India and its (low-cost) space strategy

Sangeet Paul Choudary, an expert in the platform economy, has created a framework -labeled “the building blocks theory”- that tries to explain how industries are structured and changed in the digital economy. He specifically mentions Tesla (and SpaceX) as examples of successful application of the building blocks theory. Such framework has three basic steps that lead to the creation of an alternative dominant industry model:

1. Create a vertically integrated company to produce a proof of concept for a new way to do things in a certain industry. The company needs to be heavily vertically integrated because there is no “industry” (suppliers, technology, servicing, etc) yet for that new approach. For example, Tesla building an electric car with mass-production viability and product-market fit.
2. Then, open up certain capabilities in the value chain to generate mass adoption of the new approach. For instance, Tesla has made a lot of its technology public -rendering it a commodity- in order to have as many market players using it as possible.
3. Finally, retain other key capabilities in the value chain and enjoy a competitive advantage there as demand for them increases (remember now many market players are using the same approach).

It seems to me that the Indian space strategy fits quite well in this framework.

ISRO is a traditional space agency (if that term can be used of space agencies). But it is also unique. India is 8^th in the world in space program spending (as % of GDP) but it punches way above its weight in terms of results. And its cost advantage is so differential (remember, going to Mars for 1/10^th of the cost) that it defines an alternative space model by itself. How has ISRO achieved such low-cost results? First, by creating a culture of frugality that pervades everything. Perhaps ISRO employees are not carrying rocket pieces to the launch pad in bicycles anymore, but frugality is an organisational mindset that yields cost efficiencies in every decision made. Many companies’ advantages (Wal-Mart, IKEA, etc) have been built on that.

Second, re-usability and risk management. SpaceX has been touting its ability to develop re-usable modules and vehicles to lower payload cost dramatically. Well, before SpaceX, ISRO was already using the same principles, albeit more out of necessity rather than as a conscious business model choice. For instance, in 1981, India launched its first satellite into orbit re-using the engine of a launch rocket that had failed its previous only test. It was a calculated risk that ISRO has been willing to take over and over. This has continued in recent times. In fact, last month ISRO conducted a successful test for the development of a re-usable launch vehicle (RLV) that went largely unnoticed but that might be just as important as the Moon and Mars missions. Optimising tests is another important skill, with ISRO routinely doing fewer tests than other agencies for equivalent mission requirements and managing the risk by being more careful with the design and analysis of the test parameters.

Third, a choice to trade lower costs for lower payloads and slower missions. As in any low-cost model, something has to give, and Indian missions have had to accept that their speed in space will be slower and their time in orbit will be lesser. For instance, India’s Chandrayaan-3 took 40 days to reach the moon while Russia’s Luna-25 took only 11 (though it exploded before landing). This can become an issue at some point, especially for complex missions, but as any low-cost company has learned in the past, there is plenty of time and opportunity to develop more and more sophisticated capabilities once low-cost leadership has been established.

This is a key step. Some of the economics of space travel are relatively simple. One of the main obstacles to doing farther and bigger space missions is the cost to put payload into orbit (or past it). For instance, about 10 to 12 years ago, NASA’s payload cost was around $14,000 per kilogram at best (for comparison, remember that you are paying as low as $1 per kg of you to travel by air to another location on a low cost airline!). Today, and thanks also to new entrants like SpaceX and Rocket Lab, the same payload cost has dropped to about $600 per kg.

So if the key to bigger and farther space missions lies in lowering the cost of launching payload into orbit, what do you think ISRO should do? Try to lower it by itself? That is difficult, space agencies are not good at that. ISRO would likely be more successful than other agencies thanks to its already existing low-cost approach, but the better move is to try to commoditize that part of the value chain, opening it up to private companies that will compete on price, thus benefitting the agency that has ambitions to go much farther than the Earth’s orbit.

And that is exactly what ISRO has done. Speaking of the launch rocket development, S. Somananth, ISRO’s Chairman, has said “The rocket has to be owned and operated by business houses to not only handle more payloads commercially but also be able to increase its numbers whenever required.”(Source: BtMag). So ISRO has set up a fast and simple system, called IN-SPACe, to approve and regulate private players that want to use ISRO’s technology. It is an ecosystem that today boasts about 400 private companies working on a wide variety of systems and components. More than 20 of those companies are building launch rockets. For instance, Skyroot Aerospace, is slated to accomplish the first orbital rocket launch by an Indian private company this year, after a recent sequence of successful intermediate tests. And this puts the Indian space industry in the race to reach one of the key next goals -pursued by all, also abroad-, to bring the payload cost down to $10 per kg. By the way, think about that again, achieving that goal would mean that the cost of space exploration in one of its key variables would be reduced by a factor of more than 1000 in the span of two decades!

So this is what this step is all about. Take one part of the value chain (or capability) that requires a progress (in terms of cost, speed or quality) that you cannot achieve on your own and open it up to competition by others. Since all those others are using the same technology (yours) their only real competitive variable is cost/price. Wait a few years and reap the benefits.

Despite opening up its technology, ISRO is still retaining the most critical of the steps in the value chain, that is, the ability to integrate all the different parts of the extreme complexity that is a space mission. Designing and managing a full mission, particularly one past the Earth’s orbit, remains a hard-to-commoditize capability and because of that, also a source of competitive advantage. That is why ISRO can be in direct conversations with companies like Boeing to manufacture and launch missions from India using its low-cost ecosystem. Or it can credibly think of putting up its own space station or participating in the race to the moon economy or being a key component of India’s defence systems, because ISRO is still to own the key step in the industry.

Space travel, exploration and exploitation have experienced a massive boost in recent years, creating a sense of a new era. The stakes are extremely high and India, thanks to its own unique model, feels good about its chances.