It’s been almost a decade since the most recent post in this series, but I’ve had a lot of different things pushing me to want to do a writeup on potential business models for RLV developers. I think that fully-reusable launch vehicles can create economic opportunities far beyond just selling launch services, but because most of the economic value of space is downstream of launch, how RLV companies capture more of that value matters. And I think that some business models will likely do a better job at spreading the benefits of reusable launch to the broader commercial space economy.
Background/Motivation
One triggering event for this blog post was talking with a friend of mine who was trying to get back into the space startup scene after being away for a few years. He was looking for advice on problems to potentially tackle with a new startup. We had discussed one area that I felt desperately needed innovative and competitive new players1, but how one of the key challenges was the high cost of launch, and the challenge of tackling that problem when you have to buy launch retail, and your competitor effectively only has to pay the internal marginal costs. In brainstorming solutions to the problem, I came up with some of the ideas I wanted to write about in this post.
Some other things that have been making me think about this topic include: the SpaceX IPO, rumors that SpaceX is getting out of the F9 rideshare business2, indications that several other competitors are trying to follow Elon’s vertical integration approach between launch and launch-consuming businesses like satellite megaconstellations, rereading “The Rocket Company“, discussions with a friend starting an RLV startup3, etc.
Anyhow, I thought it would be worth talking about a few major approaches that I’ve seen or thought of for how to make money as an RLV developers. I’m sure this won’t be an exhaustive list, but hopefully this both helps get others creative juices going, and also shows people that while SpaceX has a great model, that there may be other ones worth consideration.
Ultimately, these various models revolve around how the RLV developer captures the value created by affordable reusable launch, including how far downstream of launch does the RLV developer participate, and how much control does the RLV developer retain over the launch asset.
Model I: Launch Services Provider
The most basic business model for an RLV developer is to serve as a launch service provider to others. This is probably the most traditional model, and almost all rocket companies, whether expendable or reusable, have had this as part or all of their business model, at some point in their existence. This can be slightly bundled by combining it with other transportation segments, such as what SpaceX and Northrop have done with providing both launch services, as well as commercial crew and/or cargo delivery. But basically, you’re primarily selling transportation services to third party customers in this business model. Sometimes one-off customers who fly irregularly, like smaller GEO commsat operators, sometimes frequent customers who buy in larger quantities, like NASA for commercial crew/cargo, or LEO megaconstellations.
I only have a few observations about this business model:
- A key drawback of just being a launch provider is that most of the value created in the space industry are captured by launch-consuming applications. Selling transportation services avoids some of the risk of picking the right application and executing well on it, but it also misses out on most of the upsides of success. This is a large part of why it was so hard to get investors to fund launch for so long, as it was unclear if a launch-only company could capture enough value to justify the high up-front investment.
- When you’re just providing launch services, and aren’t sharing in the upside of the application layer, you really don’t have much incentive to lower prices much beyond what is necessary to capture enough of the launch market4. Especially given the high cost of vehicle development that you need to recoup.
Ultimately, the point of the other three models discussed below is to explore different ways to capture more of the value from downstream application-layer businesses, while simultaneously exposing more of those application-layer businesses to the economic benefits of reusable launch.
Model II: Vertical Integration with the Application Layer
The second model is the one that SpaceX has been proving out, and which I caught the first inklings of in my previous blog post5, of vertically integrating a launch and a launch-consuming application-layer business. Basically, within a single company, you have both a low-cost reusable launch solution, as well as one or more application layer businesses like a LEO telecom mega constellation, or the current craze for orbital data centers. I can see a few different major subvariants of this model type:
Model IIa: Organically Grown Verticalization
This is the approach SpaceX took with Starlink. First, they got a successful partially-reusable launch system going with Falcon 9, and worked out enough of the kinks to get into regular operations. Then they raised a ton of additional money to go after an application layer business with Starlink, which was enabled by the low internal launch costs of partially-reusable F96. While initially risky, they executed well on this, and by the time of their IPO, Starlink was the main revenue-generating, and high-margin part of their business, completely dwarfing the revenue, profits, and value being created by the launch side of their business7. Blue Origin is also looking like they want to take this approach with their Terawave telecom constellation.
