If you thought satellite internet access died with the ‘90’s, think again. Last month, Andreessen Horowitz made its first space investment in an unlikely company: a Satellite internet startup called Astranis. The $18M investment will contribute to Astranis’ purported mission of “building the future of telecommunications satellites”. The startup has formidable competition, the largest of which are SpaceX and OneWeb. All three are funneling millions, and in the case of SpaceX, billions into giving internet access to the roughly 4B people on earth without.
As a NewtonX expert and former Google Loon Project employee explains, satellite has traditionally been a poor Internet solution due to latency and exorbitant costs (a single satellite costs hundreds of millions of dollars). The solution to latency was to bring satellites into low earth orbit (out of geostationary orbit — a fixed point in space where the satellite lives). This, however, poses a problem of cost: in order for low earth orbit satellites to be effective, you need thousands of them to create a web network. In other words, the higher the satellite, the larger region it can cover, but the worse the latency. The lower the satellite is, the smaller its region will be, and the higher the cost due to the smaller network coverage.
SpaceX and OneWeb are taking the low orbit approach, while Astranis is proposing small, geostationary satellites that can be built for tens of millions, instead of hundreds, and paired with Internet service providers. Taking a radically different approach, Google considered creating a network of interconnected balloons traveling 20km above ground and requiring much cheaper equipment.
NewtonX conducted a series of qualitative interviews with 12 senior former employees of the main stakeholders in the satellite landscape: Internet Access providers, Satellite players, and larger Tech companies ready to position themselves. The goal of the interviews was to ascertain:
- The pros and cons of geostationary satellite vs. low orbit satellite
- Why companies are investing so heavily in a service that has very little apparent payoff
Geostationary Vs. Low Orbit
Geostationary is a somewhat misleading term: it refers to satellites that are at an orbital distance that makes their angular speed the same as that of earth, which makes the satellite appear as though it is at the same spot above earth. In fact, it is simply orbiting at the same speed we are, giving the illusion of being anchored to a specific place about earth. Geostationary satellites are typically 35,000km above earth sea level.
Low orbit satellites, on the other hand, are usually ‘only’ a few hundred kilometers above the earth’s surface (the international space station orbits at 400km). It takes less energy to get objects into low orbit, but they also don’t cover the same distance as geostationary satellites do — which is why more are required to service the same area.
As two of our NewtonX explain, SpaceX plans to launch 4,000 low orbit satellites, and has already determined a way to recycle rockets, which could dramatically reduce the cost of launching satellites into space. This cost reduction could make low orbit satellites more cost effective that geostationary ones, despite the need for more of them. “The market for satellite has increased exponentially in the past few years,” said a member of the NewtonX survey. “If the big players can successfully lower price points and minimize latency, they very well could make satellite a viable source of Internet for people who don’t already have it.”
The Market For Satellite Isn’t 4B People; It’s 4B Partnerships and Data Opportunities
If the goal of SpaceX, OneWeb, and Astranis is simply to bring Internet access to underprivileged or remote populations, then latency doesn’t matter very much. As anybody who has used in-flight wifi knows, the latency does not disallow search, use of tools like Google Docs or other cloud-based web services, or even instant messaging. Problems only arise with video streaming, and to a greater degree, live video streaming (which means that multi-player online video games are off the table).
While there are many people who could benefit from satellite internet access, many of these people either couldn’t afford to pay for Internet, or wouldn’t want to. A NewtonX expert, former SVP at a global internet access provider takes the example of the Congo: the country has only 3.9% Internet penetration (and a population of almost 80M), but the average annual household income is between $200 USD and $10,000 USD. Clearly, the market opportunity does not lie in selling Internet to populations like this — nor, importantly, does it lie in advertising to these populations. Considering how little disposable income the average person without Internet has, advertising to these populations would yield revenue far below what would be needed to offset the billions of dollars of investment needed to bring them Internet in the first place.
So why are American tech giants so eager to win the Satellite space war? The simple answer is control and positioning for the future. Whoever provides exclusive — and free — Internet access to these populations owns every action they perform. In the same way that Facebook owns our social interactions, and Google owns our search history, satellite Internet providers will own all of the actions that their users perform. For populations that are appealing to advertisers (“Roughly 1B of the 4B people without Internet,” said a NewtonX expert) this is one route to profit. For the other populations, though, value lies in exclusive partnerships. The NewtonX survey predicted that social networks, messaging apps, gaming apps, and streaming platforms that are optimized for satellite latency will crop up and establish exclusive partnerships with Satellite providers, if not developed natively by these providers and bundled in the Internet Access platform. Associated services and portals will be the most lucrative source for satellite providers.
The American Battleground: In-Flight Internet
According to a senior NewtonX expert from the in-flight telco industry, the current market size for in-flight internet access is $350M in the US. Currently, this space is largely run by Gogo, the in-flight broadband company, which largely relies on cell towers that handoff connectivity when the airplane moves between towers. The company has already anticipated the pending competition from satellite, though, and has agreements in place for transatlantic satellite.
“SpaceX will need to undercut the price per flight significantly in order to push out Gogo,” declared one of the NewtonX survey members. “Satellite Internet will definitely be faster and better than Gogo currently is, but unless the price points are similar, most consumers won’t bite.”
Combined with the revenue opportunities from data and partnerships, this almost accounts for the millions being invested in satellite Internet. And what it doesn’t account for can likely be explained by a broader interest that investors have in the space vertical. For instance, SpaceX recently launched a capsule carrying 40 mice for a muscle-wasting study, and barley seeds for a germination experiment by Budweiser, among other goods. Satellite Internet provides an excuse for increased experimentation and study in space.
There’s No Such Thing As A Free Meal?
The benefits that Internet providers will see from giving access to underprivileged populations do not belie the good they are doing. In fact, having a revenue model encourages companies to offer good service to its customers. While Andreessen Horowitz’s motives in this Satellite landgrab are certainly not purely philanthropic (nor would we expect them to be), increased Internet access will help more and more citizens of the world access knowledge, other cultures, and greater opportunities.