IAC-10-E6.3.8

SUBORBITAL MARKET OVERVIEW AND APPLICATION OF DISRUPTION THEORY

Author Ken Davidian, FAA Office of Commercial Space Transportation, Washington DC, USA

Co-author Jeff Foust, Futron Corporation, Bethesda, Maryland, USA

ABSTRACT This report identifies the incumbent and new entrant companies of the suborbital payload market, their industry roles, and how the Christensen Disruption Theory characterizes their possible future interactions.The existing suborbital payload market consists of service providers giving access to either (a) time in a microgravity environment, or (b) access to various launch and/or space environments (e.g., time at altitude, radiation levels, launch conditions, etc.). The suborbital market is currently served primarily by sounding rocket launch vehicles or substitute capabilities in the form of drop towers and parabolic-trajectory aircraft. Traditional customers for this market include universities and government organizations in the following areas of research: physical and biological processes in microgravity, observation and data collection of Earth and its atmosphere, and astronomical observation. The types of facilities and vehicles that characterize the suborbital cargo market and which are included in this report consist of drop towers, parabolic-trajectory aircraft, sounding rockets, and reusable launch vehicles. The types of payloads that make use of these facilities and vehicles can be classified by volume/form factor and intended purpose. Two types of suborbital research vehicles that focus primarily on atmospheric science, the airborne and balloon-based research sectors, are not covered in this report. This report identifies the current suborbital payload market sectors using the classifications mentioned above. A listing of market competitors and customers are given. Using this information, possible new entrant strategies to the suborbital market are discussed using the terminology and constructs of Clayton Chris- tensen's Disruption Theory. PROLOGUE ble business theory when describing the emerging com- mercial space sector of suborbital markets. As with any The purpose of this report is to demonstrate how busi- business model, arguments can be made both for and ness theories, like Clayton Christensen's Disruption against the underlying assumptions and overall applica- Theory1, can be applied to the emerging commercial bility of this particular theory. Finally, the purpose of space markets and to stimulate discussion about these this report is not to endorse or promote any of the new markets within a well-defined framework and vocabu- entrant business scenarios as described. These scenarios lary. This particular theory, when used in conjunction are simply provided as demonstrations of the Disruption with other market theories, can provide a useful per- Theory as applied to these emerging suborbital markets. spective to government leaders when confronted with making policy or acquisition strategy decisions that rely INTRODUCTION upon, or affect the development of, an emerging com- mercial sector, for example. The existing suborbital payload market consists of ser- vice providers giving access to either (a) time in a It is not the purpose of this report to endorse the validity microgravity environment, or (b) access to various or superiority of any business theory. Disruption Theory launch and/or space environments (e.g., time at altitude, is not necessarily more accurate than any other applica- radiation levels, launch conditions, etc.).

1. What this paper refers to as Christensen’s “Disruption The- The suborbital market is currently served primarily by ory” has different monikers. In his popular literature and sounding rocket launch vehicles or substitute capabili- journal articles, Christensen also referred to it as “Theory ties in the form of drop towers and parabolic-trajectory of Disruption,” “Disruptive Innovation Theory,” “Innova- aircraft. Traditional customers for this market include tion Theory” and the “Disruptive Technologies Model.” universities and government organizations in the follow- Further, these are different than, but closely associated with ing areas of research: physical and biological processes the five “Principles of Disruptive Innovation.”

1 Figure 1. Christensen’s Disruption Theory Performance Chart.

in microgravity, observation and data collection of Earth BASIC DESCRIPTION OF DISRUPTION and its atmosphere, and astronomical observation. THEORY The facilities and vehicles that characterize the subor- Disruption Theory is a conceptual model of cause and bital market and which are included in this report con- effect that provides a basis on which to predict the out- sist of drop towers, parabolic-trajectory aircraft, comes of market competition under different entry cir- sounding rockets, and reusable launch vehicles. The cumstances. The term “product” is used to denote a payloads that make use of these facilities and vehicles marketable product, service, or process offered by a can be classified by volume/form factor and intended company in a marketplace. purpose. Two types of suborbital research vehicles that focus primarily on atmospheric science, the airborne Background2 and balloon-based research sectors, are not covered in this report. Clayton Christensen’s Disruption Theory puts markets into a context of some measurement of a product's per- This report identifies the current suborbital payload formance as a function of time, as shown in Figure 1 on market sectors using the classifications mentioned page 2 by the line labeled “performance available.” In above. A listing of market competitors and customers is an established market, there are one or more established given. Using this information, possible new entrant strategies to the suborbital market are discussed using the terminology and constructs of Clayton Christensen’s 2. This section is only a brief overview of Disruption Theory. Disruption Theory. To appreciate the full detail, nuance, and subtleties of this construct, it is highly recommended to read the literature Finally, a list of outstanding comments, questions, and on the subject, including (1) Christensen, Clayton M. The future research focus areas that will be addressed in Innovator’s Dilemma. Harper Business Essentials (1998, future versions of this document, are provided to com- 2000). ISBN: 0060521996. http://worldcatlibraries.org/ plete this report. wcpa/isbn/0060521996; and (2) Christensen, Clayton M. and Michael E. Raynor. The Innovator’s Solution: Creating and Sustaining Successful Growth. Harvard Business School Press (September 2003). ISBN: 1578518520. http:// worldcatlibraries.org/wcpa/isbn/1578518520