Model IIb: Acquisitive Verticalization
The second subvariant of this model is the approach that Rocket Lab seems to be taking. Instead of trying to grow the new constellation entirely from scratch, they’ve recently announced the acquisition of the Iridium constellation. Basically, they’re growing the launch layer internally, but using M&A to buy other constellations that are already operational, licensed, and revenue generating, to start capturing more of the value of the application layer of space. This is partially enabled by Rocket Lab’s past success with acquisitions/integration8, and also enabled by them being a publicly-traded company with access to the kind of capital that can provide.
Model IIc: Reverse Acquisition Verticalization
The final subvariant to this approach is one where an application-layer company purchases a launch company, to bring launch in-house, and start gaining the ability to buy launch at cost, and to not having to compete as much with other customers for launch opportunities. This is the approach that I heard AST Space Mobile has recently explored. At one point a few months back, I heard rumors that one of the other major AI players was kicking the tires on acquiring a launch company to enable going after space-based data centers. This probably works best if the launch company is still a diamond-in-the-rough, as otherwise it could be a pretty expensive acquisition.
Some observations on this business model and its three subvariants:
- Being able to get your launch at “wholesale” prices9 instead of “retail” prices10 makes a huge difference in the business viability and profitability of an application-layer business. If you’re competing in a market where there are one or more other vertically-integrated competitors, this may be table-stakes for survival. If you’re competing in a market space that doesn’t have vertically-integrated competitors, it’s your “unfair advantage”11 and moat.
- Vertically integrating with an application layer business is probably the highest risk, but highest payoff business model. You have to raise a lot more capital, you have a lot more technology development, but if you’re successful, application-layer businesses capture an order of magnitude or more value than just launch does.
- The much higher capital costs of this approach, likely an order of magnitude more than that required to develop just the RLV portion, is true whether you’re growing the business organically, or acquisitively. Though in the case of acquisitive growth, it’s likely easier and cheaper to get money to purchase an existing, profitable partner than it is to raise the money to grow something like that from scratch. And the revenue/profits from that existing line of business hit immediately rather than having to wait for them to grow. But on the flip-side, you’re probably also going to have to deal with more legacy issues and constraints that may make growth from there more involved than with a fresh start. You start at a better position, but you have to pay for it, and your growth rate may be slower for a while until you have fully integrated things, and taken advantage of the new capabilities that being vertically integrated provides.
- Part of the risk is due to dilution of focus. Not only do you have to become an expert in launch and launch operations, but also in satellite design and manufacturing, and in marketing the satellite-provided services to end-users. The most lucrative space-enabled markets are often the ones that push down closest to the end-user, but that also requires an organization that can handle working with millions or eventually billions of customers. Growing into that is more than twice as hard as growing into being a good launch company.
- It’s probably going to become increasingly harder to do this play in a specific application-layer business like LEO internet telecoms, once there are already one or two established vertically integrated competitors.
In summary, Model II captures a lot more of the downstream value, but also concentrates the risk to the RLV developer, because of the need for multiple consecutive successes.
Model III: Launch Vehicle Sales
In this model, the RLV developer sells launch vehicles to customers who then operate the RLVs, either for their own launch needs, or for third party launch customers. This is similar to aviation, where companies like Boeing, Airbus, Embraer, and Bombardier manufacture aircraft and then sell them to passenger airlines, cargo transportation companies, and governments and militaries. This is the approach recommended by the book The Rocket Company, which was a semi-fictional/semi-technical book written in 200412 about a group that was trying to develop the first fully-reusable launch vehicle business, with the goal of driving down the cost of space access to open up the space frontier.
