Hosted 27th October 2021
To watch the recording of the whole event, click here.
What is the importance of economies of scope to the Earth observation industry?
In October’s Event with Satellogic’s Thomas VanMatre, Thomas took us in depth into the economics of launching satellites, and how the Earth observation industry can achieve the ultimate goal of creating a live catalog of everything on Earth.
Thomas VanMatre is the Vice President of Global Business Development at Satellogic with 20 years of experience in geospatial solutions, product development and international defense policy and defense diplomacy. He was formerly the Director of International Business Development at Maxar, and in his 12-year tenure with the National Geospatial-Intelligence Agency (NGA), he worked in both the US and Australia to deliver geospatial intelligence to policymakers, diplomats, warfighters and first responders. Together with his team, VanMatre was awarded the Australian Intelligence Community Medallion for outstanding achievement in countering terrorism.
Opportunity Costs and Marginal Costs
Before he discussed economies of scope and economies of scale, Thomas overviewed marginal costs and opportunity costs of the Earth observation industry. Some of the large players in the market have single purpose and purpose built satellites, which can be beneficial to the company but leads to opportunity costs due to pressure from anchor customers. This was mentioned in examples by Satellogic’s CEO, Emiliano Kargieman, which were mentioned during Spiral Blue’s July event. When companies focus on serving one client, they become an anchor customer, and these dedicated capacities may have a disproportionate impact on the company’s business model as it excludes many other clients.
(Image: Slide from Spiral Blue’s October’s Event Source: Satellogic)
“What we’ve done is we’ve turned it on it’s head. We’re going to produce a lot of satellites… and be able to serve the masses.” - Thomas VanMatre, Satellogic
Through scaling constellations by producing more satellites, Satellogic removes the need to rely on anchor customers, getting closer to zero marginal costs. This allows imaging from one part of the world to be utilised by many different governments, companies, NGOs, and is not exclusive to any one customer. As companies scale constellations, they become closer to zero marginal cost, and are able to produce and launch satellites cheaply, effectively commoditising satellite imaging.
Economies of Scale and Economies of Scope
So what are economies of scope? Thomas first explained economies of scale, which is the idea that when production is increased, the cost to produce decreases. However, economies of scope is slightly paradoxical to this, as the total cost of production is decreased when the variety of goods produced are increased.
Satellites inherently have a large range of key capabilities, from multispectral and hyperspectral imaging to full motion video. If these were to be built with single purpose satellites, companies would need to launch three separate satellites, thus being able to achieve economies of scope by launching more satellites.
(Image: Single band vs. multispectral vs. hyperspectral imaging Source: Wikimedia Commons)
However, by being able to use different types of imaging on a single satellite through multiple payloads, companies can pivot to market demand which is a model that Satellogic has been effectively utilising. While catering to security clients who require full motion video to dwell over a location for over a minute, they can also meet the demands of agricultural, mining and scientific communities who need hyperspectral imaging - without launching any new satellites.
Thomas pointed out that Satellogic has nine month development cycles, and Spiral Blue is one of the companies taking advantage of Satellogic’s third additional payload bay with new, edge computing technologies to be tested in their launches.
“We could theoretically test 10 new technologies every launch - which is crazy and mindblowing! But we could, and that’s one of the disruptive ways that we’ve entered the market.” - Thomas VanMatre, Satellogic
(Image: Spiral Blue’s Space Edge Computer Source: Spiral Blue)
Even within these different modalities, a single satellite offers a variety of different ways to capture the Earth, from edge processing to testing thermal infrared. Satellogic has also been approached for novel capabilities, such as a green laser on orbit for high fidelity bathymetry monitoring in coastal areas - but Thomas admitted they probably won’t be doing green lasers anytime soon.
Unlocking New Markets
Thomas wrapped up with a sentiment echoed by many speakers in previous events - satellite imaging shouldn’t be reserved for the few. It should be commoditised for the masses to give everyone the data they need, when they need it, to make the right decisions not just for themselves or profit, but for mankind, human safety and security.
Thomas predicted the industry will organically move towards a geospatial neural network. When imagery is utilised at accessible, low prices to the masses, the geospatial neural network will perform global or segmented analytics at scale, and provide these analytics to multiple different industries and markets.
With new and different markets being unlocked and price pressure easing on satellite imaging, we will continue to see unexpected new industries are also starting to gain interest in Earth observation. The gaming industry building metaverses are interested in capturing Earth’s everchanging imagery to ingest into their game engines - and even makeup companies like Maybelline are starting to see the potential of satellite imagery.
“Industries you’ve never even thought of like Maybelline and other makeup companies want to monitor and understand the automobiles in their parking lots, to then do marketing campaigns for people who drive minivans at 4PM in the afternoon!” - Thomas VanMatre, Satellogic
About Spiral Blue
Spiral Blue is a Sydney SME focused on building the next generation of Earth observation services with artificial intelligence and Space Edge Computing. Spiral Blue technology has applications in defence, city planning, utilities, and other industries. Founded in 2018, the company has recently launched its first Space Edge Zero prototypes to orbit.