2 Figure 2. Examples of Sustaining and Disruptive Innovations

firms that compete in a given market by developing the best competitors provide speed, responsiveness, and performance metric to meet the needs of both high-end convenience since the predominant bases of demand are and low-end market customers. An aggregation of this customer convenience and cost. demand distribution can be represented by the line Three different types of innovation, one sustaining and labeled “performance demanded.” two disruptive, can occur in the marketplace. All are Figure 1 can be divided into two regions, as described discussed below and shown in Figure 2. below. Sustaining Innovation Early in the development of a given market, there is a high demand for the product performance that exceeds The first type of innovation, entitled “sustaining innova- the available performance level, leading to a “perfor- tion,” is depicted on the market performance graph as a mance deficit” for both high-end and low-end market continuation in the performance increase along the customers. In the left region of the chart, all customers established performance available curve. The tendency are under-served by the product suppliers, and the fac- of sustaining innovations is to drive toward the upper- tors by which potential customers make their purchasing right corner of the chart, by meeting the increasing decisions (referred to as “the basis of demand”) are demands of current high-end market customers. Sustain- driven primarily by functionality and reliability. In this ing innovations can be evolutionary improvements of region of the chart, available products are highly inte- established technologies, or technological break- grated systems and available only from a limited num- throughs (also known as “revolutions”) that raise the ber of vendors. level of product performance, thereby meeting demands Over time, the performance supply increases faster than of the most demanding customers and allowing pre- the performance demand until both the high-end and mium pricing and profit margins. low-end market customers find themselves in the “per- Characteristics of sustaining innovations include the fol- formance surplus” (far right) region of the chart. Perfor- lowing: mance surplus is characterized by low-end market customers that are over-served by vendors offering high • Sustaining innovations provide a product performance products that are highly commoditized improvement by increasing the level of an existing (e.g. modular by utilizing standardized interfaces). The performance measure that characterizes the

3 established marketplace. This improvement can be an • Disruptive products tend to be simpler, less expensive, incremental improvement of existing technologies, or and more convenient than established products. discontinuous and revolutionary in character, but it • Disruptive innovations tend to signal a change in the moves along the current performance dimensions as basis of demand (from customer convenience and valued by the existing customer base in major cost, to function and reliability) due to performance markets. oversupply. • Sustaining innovations target high-end market • Disruptive products are typically first commercialized customers with increased performance as compared to in emerging or insignificant markets. The attributes previously-available products. It thereby allows that make disruptive products worthless in mainstream established companies to increase profit margins with markets typically become their strongest selling points their established organizational processes. in emerging markets. • Sustaining innovations can be introduced by • The established market’s leading firms' most established firms in the market or by new entrants. profitable customers generally don't want, and, in • Sustaining innovations do not typically represent a many cases, initially can't use the disruptive product critical threat to established firms since the incumbent because it is lower in traditional performance metrics. firms will be highly motivated and well funded to • For the most part, disruptive products are initially retaliate quickly. adopted by the low-end market customers that are the • Sustaining innovations provide advantage to the least profitable to the established market incumbent followers of sustaining technologies, not to the suppliers. technology leaders. • Technology is not the major barrier facing new firms Developing successful strategies for sustaining innova- promoting disruptive products. In fact, historic data tions includes talking with existing customers to deter- shows that disruptive products typically involve no mine what performance needs are currently unmet or new technologies, but are built of existing components could be improved, identifying improvements or and technologies integrated in a new way that offers enhancements to existing technologies, and striving for new or different capabilities to the customer. the high-performance, high-margin sector of the market • There is a big “first to market” advantage with (represented by the upper-right quadrant of Figure 1). disruptive innovations. Statistical analysis of historic disruptions indicated that “first to market” entrants in An example of a sustaining innovation in the established established markets are successful 6% of the time, suborbital market would be a new multi-staged sound- whereas “first to market” firms in disruptive ing rocket that could attain higher apogee altitudes (and innovations were successful 37% of the time.3 corresponding longer microgravity times) by the devel- opment of a new or improved rocket stage, whether that Descriptions and characteristics of low-end and new- improvement was a result of a better propellant compo- market disruptions are provided below. sition, better aerodynamics, or some other technological advancement. Low-End Disruption. Low-end disruptions appear on the market performance graph as a new performance Disruptive Innovation supply line that appears below that of the established The second type of innovation, called “disruptive inno- market. This is an indication that the disruptive product vation,” comes in two distinct varieties. The first is the is generally lower performing than similar products cur- “low end” disruption, and the second is the “new mar- rently being offered in the established market by incum- ket” disruption. Each of these is discussed following a bent firms. Corresponding to their lower performance, brief description of the general characteristics of disrup- tive innovations. General characteristics of disruptive innovations include 3. “…only three of the fifty-one firms (6 percent) that entered the following: established markets ever reached the $100 million revenue benchmark. In contrast, 37 percent of the firms that led in • Products that comprise a disruptive innovation tend to disruptive technological innovation-those entering markets be simpler and less expensive than products offered by that were less than two years old-surpassed the $100 mil- the incumbent firms. Part of the allure of the lion level…”, from “The Innovator's Dilemma: When New disruptive innovation is lower costs that result from Technologies Cause Great Firms to Fail”, Chapter 6, lower profit margins and lower profits. “Match the Size of the Organization to the Size of the Mar- ket”.

