What Is the Space Industry?

Introduction

In the previous editorial, I wrote about the contribution of historic governmental space activities to the emerging industry and markets of today. I described the categories of innovation theories and made the following statement:

The space transportation market sector is best characterized by the functional goal model, because of the intermediate level of institutional requirements (e.g., regulations and laws), lack of specific, well-defined market development stages, well-defined market goals (e.g., reliable and safe transportation to and from space), and multiple methods, and less-than-radical innovations, to achieve those goals.

In response to this, an astute New Space reader e-mailed me, saying:

I really enjoyed your editorial… but beg to differ. Yes, the rocket development is definitely in the historical event model, but space access can best fit in emerging models characteristically referred to as interacting, creative adaptive, and problem solving in improvisational ways. I can see space elevators disrupting the traditional rockets. We do mission support, they do people, simple and orderly, strengths on strengths.

He correctly pointed out that I had fallen into a trap I frequently remind myself to avoid, that commercial space is not a single industry, and it is not a single market. In fact, not only is that the subject of this series of editorials, but I made that exact point in the footnote only 2 paragraphs beforehand, saying:

The same can be said for many other specific market sectors of what is generally referred to as “the space industry.” The definition of space market “segments,” “sectors,” or “domains” is somewhat arbitrary, and could include Earth observation, satellite communications, space science, security, satellite navigation, human spaceflight, space manufacturing, and debris removal. ^*

In response to his observation, I propose that certain space transportation segments fit within the historical event model (e.g., high mass Earth to orbit, ETO, cargo and human), others fit within the functional goal model (e.g., human suborbital or space tourism), and, as he pointed out, still others within the emergent model (e.g., space elevators).

The previous editorial was the beginning of a series, designed to engage readers in an important discussion about the term “commercial space.” This is an important subject because it defines (or constrains) the scope of content for this journal. The structure of this editorial is to focus the second word in the phrase, “space,” or more precisely, “the space industry.” The definitions advanced here (modified based on user comments, hopefully, and my own after-thought, no doubt) can be used in subsequent discussions, at least within the context of this journal. These definitions may differ or vary outside this context, but are needed to create a foundation of understanding between New Space and its readers. Specifically, this editorial begins the discussion by defining (and differentiating between) the general concepts of “industry” and “market” from the context of organization theory (OT). ^† These discussions delve into the respective subcategorizations of segments and tiers, and will introduce academic terms, such as populations, communities, fields, and ecosystems. Although these words might have commonly agreed-upon meanings in everyday (English) language, they have specific meanings in the academic domain. Not surprisingly, when referring to a “field,” a layperson may imagine a large area of land covered by grass, corn, or some other crop, but academics have a much different concept in mind. ^‡ Ultimately, this discussion attempts to demonstrate limitations of the term “space industry,” but first I want to briefly justify the need for defining fundamental terms, even if only from an academic perspective.

Industries and Industry Segments

Frequently, terms such as “industry,” “market,” and “ecosystem” are effectively used interchangeably, and are not consistently defined. Sometimes, however, the differences are important, and can result in barriers to communication. As commonly used, these words imply certain assumptions that do not include all aspects of social systems from an OT perspective. For the purpose and convenience of research and analysis, academics arrange social systems into embedded hierarchical “levels” that interact, influencing levels adjacent to each other. Multiple OT academicians identified these different levels (from lowest to higher levels) to include (1) members or individuals, (2) organizational subunits or divisions, (3) individual organizations, (4) organizational populations, (5) organizational communities (of organizational populations), and (6) organizational fields. Levels above fields can be defined, and each level can be distinguished by differing characteristics, such as function, technology, or geography.

OT industry and market studies begin at the population and community levels of analysis. Organizational populations are defined as similar collections of organizations, having some characteristic in common. Organizational communities are created through interdependencies between populations. These interdependencies can be based on many different things, such as laws, regulations, business practices, or technologies.