In some ways, this is how launch was initially handled by NASA and the Air Force. Contractors would design and built the rockets, then NASA or the Air Force personnel would launch them. They’ve since moved away from that model to purchasing launch services. But I would argue that in a world with reusable launch vehicles, it might be worth revisiting the vehicle purchase/operation approach vs buying a launch service. For a single-use rocket, I can understand why buying the service rather than buying a single-use vehicle could make more sense. But ownership of a reusable launch asset, and its associated launch infrastructure gives you flexibility that just buying a launch service never will. If you’re only ever launch satellites, and don’t have a lot of urgency about when they launch, maybe that distinction doesn’t matter. But in an era of peer adversaries, in-space reuse and logistics, etc. I think people will quickly relearn that there’s a value to owning the capability, and not just hoping you can get a launch slot when you need it.
In some ways you can think of Model III as sort of a mirror image to Model II, where instead of the RLV developer vertically integrating with downstream applications, the application-layer customer vertically integrates upstream by owning its own reusable launch capability. The RLV developer still captures some of the application-layer value, but does so by selling the assets and support services rather than by operating the application-layer business(es) as well.
As with the previous version, there are at least two main subvariants I can think of:
Model IIIa: Vehicle Sales
One subvariant is the case where the manufacturer sells the launch vehicle, launch infrastructure, training, and maintenance parts to multiple operators who handle the launch operations. This could be a megaconstellation developer with a small fleet for launching their own prototypes and operational spacecraft, a launch service spaceline operator, or a military that wants to not just launch satellites, but perform other missions that could benefit from a reusable upper stage.
Model IIIb: Vehicle Wet Leases
The other major subvariant I can think of is one where instead of selling the vehicle outright, the manufacturer leases it to a customer, along with an operational and maintenance crew, which in aviation terms is called a wet lease13. This is sometimes used in the aviation community for when an airline wants to try out a new routes, or fill in gaps or deal with temporary surges in demand.
Some observations for this RLV business model:
- One of the major benefits of this approach is that the revenue from vehicle sales can hit a lot sooner than the spread-out revenue from launch operations. With a Model I approach, you develop your RLV, then slow start ramping up operations as you dial things in, then start making revenue back as you grow market share, etc., only really making your money back several years later. With a Model III approach, the vehicle manufacturer makes revenue from vehicle sales as soon as the sales hit, which can often be long before the operator has ramped up operations, or gotten into a regular cadence. And for an operator, they only have to pay for the vehicle once development is done and it’s ready to be handed over, rather than having to invest money for half a decade or more till the vehicle even shows up, and then keep investing for a year or two or three while launch cadence ramps up.
- Additionally, since this is a reusable, tangible asset, operators can likely purchase them using financing, rather than having to equity-finance things. This can have a much lower cost of money, and so long as it’s paired with adequate insurance, allows you to spread the cost of ownership out over the lifetime of the launch vehicle.
- If an RLV’s sales price can be kept around the cost of buying a jet aircraft, it’s quite plausible to be hitting $B/yr revenue streams within a year or two of when the first vehicle enters service. Trying to ramp up to that revenue rate via launch service sales could easily take 5+ years after the first successful flight.
- It’s worth mentioning that in addition to airlines and sea vessels, this approach of the builder selling the asset to an operator is also very common in commercial real-estate. The company that manages a high-rise tower, and works with the tenants is often not the company that built the tower. Building and operating and working with customers are very different skillsets, and like in the first bullet-point, being able to sell the asset to an operator means the builder gets a faster return on investment, and the operator doesn’t have to have their capital tied up for as long before they can start making revenue either.
- Like aviation though, I think a sale or wet lease approach to launch vehicles will only work if the manufacturer can sell into an international market. Which will mean working closely with export control agencies like the State and Commerce Departments in the US, to make sure that things are handled in a way that align well with export control licensing processes. If I were running a company taking one of these approaches, I’d have someone almost from day one, who has the thankless job of navigating that morass. Ultimately though, we regularly sell advanced military equipment to friendly countries around the world, so this should be a navigable morass, but one that should be taken seriously from day one.