4 low-end disruption products tend to be less expensive Other general characteristics of new-market disruptions also. include: Other general characteristics of low-end disruptions are: • The new-market innovation is a product that identifies a brand new performance metric. • Products of a low-end disruption tend to establish a lower profit-margin market, since the product is • New-market disruptive products are selected by introduced at lower cost which corresponds to the consumers using functionality as their basis of lower level of product performance. demand. • The reaction of the incumbent firms of the established • The new-market product attracts the non-consumption market is typically dismissive since the disruptive customer and requires the creation of a new value product cannot meet the established product network for its distribution. performance levels. • There is no reaction to the new-market product by the • Because of the lower profit-margins, established firms established market companies since the new product is choose not to compete against the innovator, and they not stealing customers from the established market do not expend resources to keep their low-end market incumbent firms. customers from migrating to the disruptive firm. • As the new-market disruptor iteratively improves the • Low-end disruption products attract customers that are performance of the innovative product, they gain being overserved by the established market products operational experience and increase their market size, and who use cost as their basis of product demand. benefiting from the significant “first to market” The innovative product steals low-end market advantage. As the product performance improves, the customers from the established market. new-market innovator evolves into a low-end disruption by penetrating the low-end segment of the • Low-end disruption products often need to establish a established market. new value network for supply and distribution of the product to customers. In Figure 2, the different innovations are shown with • As the low-end disruptor iteratively improves the respect to the established market on the Disruption The- performance of the innovative product, they gain ory performance chart discussed in Figure 1 above. operational experience and steal an increasing number • The established market is depicted in black by lines of of customers from the established market, gradually performance supply (solid) and performance demand attracting customers from higher and higher profit- (dashed) plotted against the performance metric (y- margins. At this point, the incumbent firms from the axis) as a function of time (x-axis). established market begin to take the competitive threat • The sustaining innovation is depicted in red by a solid seriously. By that time, however, it is not uncommon line showing how the established performance supply that the established market firms are too late to is extended by this type of innovation. successfully compete against the innovator and are driven out of business. • The low-end disruptive innovation is depicted in green by lines of performance supply (solid) and An example of a low-end disruptive innovation in the performance demand (dashed) plotted against the orbital transportation market was the introduction of the same performance metric used by the established Pegasus launch vehicle in the early 1990s. Although it market. delivered an order of magnitude less payload mass to • The new-market disruptive innovation is depicted by orbit, its lower cost allowed it to attract low-end market an entirely new graph, shown in blue, with new customers who were being over-served by the estab- performance metrics and new performance supply and lished market that was delivering, at the time, thousands demand lines. of kilograms to orbit. Examples of new-market disruptive innovations include New-Market Disruption. Unlike low-cost disruptions, the first battery-powered transistor radio by Sony and new-market disruptions do not appear on the same mar- the personal computer.4 ket performance graph with the established market. New-market disruptions appear on a totally new perfor- mance graph by identifying a brand new performance metric that attracts customers that are new to the market. 4. Christensen, Clayton M. The Innovator’s Dilemma. Harper These customers are referred to as “non-consumers” Business Essentials (1998, 2000). ISBN: 0060521996. because they were not part of the original marketplace. http://worldcatlibraries.org/wcpa/isbn/0060521996;

5 SUBORBITAL PAYLOAD MARKET OVERVIEW A relatively new entrant sounding rocket launch vehi- cles company serving the suborbital marketplace The suborbital market is filled with incumbent, new, and includes: potential suppliers of facilities, aircraft, and/or launch vehicles. The primary provider for access to suborbital • UP Aerospace Spaceloft XL space and microgravity research has been sounding rocket launch vehicles. Substitute capabilities in the Drop Towers form of drop towers and parabolic-trajectory aircraft are also a major part of the microgravity research market. Drop towers can provide very brief periods of micro- Potential entrants in this area include reusable launch gravity for experiments with dimensions that conform to vehicles (RLVs). Providers for each of these facility or the geometry of a protective box (a structural frame vehicle types are described below. enclosed by a drag-reducing fairing). For an experiment being dropped, the box is shaped like a bullet. For experiments being shot from the bottom of the tower (to Suborbital Payload Market Suppliers attain twice the time in microgravity conditions) the fairing is shaped like a sphere. Sounding Rockets Drop towers are substitute capabilities in the suborbital Sounding rockets can provide long (i.e., 4-5 minutes) to payload market because they provide access to micro- very long (i.e., 10-20 minutes) periods of microgravity gravity environments, albeit for only brief periods of conditions (as compared to other providers in the subor- time. For customers who only need seconds of micro- bital market) depending on a number of factors, includ- gravity, the sounding rocket marketplace is providing ing thrust profile, acceleration profile, altitude of more performance than what those customers actually trajectory apogee, etc., for payloads that must conform require. to the geometry, mass, and acceleration limits of the launch vehicle. General observations and characteristics of drop towers include: General observations and characteristics of sounding rockets servicing the suborbital science market include: • Typical microgravity times for dropped experiments are on the order of 2-5 seconds. • Sounding rockets can vary in size, but are typically no more than 50cm in diameter. • Microgravity times can be doubled if the capability exists in a given tower to shoot the experiment up • Sounding rockets generally use solid propellants that from the bottom of the shaft instead of simply deliver very high acceleration profiles at liftoff. dropping it from the top. Incumbent sounding rocket launch vehicles serving the • Experiments shot from the bottom of a drop tower 5 international suborbital marketplace are shown in experience very high initial acceleration impulses. Table 1. • All drop tower experiments experience very high final Table 1. Active Sounding Rockets Since 2005. deceleration impulses. • Black Brant V, IX, X, • RX-250-LPN, 320 Incumbent drop tower facilities serving the suborbital XI, XII •S-310 marketplace include: •Castor 4B • Skylark 7 • Coyote •SM-2 • NASA Glenn Research Center (GRC) 2.2 Second •HATF II • Super Loki Drop Tower •Loki Dart •Talos Castor • NASA GRC Zero Gravity Research Facility •M-100B • Terrier-ASAS, -Orion, • Microgravity Laboratory of Japan (MGLAB) Drop •Maxus -Improved Orion, Experiment Facility • Nike-Orion, -Lynx, -Malemute, -Improved Orion -Oriole • Center of Applied Space Technology and • Orion, Improved Orion •Viper, 3A Microgravity (ZARM) Bremen Drop Tower • RH-200, 200SV • VS-30, -30/Orion At the time of the publication of this report, there are no • RH-300 MkII •VSB-30 new or potential entrant drop tower facilities envisioned to serve the suborbital market. 5. This list was compiled by querying the JSR Launch Vehicle Database (www.planet4589.org/space/lvdb) for vehicles that have launched at least once since the year 2005.

6 Parabolic-Trajectory Aircraft future in response to different market forces. RLVs may be more than substitutes in the suborbital marketplace Aircraft fly parabolic trajectories to provide brief peri- by offering new and different capabilities with a differ- ods of microgravity and can accommodate a wide vari- ent set of performance parameters. ety of payload geometries and masses, including traditional experiment racks. General observations and characteristics of RLVs include: Parabolic-trajectory aircraft are substitutes for sounding rocket launch vehicles in the suborbital payload market • The RLVs tend to use liquid or hybrid propellants that because they provide alternative access to the micro- have performance benefits and some operational gravity environment for customers whose requirements disadvantages as compared to sounding rockets. are satisfied with 20-40 seconds of microgravity. These • RLV propulsion systems that can be “throttled” allow customers were being over-served by the sounding for better control of the thrust profile compared to rocket capabilities that provided from four to 20 minutes sounding rockets, thereby controlling peak of microgravity time. acceleration loads on the payload. General observations and characteristics of parabolic- • RLVs are designed to terminate their mission by trajectory aircraft include: making a soft landing at a designated location and this permits the on-board payload to be recovered and • Typical microgravity times are approximately 20 possibly reused. seconds per parabola flown. • RLV operations may allow them to fly multiple times • Typical number of parabolas flown can vary between in a single day. 20 to 60 per flight. 6 • The levels of gravity experienced during a parabolic Below is a list of the RLVs and companies that are trajectory can be varied to simulate different planets or potential entrants to the suborbital payload market: planetary bodies. • Armadillo Aerospace SuperMod • The quality of the microgravity environment is a • Blue Origin New Shepherd function of the quality of the parabola flown and can • Masten Space Systems XA 1.0 be measured by on-board accelerometers. • SPACEACCESS Skyhopper Incumbent parabolic-trajectory aircraft serving the sub- • SpaceDev Dream Chaser orbital marketplace include: • TGV Rockets M.I.C.H.EL.L.E • NASA Johnson Spaceflight Center (JSC) C-9B • Virgin Galactic SpaceShipTwo Aircraft • XCOR Aerospace Lynx Mark I • European Space Agency A300 Zero G • Ilyushin Il-76 MDK, Russia The next section of this report will define the customer base for the suborbital market. A relatively new entrant parabolic-trajectory aircraft serving the suborbital marketplace includes: Suborbital Payload Market Customers • ZERO-G Corporation’s G-Force 1 The suborbital cargo market customers can be character- The preceding section has identified all the vehicles, ized in a number of ways, but a convenient starting point facilities, and aircraft currently in use to meet the is to distinguish them by categories of volume and form demands of the suborbital payload market. The next sec- factor, namely: tion discusses a new class of vehicles that are potential entrants to this market. Small Volume/Form Factor. These payloads fit into sounding rockets and are therefore necessarily small and Reusable Launch Vehicles cylindrical (fitting within the rocket’s outer shell and In addition to the incumbent competitors in the estab- lished suborbital payload market, there are also potential 6. From the Federal Aviation Administration’s Office of entrants to this market as well. These are private indi- Commercial Space Transportation “2009 U.S. Commercial viduals and companies at various stages of developing Space Transportation Developments & Concepts” report, and flight testing reusable launch vehicles (RLVs) that pages 29-39. Companies and vehicles that were developed may enter the suborbital payload market in the near solely to compete in the Northrop Grumman Lunar Lander Challenge were not included in this list.

7 fairing, approximately 0.5 meters in diameter and with a • Technology demonstrators that require exposure to taper ratio of approximately 3:1). The mass of these extreme launch conditions (e.g., accelerations, payloads can be up to hundreds of kilograms. vibrations, noise levels, etc.). • Technology demonstrators that require long-duration Medium Volume/Form Factor. These payloads can be testing in space environments (e.g. radiation, vacuum, the size of one or more rack-based experiment (rectan- thermal, etc.). gular solids with a volume of approximately 4-5 cubic • Atmospheric observation requiring long linger times feet each). at certain altitudes. Large Volume/Form Factor. These payloads can be at • University student outreach, including research and least the size of a person or larger. educational missions (REM), that require high-end capabilities of the vehicles, facilities, or aircraft The suborbital payload market customers can also be available. characterized by the intended function of the payload instead of by more traditional definitions, such as who is Low-End Markets7 paying the bills (which in most cases for the current sub- orbital market, is a government organization) or who is Low-end markets are characterized by having perfor- the subject-matter expert for the subject cargo (the pay- mance requirements that are at the low-end of the main- load’s principal investigator, for example, who in most stream market performance supply. Customers in these cases is employed by a university or national research markets are thus over-served (i.e., the performance organization). available from the suppliers exceeds the customers’ needs in the low-end markets), and they would be will- For the purposes of discussion later in this report, mar- ing to receive a lower performance capability if it were ketplaces are classified as “high-end,” “low-end,” and available at a lower cost. “non-consumers” based on the level of market perfor- mance they require. Additional descriptions of these The following are goods and services required by cus- terms and lists of suborbital payload goods and services tomers in the “low-end” suborbital payload market: in each market category are given below. • Microgravity research of short duration (e.g., less than 1 minute). High-End Markets • Earth remote sensing that can be accomplished with Customer demands in high-end markets are character- short linger times, thereby satisfied with low trajectory ized by highly-customized payloads with performance apogee altitudes (e.g., no greater than 100 km). requirements that begin at the high-end of available • Astronomical observations that can be performed at market capabilities and can grow to exceed what is low trajectory apogee altitudes (e.g., at approximately available in the market. These are typically, but not 300 km). exclusively, government-funded payloads. • Technology demonstrators that don’t require long For the purposes of this report, the “high-end” subor- duration microgravity exposure or high altitude bital payload markets are associated with payloads that trajectory apogees. have the following attributes: • Technology demonstrators that don’t require exposure • Microgravity research of long duration (e.g., greater to extreme launch conditions. than 5 minutes). • Technology demonstrators that don’t require long- • Earth remote sensing requiring high trajectory apogee duration testing in space environments (e.g. radiation, altitudes (e.g., in excess of 300 km) to get long linger vacuum, thermal, etc.). times. • Atmospheric observation satisfied with brief linger • Astronomical observations, such as high energy times at certain altitudes. astrophysics, plasma physics, solar and heliospheric physics, solar system exploration, ultraviolet and optical astrophysics, requiring high altitudes (e.g., in excess of 1,000 km). 7. The phrase “Low End,” although sometimes commonly • Technology demonstrators that require testing in long construed as being derogatory, is not intended to convey duration microgravity environments or high altitude that meaning as it is used here. The use of this term comes trajectory apogees. from its use in both of Christensen’s Disruption Theory texts and is used exclusively in regards to markets.

8 • University student outreach, including research and SUBORBITAL PAYLOAD MARKET educational missions (REM), that can be sufficiently DISCUSSION conducted with the low-end capabilities of the This section of the report will begin by looking at the vehicles, facilities, or aircraft available. aggregation of performance supply and demand in the • K-12 educational payloads that are typically payloads suborbital payload market. Next, the historical subor- of low cost, mass, size, and performance, due to bital payload market will be shown and characterized stringent budget constraints and large class sizes. based on the Disruption Theory as described in the pre- • Novelty payloads composed of customers flying their vious section. Finally, interactions between established personal effects for the ability to claim their effects market firms and new entrants under the conditions of were in a space or microgravity environment. sustaining and disruptive (both low-end and new mar- Typically, these payloads are small and light due to ket) innovations will be discussed. stringent budget constraints. • People who want to personally experience Suborbital Payload Market Domains microgravity conditions are considered “low-end” The needs of a given payload category cannot necessar- simply because they are currently satisfied with the ily be met by all the available facilities, aircraft, or vehi- low-end performance of existing parabolic-trajectory cles identified in this report. To identify functional aircraft, having no alternative on the current suborbital groupings of the services provided by suppliers in the market. suborbital payload market, it is useful to look at the functional attributes for each market provider in addi- Non-Consumer Markets tion to the customer being served.10 Non-consumers represent demand in a marketplace for Using this approach, the suborbital payload market 8 which there is no current supply to meet their demands . domain can be depicted by a two-dimensional space These customers typically will be satisfied with a new defined by (a) the relative volume and form factor cate- capability in the market that is very low performing at a gories of payloads flown (small, medium, and large) on low or reasonable cost. the ordinate axis and (b) the apogee altitude of the • People who want to experience spaceflight, and/or the sounding rocket (or similarly, the time in microgravity, spectacular view from space, for themselves and/or in order to include the drop towers and parabolic-flying with others. The size and mass of the payload varies aircraft in the discussion) on the abscissa axis. In this from person to person, but it is safe to categorize this domain, both the relative positions for the different sub- payload, on the average, as between medium and large orbital capabilities (drop towers, parabolic-trajectory in both the size and mass categories.9 aircraft, sounding rockets, and RLVs), and the apogee/ time in microgravity positions for each of the suborbital The designations of “high-end,” “low-end,” and “non- payload purposes can also be shown, as in Figure 3. consumer” markets will be set aside until later in the report at which time they will be referenced to describe From the performance supply perspective, Figure 3 Disruption Theory interactions in the suborbital payload shows the following: markets. • There is currently very little overlap in microgravity domains of the market, so the drop towers, parabolic- trajectory aircraft, and sounding rockets coexist without the threat of intruding on each others’ market domains. 8. “We say that new-market disruptions compete with ‘non- • It can be expected, however, that the new entrant consumption’ because new-market disruptive products are RLVs will be perceived as a competitive threat by so much more affordable to own and simpler to use that providing direct competition to the established firms they enable a whole new population of people to begin in the smallest category of sounding rocket payloads. owning and using a product, and to do so in a more conve- nient setting.” from The Innovator’s Solution, Chapter 2, • New entrant RLVs, however, will not be competitors “How Can We Beat Our Most Powerful Competition?” to sounding rockets for the market domain of small 9. Although there have been some customers in the “personal payloads requiring high trajectory apogees. experience in space” category whose needs have been met by the current capabilities of an established orbital payload 10. “The critical unit of analysis is the circumstance and not marketplace, this is not the case in the suborbital payload the customer.” from The Innovator’s Solution, Chapter 3, market. “What Products Will Customers Want To Buy?”

9 Figure 3. Attribute-based Characterization of the Suborbital Payload Market.

• Similarly, sounding rockets will not be competitors to Is Disruption Theory Applicable to the Suborbital RLVs for the new markets of medium- and large- Market? category payloads needing only a few minutes in the Figure 4 is a simple plot of many (not all) suborbital microgravity environment. rocket launches (estimated flight apogee versus launch From the performance demand perspective, Figure 3 date) from 16 August 1942 through 20 March 2009.11 shows the following: The objective of Figure 4 is simply to show how sound- • A subset of almost all customers could benefit from ing rocket performance matches the market performance the introduction of new entrant RLVs to the description assumed by Christensen’s Disruption The- marketplace if they need between 4-5 minutes of ory. In the case of suborbital rocket launches, there is a microgravity access. similarity between the generic line of performance • Introduction of the RLV capabilities to the market will available shown in Figure 1 and the suborbital perfor- most certainly increase access to space and mance available as a function of time. microgravity conditions for customers in the The sounding rocket trajectory apogee altitude was used following categories: novelty, K-12 education, and as a proxy for the capability performance metric for two personal experience in space. Note that these are all reasons: low-end or non-consumers markets. 1. Altitude can be used as being directly proportional • Introduction of the RLV capabilities to the market has to performance for microgravity experiments the potential to open a new market of the “personal (higher altitude of trajectory apogee roughly corre- experience in space” payload category. lates to increased time in microgravity), astronomi-

11.This chart comes from the JSR Launch Vehicle Database (www.planet4589.org/space/lvdb).

10 Figure 4. Plot of Suborbital Sounding Rocket Launches From 1942 to the Present.

cal observations (higher altitudes situate the tions to the established suborbital payload markets. Far- scientific instruments farther above the Earth's ther-term disruptions (e.g., large payloads or high atmosphere), and Earth observation (where higher apogee trajectories approaching 1,500 kilometers) are altitude provides a better field of view). not considered in this report because of the high level of 2. Altitude data is readily available from public uncertainty inherent in any far-term prediction. sources. The three near-term scenarios include: Arrows have been superimposed on this chart to show • Scenario #1. Sustaining Innovation: New entrants to three clusters of performance at three different launches the suborbital payload market deliver performance apogee altitudes: 1,500 kilometers (indicative of the meeting or exceeding the best performance of the astronomical observation payload category), 300 kilo- incumbent suppliers in the established market. meters (indicative of microgravity conditions of approx- • Scenario #2. Low-End Disruptive Innovation: New imately 10 minutes), and 100 kilometers (indicative of entrants to the suborbital payload market deliver microgravity conditions of approximately 4 minutes). performance that is lower than that provided by the Despite the linear vectors superimposed on the data incumbent suppliers in the established market and at a points, there really is not a continual increase of perfor- lower price. mance from the first suborbital launches until the pres- • Scenario #3. New-Market Disruptive Innovation: New ent day for the 100 kilometers and 300 kilometers entrants deliver a product with a new and unique altitude clusters (as shown by the arrows in Figure 4), performance metric that is very, if not totally, different but rather, there was an increase to that altitude by a cer- than that provided by the incumbent suppliers in the tain point in time, and then the performance leveled off established market. and remained constant since then. Using the scenario numbers above, Figure 5 below The next three sections discuss different ways the new shows how these scenarios fit into the context of the RLV entrant companies can introduce near-term innova-

11 Disruption Theory Performance chart and the attribute- • Small biological and physical science experiments based market characterization chart. that require 4-5 minutes of microgravity exposure. • Small technology demonstrator payloads that require Scenario #1. Sustaining Innovation 4-5 minutes of microgravity exposure. This section discusses how a new RLV entrant to the • Small technology demonstrator payloads that require suborbital payload market could position itself so that it exposure to the space environment that can would be considered by the Disruption Theory as a sus- sufficiently be achieved on a trajectory with an apogee taining innovation. This section also discusses how the altitude of approximately 100 kilometers. Disruption Theory predicts how the incumbent firms of • Small technology demonstrator payloads that require the established market will react to this innovation. exposure to the launch environment provided by the The relative location of the new entrants on the perfor- specific RLV. Presumably, the trajectory apogee mance chart in the sustaining innovation is shown as altitude is not a limiting requirement for these star number one in Figure 5. experiments. • Small remote sensing (Earth observation) payloads The scenario presented below assumes the following that require a trajectory with an apogee altitude of about the new RLV entrants as they enter the established approximately 100 kilometers. suborbital payload market: • Small atmospheric observation payloads that require a • The RLV new entrants come into the established trajectory with an apogee altitude of approximately suborbital payload market (small volume payloads 100 kilometers. needing 4-5 minutes of microgravity time or trajectory • Small novelty payloads that require a trajectory with apogees of approximately 100 kilometers) with an apogee altitude of approximately 100 kilometers or competitive pricing and profit-margin levels as exposure to 4-5 minutes of microgravity. compared to the incumbent firms in that market (i.e., the sounding rocket companies listed above and • Small K-12 educational payloads that require a detailed in Appendix A). trajectory with an apogee altitude of approximately 100 kilometers or exposure to 4-5 minutes of • The performance (i.e., altitude of trajectory apogee, or microgravity. time in microgravity) of the RLV entrants matches or exceeds that of the incumbent firms, thereby meeting Since the customers for the product being offered by the the demands of the established customers. RLV new entrants are in the performance surplus por- tion of the market performance graph, they are being Based on the graph shown in Figure 2, this sustaining over-served (to some degree) by the incumbent firms innovation scenario, the relative location of the new and their basis of demand will be based on customer entrants on the performance chart is shown as star #1 in convenience and/or price. The services already offered Figure 5. in this region are typically highly modularized and com- The “payload purposes” that may be impacted by the moditized. entrance of the RLVs to this market segment include the In this situation, the competitive pricing of the new RLV following: entrants will be interesting only to the highest of the high-end market customers. Other customers will wish

Figure 5. Context of Three Disruption Theory Scenarios

12 they could pay less for what they actually require, The relative location of the new entrants on the perfor- instead of having to pay for more performance than they mance chart in the low-end disruptive innovation is need. shown as star number two in Figure 5. Increased measures of customer performance, (e.g. ease The scenario presented for this discussion assumes the of use, facilitated access to the payload, etc.) may attract following about the new RLV entrants as they enter the some customers in low-end markets. High-end market established suborbital payload market: customers will have internal resource allocation pro- • The RLV new entrants come into the established cesses, and other “exit barriers”, that will keep them suborbital payload market offering low-end from easily converting from the established suppliers to performance (e.g., capable of carrying small payloads, the new entrants. providing access to substantially less than, and By employing a sustaining innovation strategy (i.e., absolutely no more than 4-5 minutes of microgravity entering the market at the performance high-end of the time, and to a maximum trajectory apogee of 100 established market), the new entrant firm must necessar- kilometers) at a lower price to the customer and a ily address significant levels of both technology risk (by lower profit-margin than the incumbent firms in that having to out-perform the established incumbent firms) market. and competition risk12. Since they are entering an estab- This type of innovation will target low-end market cus- lished market and targeting a known customer base, tomers including: marketing risk is low. • Small biological and physical science experiments If the new entrants are successful at luring high-end that require less than 4-5 minutes of microgravity market customers away from the established firms, they exposure. should be prepared for a competitive battle with the incumbents (as mentioned above). Surviving that, the • Small technology demonstrator payloads that require most probable (and lucrative) exit strategy for a new less than 4 minutes of microgravity exposure. entrant that successfully joins an established market • Small technology demonstrator payloads that require would be a quick buy-out by one of the leading incum- exposure to the space environment that can bents. sufficiently be achieved on a trajectory with an apogee altitude less than 100 kilometers. Scenario #2. Low-End Disruptive Innovation • Small technology demonstrator payloads that require This section discusses how the new RLV entrants may exposure to the launch environment provided by the represent low-end disruptive innovations in the subor- specific RLV. Presumably, the trajectory apogee bital payload market. This section also discusses how altitude is not a limiting requirement for these the Disruption Theory predicts how the incumbent firms experiments. of the established market will react to this innovation. • Small remote sensing (Earth observation) payloads that require a trajectory with an apogee altitude less than 100 kilometers. 12.Three quotes from Chapter 2 of The Innovator’s Solution, • Small atmospheric observation payloads that require a “How Can We Beat Our Most Powerful Competitors?” are trajectory with an apogee altitude less than 100 apropos here: (a) “The established competitors almost kilometers. always win the battles of sustaining technology. Because this strategy entails making a better product that they can • Small novelty payloads that require a trajectory with sell for higher profit margins to their best customers, the an apogee altitude less than 100 kilometers or established competitors have powerful motivations to fight exposure to less than 4 minutes of microgravity. sustaining battles. And they have the resources to win.”; (b) • Small K-12 educational payloads that require a “A sustaining-technology strategy is not a viable way to trajectory with an apogee altitude less than 100 build new-growth businesses, however. If you create and kilometers or exposure to less than 4 minutes of attempt to sell a better product into an established market to microgravity. capture established competitors' best customers, the com- petitors will be motivated to fight rather than to flee. This In this scenario, products are highly integrated (i.e., pur- advice holds even when the entrant is a huge corporation pose-built, not modular) in order to maximize system with ostensibly deeper pockets than the incumbent.”; and performance (i.e., to minimize the performance gap (c) “If it is a sustaining innovation relative to the business between them and the incumbent firms). model of a significant incumbent, you are picking a fight you are very unlikely to win.”.

13 The lower performance (i.e., functionality) of the new • The RLV new entrants come into a new suborbital entrant RLVs, as well as their unproven track record of payload market segment (e.g., medium- and large- reliable operations over a long period of time, will be sized payloads) where there are no incumbent firms. perceived by high-end market customers as weaknesses. • The performance of the RLV entrants may initially be Therefore, they will not be tempted to desert their exist- lower (perhaps initially flying to an apogee altitude of ing launch providers to become customers of the “risky” 60 kilometers instead of 100 kilometers, thereby and “low performing” RLVs. providing less than 4 minutes of microgravity time). Low-end market customers will also perceive the new • Short turn-around time (due to operational simplicity), entrants as risky. However, as a result of being over- the time it takes to get a proposed experiment served in the established market, low-end market cus- conducted, and intact recovery of the payloads are just tomers will be happy with the reduced performance three examples of new services and capabilities that because it will cost them less than what the incumbent the incumbent firms are not used to providing, and firms are charging. They might decide to “take a their customers are not used to receiving. This chance” with them because of the lower cost. Their functionality is highlighted here as a possible basis for basis of demand is determined by cost. a new-market disruptive innovation. Incumbent firms will gladly cede the low-end market The list of targeted non-consumers for the new-market customer, who represent the segment of their overall disruptive innovation includes: business with the lowest profit-margins, to the new • Personal experience in microgravity entrant firms and continue to expend their efforts on attracting more high-end (namely, high profit-margin) • Personal experience in space customers. At the beginning, the successful RLV new entrants will The high-end market customers may change providers offer highly integrated, proprietary products. As time once the RLVs can demonstrably match the perfor- passes and other competitors enter, the disruption mance of the incumbent firms, but even then their inter- becomes a hybrid between the low-end and new-market nal decision-making processes may prevent a shift to the varieties, and the products become more modular. new launch platforms. The challenge to the new entrant firms including over- By employing a low-end disruptive innovation strategy coming “non-consumption” and needing to create a new (i.e., entering the market at the performance low-end of value network (i.e., distribution channels for their prod- the established market), the new entrant firm can mini- uct). The customers that will procure the service of the mize the levels of technology risk it must address, the new-market RLVs can be considered to be the ideal cus- amount of competitive risk it will face, and since the tomer, because they currently have nothing with which goal is to strip away low-end market customers from the to compare the new product, they are easy to make incumbent firms, marketing risk is minimized as well. happy (i.e., the performance hurdle is modest), and they There is the opportunity, however, to attract first-time absolutely need the new capability. customers to the market due to the low-cost of the new Since the customers for the product being offered by the entrant’s product. RLV new entrants are all in the performance deficit por- tion of the market performance graph, their basis of Scenario #3. New-Market Disruptive Innovation demand will be predicated on functionality and/or reli- This section discusses how the new RLV entrants may ability of the service. Customers are effectively desper- represent new-market disruptive innovations in the sub- ate for any flight opportunity that fulfills their orbital payload market. This section also discusses how requirements, and will pay high prices to get them. the Disruption Theory predicts how the incumbent firms The new markets of medium- and large-sized payloads of the established market will react to this innovation. in microgravity (for minutes at a time) and space will The relative location of the new entrants on the perfor- attract non-consumers willing to pay high prices for a mance chart in the new-market disruptive innovation is functionality that did not previously exist. First-to-mar- shown as star number three in Figure 5. ket advantage will be significant in establishing and maintaining share of this market amongst the RLV firms The scenario presented for this discussion assumes the that enter. following about the RLV new entrants as they enter a new suborbital payload market: Incumbent firms in the established suborbital payload market (small-sized payloads) will be indifferent to the

14 entry of the RLV firms because they will not perceive • RLVs entering the established, small-payload, them as a threat. In order to compete with the RLVs they suborbital market (a sustaining innovation) at or above would effectively have to start their own RLV compa- the current levels of performance offered by the nies, but by the time they appreciate the strength of the incumbent firms may provide the best opportunity to new market, the RLV firms will have already stolen a identify possible customers, but it does not provide the significant amount of the small-size payload market best strategic position for the RLV companies with share (starting with the low-end market customers, then respect to the incumbent firms due to high technical followed by the high-end market customers) and the and competitive risks. survival of the incumbent firms will be under serious • Other scenarios that may be sustaining innovations or threat. new-market innovative disruptions, depending on how A long-term projection of this scenario replaces the its framed, include launching medium- and/or large- entire sounding rocket suborbital payload market at a sized payloads (including people) on RLVs to provide given apogee altitude with RLVs, moving the sounding many minutes of microgravity exposure (an rockets to provide flight opportunities for payloads improvement of the microgravity time currently requiring higher and higher apogees (whatever the attained on parabolic-trajectory aircraft). RLVs can’t reach). As the performance (i.e. apogee alti- • A low-end disruption scenario considered involved tude) of the RLVs increases, the sounding rockets are offering RLV flights with lower performance and displaced from that market into the higher echelons of lower costs into the established market to begin luring space. Ultimately, RLVs will replace all flight opportu- away the low-end market customers who are over- nities that are currently serviced by sounding rockets, served by the incumbent firms. In order to focus on and all the sounding rocket companies will be put out of their higher profit-margin business, the incumbent business. firms would gladly let the low-end (i.e. low profit- margin) market customers go to the new RLV entrant This scenario is an extreme, although not impossible, firms. Slowly, as the RLV companies gained outcome predicted by the Disruption Theory, and could operational experience and were able to increase the take decades to be realized. performance of their vehicles, more and more customers would desert the incumbent firms for the CONCLUSION lower-priced RLVs. By the time the incumbent firms Both the suborbital payload market and its customers would decide to react to the up-and-coming threat of are composed of many different segments. Market sub- the new entrants, the chances of them regaining their stitutes, in the forms of drop tower facilities and para- market share would be greatly diminished. bolic-trajectory aircraft, fill the needs of some • New-market disruptions include flying medium- and customers, whereas others can only use sounding rock- large-sized payloads (including people) on RLVs to ets. This is a great example of an established space mar- provide exposure to space. (This is different than the ket that is comprised of many components that do not go previous item in which the purpose of the flight was into space or even leave the ground. The advent of exposure to microgravity only.) The new RLV entrants emerging commercial space companies and industries, need to overcome a significant marketing risk (i.e., the most notably reusable launch vehicles (RLVs), repre- identification of non-consumers) but would benefit sents an innovation in the suborbital payload market, from “first-to-market” advantages. The incumbent and perhaps other markets as well. firms would ignore the new RLV entrants at first, and By analyzing the suborbital payload market, listing its by the time they decided they might need to enter this product providers and customers, graphing the operating new market segment (because their customers would domains, plotting the history of suborbital launches to start peeling away, beginning with the low-end market the present day, and describing possible market entry customers first, but slowly working their way through scenarios, new entrant RLV companies to the suborbital to the high-end clients) it would be too late for them to payload market were investigated from the perspective compete effectively. of three types of innovations: sustaining innovations, Ultimately, three final conclusions of this discussion can low-end disruptive innovations, and new-market disrup- be summarized as follows: tive innovations. 1. If the new entrant has a penchant to solving techni- The results of the scenario analyses are the following cal problems, then a new entrant company will be (and are summarized in Table 2 below): attracted to introducing a sustaining innovation to the established market place. This is case #1 as dis-

15 cussed in this paper. An expectation of this seems that the lowest overall risk would be through approach, as predicted by the Christensen Disrup- a low-end disruptive innovation, or scenario #2 as tion Theory, is the fiercest of all commercially com- discussed in this report. Although government mis- petitive environments among the three possible sion needs may not be immediately met (due to scenarios of innovation. lower performance delivered by the new entrant), 2. Given a successful track record of solving market- this approach provides the highest likelihood of ing problems, a new entrant company may be both (eventual) accomplishment of mission goals attracted to the introduction of a new market disrup- and long-term industry success. tive innovation. This approach, as described in sce- nario #3 of this paper, may required an ability to ACKNOWLEDGEMENTS survive one or more failed attempts before the com- A part of this work was performed by the Futron Corpo- pany is a commercial success. ration under the Federal Aviation Administration’s Ana- 3. If a decision were pending by government leaders lytical and Technical Evaluation Support Services regarding how they could best meet their mission contract (number DTFAWA-09-F-00088). Special goals while, at the same time, increasing their reli- thanks are given to Dr. Jeff Foust for his personal and ance upon and encouraging the development of a professional contributions. private suborbital transportation capability, what approach would Christensen’s Disruption Theory suggest would make the best market entry point? It Table 2. Summary Table of Disruption Theory Predictions Performance Chart Market Reactions Risks Notes Region • Performance • Incumbents: Will be highly • Marketing: • Best exit is oversupply motivated to compete with Low quick buy-out by • Products are highly plentiful resources. • Competitive: incumbent. modular; • High-end market customers: like High • Worst exit is commodities higher performance, but exit • Technical: competitive • Basis of demand: barriers may impede limited High attack (95% of acceptance. cases) Scenario 1. Scenario customer convenience & cost • Low-end market customers:

Sustaining Innovation don’t want or need excess performance • Performance deficit • Incumbents: Will ignore RLVs, • Marketing: • Incumbent’s • New entrants are cede low-end customers to move Low increasing RLV highly integrated up-market. • Competitive: performance • High-end market customers: Will attracts • Basis of demand: Low ignore RLVs. established functionality & • Technical: market from reliability • Low-end market customers: Low Medium performance at low price OK. below. Scenario 2. Low-End Low-End 2. Scenario Disruptive Innovation Disruptive • Large first-to-market advantage • Performance deficit • Market Reaction: None • Marketing: • Can transform • New entrants are • Customers are “Best” High (must into low-end highly integrated Customers: Had nothing before; overcome non- disruption as consumption) competitors • Basis of demand: Easy to please; They need you enter & functionality & • Large first-to-market advantage • Competitive: performance reliability Low increases. • Must create new • Technical: value network (in all Unknown Disruptive Innovation Scenario 3. New Market Scenario cases)

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