As mentioned earlier in the Euroconsult example, practitioners also create abstract industry categories to facilitate description and analysis of these same systems. The practitioner's “industry segment” is what academics refer to as populations, the lowest interorganizational level. The academic term “community” is referred to by practitioners as an “industry.” Industries and segments commonly include (1) commercial firms with (2) a set of technical capabilities. The first characteristic implies that only privately owned profit-seeking organizations are members of an industry segment, and the second characteristic identifies the specific “industry sector” of membership. ^§

An academic definition of “industry” from industrial organization economics is “the group of firms producing products that are close substitutes for each other.”^4,p5 Ultimately, the definition of a given industry “is essentially a choice of where to draw the line between established competitors and substitute products, between existing firms and potential entrants, and between existing firms and suppliers and buyers.”^4,p32 These align closely with practitioner definitions, and, respectively, represent subsets of the population and community levels of analysis from an OT perspective.

For example, “liquid rocket engines,” “solid rocket motors,” “hybrid motors,” “Hall thrusters,” and others are industry segments–populations within the industry–community of “propulsion systems.” Similarly, the “space launch vehicles” industry–community could include segments–populations of “Earth to orbit (ETO) launchers for high mass/high volume payloads,” “ETO launchers for small satellites,” “human ETO vehicles,” and “suborbital transportation vehicles for human or inert payloads.”

Whereas academics and practitioners may agree that a set of technical capabilities can be a common characteristic of populations, OT expands the practitioner's definition to include many nonprofit organizations, such as national and international nongovernmental organizations, national and international governmental organizations, and networks of organizations that focus on issues, social movements, knowledge-based subjects, or belief-based topics. As will be discussed further hereunder, “commercial” organizations form financial and nonfinancial relationships for many reasons.

Consultants, capitalists, and government practitioners in the space industry have varying sets of industry segments and industries. These categorizations are typically not standardized, and may even be fluid to facilitate and simplify discussions among various audiences. This adaptability may also create complexity, confusion, or misunderstanding if participants in a given discussion interpret the words or concepts differently.

For use in a future editorial, it will be noted here that industries and markets consist of “actors” (that can be individuals or organizations) ^** that are “internal” (primarily involved with industrial functions of the market) and “external” (primarily involved with governmental functions of the market). I mention these here because future editorial discussions will use these terms. Not all internal actors are “private” or “commercial,” and not all external actors are “nonprofit” or “government.” Sometimes, governmental actors are active participants in the development and viability of market functions (referred to as the “economy”), just as nongovernmental actors are active participants in the development of laws, regulations, policies, and other governmental functions (referred to as the “polity”).

Markets and Ecosystems

Markets are inherently different than industry segments and industries. Porter distinguished markets (which he calls a firm's “business”) from industries, stating “an industry is not the same as definition of where the firm wants to compete,”^4,p32 and Herbert Simon ^†† suggested the word “market” be replaced with the phrase “organizational economy,” to describe the structure of economic transactions. Multiple organizations across many industry segments–populations enter into financial and nonfinancial relationships to form a market. Financial relationships, between the central firm and members of their supplier and distribution network, include contractual connections, reimbursable agreements, etc. Nonfinancial relationships are made with the “noncommercial” organizations, already mentioned, to gain and share needed knowledge or capabilities.

To practitioners, a market is the network of commercial relationships with other industries (or industry segments) surrounding a target firm. Analogously, academics refer to the “field” as including financial and nonfinancial relationships, spanning multiple populations and communities, and including economic and noneconomic transactions. Different markets–fields may be very alike, and only vary by 1 or 2 industry segments–populations or industries–communities.

Firms form relationships with other actors in nearby industry segments–populations, and do not need to form relationships further upstream or downstream within the overall market–field. For example, a solid rocket motor company must acquire different processed materials (e.g., rolls of steel), but does not have to work with mining companies that extract and refine the metals. The relationships of every firm will be unique, depending on the capabilities and resources each firm possesses. Similarly, for a given market, smaller firms will form different relationships than those of a large generalist firm. Relationships of the latter may reach further upstream into the supply network, or downstream into the distribution network, because its level of vertical integration (i.e., the number of industries–communities in which the larger company operates) is greater than that of smaller firms. The superset of all relationships of all organizations within a given market–field forms what I perceive as the “ecosystem.” This word is used frequently without a specific definition, and it may refer to a very broad collection of organizations and relationships that exceed the “level of detail boundary” (as mentioned previously), delineating definitions that are meaningful from meaningless.

Therefore, the following translations of different organizational levels are proposed to bring close alignment between practitioner and academic communities: “industry segments” align with “populations,” “industries” align with “communities,” and “markets” align with “fields.” The alignment of “ecosystems” to an academic term is elusive, and possibly lacks sufficient details to be defined, consisting of all actors and relationships included within multiple related markets–fields.

So, what is required to be considered a “space company?” Practically speaking, if any industry segment–population (primary relationships with suppliers [upstream] and distributors or end users [downstream], and all the other relationships [detached from the target firm], extending from raw materials to demonstrated and potential markets) is considered a “space industry segment,” then it belongs within the space market–field. For example, a company that analyzes and distributes satellite data could be considered a “space company,” even though it has absolutely no other connection to outer space.

What is “The Space Industry”?

So, if any almost any company can be considered to operate within the space market–field, what is meant by the term “space industry?” Clearly, the word “industry” used in this context is not how the word is used in this editorial. “The space industry” could be defined as the super-set of all industries and segments included in all demonstrated and potential space markets. This definition is broad and includes individual suppliers and distributors that are only remotely involved in space markets. Given the definitions of industry segments, industries, markets, and ecosystems proposed here, the phrase “space industry” best aligns with the ecosystem definition. Clearly, the vastness of scope and diversity of “the space industry” make any analysis complex and highly generalized, bordering (as already mentioned) on meaningless.

Other markets–fields face this same challenge. One example comes from a doctoral thesis focusing on the emergence of the nanotechnology field. ⁵ Woolley's research identified “nanotechnology firms” as those “single-business ventures founded to develop, produce, and sell nanotechnology products on the merchant market,” with more than half of their products, research, revenue, costs, etc., directly “derived from or related to nanotechnology.” Firms in the nanotechnology field were identified by their product, technology, or patents. Using her criteria, many firms that practitioners include within the space industry would be excluded, because they do not have products, technologies, or patents that operate in space. For academic researchers, this may be a positive outcome, because it limits the number of firms of study to a reasonable number.

Academics observed that the “space industry” is very general, and spans a broad set of academic disciplines, technologically advanced industries (communities), and cultural perspectives around the world:

In fact, there is a field in which the complex network has already been very important for some time, namely the space programme. Space technology does not have a unique scientific body of knowledge, as is the case with chemistry or electronics. Space technology is essentially organizational with no ‘production’ of its own. It is merely a kind of agency (e.g., the European Space Agency) which organises an international network of different industries. It is through a process of coordination and imposing of technical and organisational constraints (command delays, charge books, defined standards, etc.) that the space network weaves itself.^6,p253

Given this, the definition of “the space industry” identifies the member bodies of knowledge, industries, or segments (the “competitors or substitutes”), or markets. No decision-making authority, or an international consensus, exists; however, to identify these qualifying characteristics, so the meaning of a “space industry” has no firm context. Maybe this conclusion is purely theoretical and has no practical value, but this is an important discussion, because it identifies the different “space industry” perspectives.

In the coming editorials, I continue to discuss basic definitions of commonly used terms such as “commercial” and “New Space.” Please send any comments or thoughts on the material presented here to me through e-mail. I encourage the expression of alternative or opposing viewpoints, because to be meaningful, these concepts need to be negotiated through critical analytical discourse.