- Part of the reason for suggesting the wet lease model is that it might be easier to get export approval for that initially, since the personnel directly working on the RLV operations and maintenance would still be citizens of the original country.
- In addition to business considerations, I think that a launch vehicle designed for vehicle sales/leases is going to have very different requirements and optimizations from one that is always intended to be operated by the vehicle developer (as in Models I and II). Since the longevity of the asset is critical for the economics to work, I think this will drive a much higher requirement for reliability and intact abort capabilities, ease of operations and maintenance, simplicity of ground support equipment, etc. Raw performance will probably be less important than those other aspects.
- One trend that has been explored a little in the expendable small launch market has been “sovereign launch” capabilities, where a launch provider sets up launch facilities in another country like the UK, or Australia, allowing them to buy there way into launch capabilities that they have more control over. My guess is that this will likely be even more palatable for countries if they were able to own a reusable vehicle, and control launch operations domestically, at their own pace. I could see several secondary space powers buying their way into this sort of capability, and rapidly having more launch capacity than many first-tier space powers had only a few years ago.
- Training, and the ability to work with multiple launch operators who are not directly controlled by your company will also be a critical skill.
- While an optimal RLV won’t necessarily look or operate anything like an aircraft, I think you’ll likely find that a lot of the skillsets needed to make this sort of a business model work can be found in the aviation and shipbuilding industries.
- Of all of the models discussed, this one is the one most likely to create low launch prices to third-party customers. Because anyone can buy a vehicle and offer the services, there will likely be fierce competition, which is more likely to drive down launch prices than a world where most reusable launch capacity is tied up in Model II launch businesses.
Model IV: Equity-Linked Launch Partnerships
The final major class of model I came up with is one where the RLV developer forms an agreement with another entity exchanging equity in the customer company in exchange for them gaining access to “wholesale” launch prices. Unlike in Model II, the launch-consuming customer isn’t fully owned by the launch developer/operator, but because the launch developer/operator has a non-trivial equity stake in the launch-consuming entity, it becomes in their interest to sell launch services closer to the marginal cost than they would for a purely third-party launch customer. I can see at least two main subvariants for this model, though there likely are more.
Model IVa: Spinout Launch Partnerships
The original idea came from hearing stories from Dave Masten about the Silicon Valley startup he had been working at prior to starting Masten Space Systems. This company, Andiamo Systems, was spun-out from Cisco to explore a new storage area networking business, in a more startup-like environment than could be done inside Cisco. Cisco infused initial capital, and provided some support services/incubation, and they had a deal with Andiamo that would give them the right to acquire and spin the company back in if Andiamo was successful, which they ultimately did, and which ultimately is where Dave got the money he needed to start MSS. I’m not coming from the Silicon Valley tech ecosystem, so I had to look up some details, but apparently Cisco used this approach several other times, though not without some controversy14.
My thinking for how to apply this to the RLV industry is that if you have a company like Stoke, or Radian, or Sagittarius developing RLVs, there are a lot of application-layer markets they could go after. But they can’t really afford the distraction or funding dilution of going after too many of those until they’re most of the way through RLV development. And even once they get there, it’s unclear which of those markets will really take off, and they only have so much bandwidth to chase them. They could try a Model II approach like mentioned earlier where they try to own the whole pie, or they could try spinning out one or more startups focused on those application markets. In exchange for a significant equity stake in the new startup, the new startup would have a deal for accessing the launches at some highly discounted rate, maybe only modestly marked-up from the RLV developer’s marginal launch costs. Because they can now get costs at a price point that is potentially competitive with or at least close to Model II companies like SpaceX, and dramatically cheaper than anyone doing an application-layer company that isn’t vertically integrated, they have a competitive advantage. It’s both cheaper to developer their launch-consuming application-layer business (by accessing cheap and frequent access to space), but when they go to scale, they also don’t need as much capital to scale, and their unit economics will be better. The RLV developer wins because multiple other companies are better able to attract capital sooner to start using their vehicle on a repeat basis, and they get to see which markets pan out. For those that are successful, they might have some sort of Cisco-esque spin-in agreement that would allow them to convert into a Model II company, but a lower risk, and with less distraction and dilution of the original company.
Model IVb: External Equity-Linked Launch Partnerships
The name is clunky, but the other variation on the theme I could think of is a situation where a non-spin-out company, whether a new startup founded by someone outside of the company, or an existing company trying to improve their unit economics, approaches an RLV developer and offers a non-trivial equity stake in their company in exchange for a similar wholesale/near-marginal cost launch pricing deal. This might or might not include a “spin-in” pre-agreement like in Model IVa. But basically the idea is that the RLV developer gains a share in the upside from a new launch-consuming market, and the launch-consuming customer in exchange gains access to more competitive launch pricing.
Some observations on this final model:
- This approach can allow for much more rapid development of launch-consuming application-layer businesses than the Model II approach, where it may be hard to raise money for the new market area until the RLV is far into development.
- There are a lot of markets that are marginal if you have to buy launches at full retail prices, but which can be a lot more lucrative if you could get pricing at near-marginal costs15. Having access to the lower cost launch enables both charging a lower price to your customers, thus hopefully triggering demand elasticity, while simultaneously having healthier margins on your service.
- Under Model II, most RLV developers can only afford to try one new launch consuming market at a time, if they’re successful, they capture more of the value, but there’s a higher risk of picking the wrong application-layer market. Whereas this Model IV enables trying out several potential application-layer markets simultaneously with different partners, and only doubling down on the successful ones.
- This approach is more complicated from a business standpoint than the other models, with lots of details to be thought through such as: What should the discounted launch price be? If it’s tied to internal cost, how do you not create perverse cost-plus like incentives? What is the right trade between equity stake and discount price? The RLV developer will have a healthier balance sheet as the value of their stake in the launch-consuming partner’s company grows, but they’ll have less revenue — how do they strike that balance? How do they make sure they’re still profitable, while still offering an enabling launch price to their partner, especially in a situation where a non-trivial part of their launch demand is coming from equity partners through models like this? If launches for this customer are less revenue lucrative for the RLV developer than third-party launches, how do you juggle demand between them and other customers? How do you guarantee enough launch availability to be useful?
- One big challenge if the RLV developer is selling to the government, is that they have rules that require them to be given the best price you offer to others for a similar product or service. I have some ideas for how this could be handled, but this will have to be careful navigated.
This one is definitely the least thought-through of the four models, so I’d be interested in feedback on the approach and how to refine it.
Hybrid Models
One last thing to mention is that RLV developers can use different models and different combinations of models at different stages in their lifecycle. For instance, most companies may choose to start with Model I to get started, but can transition into Models II and/or IV as they mature. A Model II company could decide that for markets outside of a core focus area, that they’d rather support Model IV ventures rather than going all-in on those other application-layer markets, or ignoring them completely. A company selling vehicles, could also wet lease some of them, and use the wet lease approach to enable Model IV partnerships.
Conclusions
My goal in writing this was to try to show that in a world of fully-reusable launch vehicles, there are more potential business models than are commonly discussed, and that the key business model questions are how an RLV developer chooses to capture value, and how much of the benefit of affordable launch do they make available to others.
While I love what SpaceX has done, I want to see a thriving marketplace, and worry that a world where all of the good launch is tied up in Model II silos, will be less exciting and dynamic than one where broader groups can access the cost savings due to reusability. Maybe enough RLV companies will be successful to drive down third-party launch costs to the point where the complexity of alternative business models won’t be worth it, but I think that future is more likely if people think more creatively about RLV business models. I particularly hope that we can see some people try alternative business models like Model III or Model IV, both of which I think are more likely to lead to healthier, more dynamic and competitive space ecosystem, than one dominated by a few siloed Model II juggernauts.
- Commercial crew launch, where currently SpaceX has no competent competition, and NASA seems to be trying really hard to encourage me to finish writing my Starliner Reponendum Est blog series. ↩︎
- Handing it over to rideshare aggregators like SEOPS, Exolaunch, and others willing to buy a full launch and handle the rideshare cat-herding. ↩︎
- After leaving Astrobotic last year, Dave Masten and a few other Masten alumni started Sagittarius Space Logistics. Definitely one I’m going to keep an eye on. ↩︎
- Notice for instance that while SpaceX started out with significantly lower prices for Falcon 9 than ULA started at with its EELVs, once ULA lowered its prices a little with Vulcan, SpaceX’s prices have basically stayed steady, with yearly increases for inflation. While the $/kg has improved a little over time as F9’s performance increased, it’s now almost $75M to buy a Falcon 9. Most of the dramatic cost savings from reuse aren’t passed on to third party launch consumers, because SpaceX doesn’t yet have competent competition for third-party launches. ULA unfortunately doesn’t really count. Hopefully this changes as Rocket Lab, Stoke, Firefly, and Relativity all have shots-on-goal in the near future. ↩︎
- Starting around the fourth paragraph in. I definitely miscalled some of the details in earlier paragraphs in that post, in part due to bad luck/decisions on OneWeb’s part causing them to declare bankruptcy during the pandemic when the initial market freekout happened to coincide with their latest fundraise. Honestly, if they had either closed that round two months earlier, or if they had needed to close it two months later, they likely could’ve avoided the bankruptcy, and likely could’ve finished launching their constellation before Russia invaded Ukraine in 2022 (which created more delays while they had to pivot their launch solution). ↩︎
- Also enabled by Elon’s almost inhuman ability to get investors to put insane amounts of money into his companies at eye-watering valuations that almost nobody else could’ve pulled-off at a similar stage in their business’s operations. His fundraising abilities is probably one of his strongest superpowers as an entrepreneur. ↩︎
- I don’t have the exact numbers at hand, but one analyst said something to the effect that if SpaceX had only been a launch company, launching as often as they currently are, at the revenue they’re capturing from that, and the profitability they’re seeing, they’d likely only be worth $10-20B right now. With Starlink, they could easily justify a $500B+ valuation. Most of the $2T IPO valuation was a bet on the future of AI, and Elon’s ability to capture a huge share of that value. I’ll be honest and say I’m not convinced about the AI part of his business, and think the valuation is premature. Maybe they’ll grow into it, but man this feels like a bubble (to this guy who has accurately predicted nine out of the past three market downturns). ↩︎
- Honestly, of all of the companies doing significant space M&A recently, they’re one of the only ones who have shown real competence at this. They’re one of the only groups that has retained a significant fraction of the entrepreneurial talent from the companies they’ve bought, they’ve shown a great ability to find good complementary businesses that open them up to new markets where the whole is greater than the sum of the parts. ↩︎
- At or near the marginal internal cost of the launch. ↩︎
- Having to pay the going rate for third-party launch customers. ↩︎
- Gemini’s definition of the term sums it up reasonably well: “An unfair advantage in entrepreneurship is a special trait, asset, or background that a company or founder has which cannot be easily copied, bought, or surpassed by competitors. It creates a powerful barrier to entry, ensuring that competing against you is remarkably difficult.” ↩︎
- I.e. written long before SpaceX had successfully flown a rocket, let alone become anything like the juggernaut it is today. ↩︎
- I think it was my friends at XCOR who got me first thinking about this business model for RLV operations. They had been exploring this approach for Lynx suborbital flights in friendly foreign countries, as an alternative to just selling flight services, and an easier to license alternative to selling vehicles. ↩︎
- Apparently, many of the employees who stayed behind at Cisco were resentful of having colleagues leave to a startup that was heavily backstopped/derisked by Cicsco, and then get the chance to reap the rewards and become multi-millionaires a few years later. Definitely sounds like something that is promising, but needs some refinement to not piss off those who stay behind. ