficient models. We are doing a bit of a deep dive this year on, as a follow-up to this report, on one of the top industries highlighted in terms of size and the value getting, which is supply chain transport and mobility services.

So again, the global positioning signal plays a huge role there in enabling those sectors. And we're looking at transportation, aviation, maritime. It's interesting, some of the early things that we're seeing is indeed, a lot of these industries are just now waking up and realizing what they can do and how they can leverage not just positioning, but also Earth observation, which is by the way, gone through even a faster revolution arguably than launch just over the last few years and you're able to get commercial data, very high quality data at reasonable prices. And probably 5, 6, 7 years ago, depending on the type of data, you couldn't get it at all, let alone more expensive at higher prices. And so what can you actually do in leveraging that technology? Plus of course you have the connectivity, which for example, allows your crews on long distance trans-oceanic ships to actually stay connected with family and get entertainment, but also send important information about your ships back to the data centers or whatever.

That's just a particular example. What happens if you merge some of that data? So we are looking at that a little bit now. So this is really, I think this is what is telling us that things are changing, that these industries, maybe not everybody in those industries, but certainly the actors who are looking a little bit beyond and trying to think strategically about what's on the horizon. How do we ensure resiliency? How do we consider sustainability goals and targets which are coming already on the way or about to be announced? How do we leverage the latest tech and the space technologies on the market now? And again, they're all evolving as well, even global positioning I think. There are more precise measurements in the works, but again, EO is evolving every day. We see what's going on with connectivity from space. So people are starting to wake up, I think, and realize there's a lot to leverage there and to be able to utilize to improve their business models.

Chad Anderson:

It's inevitable, isn't it? This is why we like the term space economy because what we're talking about here is way more than a single industry. It is a collection of industries and it's a backbone that powers every industry here on Earth. This conversation about, do you widen your lens and should this company be included in the space economy or not? Here's a fun thought exercise because Uber's a great one because people always have a pretty difficult time with Uber. The folks in the space crowd are like, "Well, that's a software company. What does that have to do with space?" But I like this thought exercise. If you walked into the Uber cafeteria just on a random day and you surveyed a number of people, a random group of people that worked at Uber, and you said, "Do you work for a space company?" I think you'd get a lot of people who would say, "No, I don't know what you're talking about. I just write code. I used to work at Facebook or whatever. And no, I work for a software company."

But there would be a large contingent of people there, maybe a third that they would say, "Absolutely. I spend all my day thinking about the GPS signal and how to make it more precise and more resilient to make sure that they don't lose rides, that they don't pick. The driver doesn't go to a different place than where the passenger is and whatever." This is a key part of the business, like you said, and it can't function without it. So that's kind of the litmus test that we like to use. If you take the GPS out, does it work? In a lot of these cases, it does not. So anyway, that's always fun to discuss. Yeah, the third point, that key takeaway from the report is that space, it will become more about connecting people and goods, and I really like this, so I want to spend a couple minutes on this, how you're thinking about this. Going back to what you said earlier about supply chain, transportation, food and beverage and everything else.

Nikolai Khlystov:

Absolutely. If you're talking about data and space is that ultimate connecting medium to observe what's happening on the ground, whether it's weather events, whether it's disruptions due to smoke from wildfires, whether it's land erosion, so providing that connectivity, understanding what's happening with whatever vehicle you have in the sky, in the water or whatever transportation medium, connecting those entities to their central bases to headquarters and understanding where they're going, what's the movement around them. So it's all about data and space is that ultimate medium. And so of course as more industries kind of realize the potential there and understand how they can leverage the services and again, these services, as we said, they're getting cheaper and better. Certainly you're getting that. We see that very clearly on Earth observation with different types of images you can now get. It's not just about optical. You can see through clouds now.

You can see through different weather conditions, through smoke at night, and every time that obviously you get different types of insights and what happens if you lay each insight over the other one and then you do some of that computation maybe directly on satellites on board and only send the key insights. Not just the raw data, but the key insights. And a lot of folks are working on that and trying to figure out, well, how can I monetize that insight and what value can it provide to a potential customer? And so I think there's still a good runway in that regard in terms of growing that market and all those things are happening, but they're all happening not on a vacuum. They're all happening and impacting each other. And again, I think industries, what we started seeing is that industries are waking up to this and thinking about this coherently and trying to understand and trying to do some pilots.

Some of them are a little bit more advanced probably. We did another deep dive two years ago on looking at applications for agriculture. Agriculture is probably a good example as well, where you could have a lot of impact, particularly on the larger scale farms where it's difficult to monitor all the activity. You can monitor soil moisture, you can monitor to a certain extent, health of your plants. Maybe you don't need to provide certain, or maybe you do need to provide certain nutrients in addition to what's there, where there are pests. So there's all these different things that you can start to see now. And this just wasn't possible 3, 4, 5 years ago or not commercially interesting, and certainly further back wasn't possible at all. So you start to see that in scale and optimize, and again, put less inputs, which means more sustainable operations, so agriculture is an interesting one as a case study, but there are others as well.

Chad Anderson:

Yeah, I think you'd be hard-pressed to find an industry that is not being impacted, transformed, fueling the growth of. Just go down the list of the world's largest industries, agriculture, insurance, construction. You would be hard-pressed to find an industry that's not impacted. To understand and address global scale challenges, you need global solutions and satellites are the best way to get data at a global scale. The fourth key finding from your report, which I think is really important to the World Economic Forum, is that space's return on investment will be more than financial. As the space economy expands, it's creating value for multiple industries and it will help us solve many of the world's most pressing challenges.

We're investing in companies that are focused on climate. We have led projects to develop satellites that are detecting methane. We've got companies in our portfolio that are monitoring facility level emissions at a global scale. We've got a company that's building a next generation wildfire management system. I'm really curious, especially that we're talking to you from the World Economic Forum, how are you viewing this? What's your perspective on how this will be more than financial?

Nikolai Khlystov:

Absolutely. And for us, this is obviously critical. Our mission is improving the state of the world. And so of course looking at all of these challenges is absolutely essential, and there's no shortage of these issues. And again, for us, space provides a lot of the potential solutions. Again, they cannot be just a solution in itself. They have to be coupled with policy decisions or different industry action. And here we haven't looked at it from the perspective of necessarily profitability. So we really look at more how businesses evolve, what are the business models and what are the benefits to those industries but also to society. And this is your point, I think that's important. Absolutely. So space has already been doing a lot of these things as many folks in the space sector know, and we've been talking about this for many years. And I think it just hasn't been as known outside the space sector.

I think now the message is starting to come through slowly. Space has been around with emergency communications for decades, and the famous satellite phones. We have had Earth observation technologies that could provide certain images relatively quickly, but this was more complicated, more expensive, more tricky to get, maybe not so quick after a disaster. What's happening now is you have these technologies which are much more accessible and affordable. So whether it's satellite communications or Earth imaging in different conditions. You mentioned wildfires. Obviously a topic that's going to be, by all accounts, going to be more of a bigger issue by every year in the Northern and Southern Hemisphere. How do we detect those wildfires as quickly as possible and how do we maybe dispatch certain types of vehicles or aircraft, whatever they may be, to try to deal with that particular hotspot quicker before it gets to a bigger, more destructive wildfire?

But you have things, again that I mentioned before, flooding, flooding or erosion, coastal erosion. But you also can look at obviously legal, illegal deforestation and other sorts of illegal activities. With small resolution, you start to be able to monitor maybe wildlife numbers in different reserves and actually being able to protect some of that environmental and natural aspects better. But if you look at connectivity, and there are others obviously that you can go on and on with Earth observation, monitoring infrastructure, critical infrastructure, what condition it's in. On the connectivity, obviously the big one that we like to talk about I think in the space sector is being able to connect remote locations, remote regions. As I think that service becomes a little bit more established and perhaps we will have more and more competition there, that accessibility to remote locations is a huge opportunity to support education across countries, to support telemedicine, to support local public services, health emergencies.

Again, obviously going back to disaster response as well to a certain extent. So yeah, I think on the broader benefits, these are tremendous. And again, the other big part of that of course is a lot of the areas in the world that probably will benefit the most, they probably need a bit of support in making sure that they know how to use the services. How do they benefit from them? How do you get those services in there? Sometimes if they're purely commercial, maybe some regions or countries may be not be able to afford some of these services. So how do you maybe work together different partners to be able to bring those services, to bring those benefits to everybody in the world to as many places as you can to make space more inclusive?

And that's I think a huge part of also for us, an important part that it's not just about growing the economy for a few countries that are going to be going into space and doing more and more things and pushing the envelope beyond our orbits, but again, which we think is probably a little bit further down the line than 10 years, which was our timeline, but how do we bring all countries or as many countries as we can support? And that's actually, we have a separate effort now that's just launched that's looking to do that. And so yeah, making space more inclusive is a huge part of it.

Chad Anderson:

That is an awesome list of benefits. Hopefully this conversation has helped some folks broaden their view in seeing that space is more than just rockets and space stations, that in fact space-based technologies are the building blocks of innovation here on Earth and will continue to transform the world's largest industries and bring increasing benefits globally for decades to come. We'll link to the report in the show notes. Is there anything else that you wanted to cover?

Nikolai Khlystov:

It's been a great conversation, and we hope that publications like this and discussions that we hold around the year with different stakeholders, some discussions are public and we hope that helps different stakeholders get engaged with space. Again, one area we didn't really talk on or touch on is that, well, with all these activity, we obviously have also some challenges that creep up, and that's the whole area of space sustainability. And so the orbital debris situation and traffic management, that's a very specific space sector problem that concerns less the industries on the ground. But if that's not solved by us as a space sector with obviously important role by the regulators to play, but also industry, of course, some of these services may also face certain risk in the future.

So that's an important part of it. But also if we also want to expand into space more and actually have more human activities, more space stations, more travel to more distant places, we need to protect this environment, which is essentially the extension of our planet. It shouldn't be really considered as a separate, distinct and alien environment. The orbits around our planet are pretty close to us. Certainly most of them are. And so that's a separate issue, but it requires quite a bit of work still, and it's a very complex one, but there's a lot of interesting things happening there. A lot of technology innovation and financing also going into that domain.

Chad Anderson:

Yeah, that's certainly important piece of this. If you're growing this quickly, you need to find a way to manage that growth responsibly. We're certainly thinking a lot about that. We have invested quite a bit of capital into solutions, and maybe we'll have you back and continue the conversation about that point.

Nikolai Khlystov:

Sounds great. Would love to.

Chad Anderson:

Yeah, this is exciting stuff. This is really important conversation. Nik, it's been great to have you. Thanks again for coming on the show.

Nikolai Khlystov:

Thanks so much, Chad. Pleasure being here and I look forward to the next opportunity.

Chad Anderson:

Thanks for tuning into The Space Capital Podcast. If you enjoyed this episode, please leave us a review and subscribe to make sure you never miss an episode. And if you're interested in learning more about investing in this space economy, I invite you to visit our website spacecapital.com, where you can get access to more industry-leading insights and learn how you can join the entrepreneurial space age.

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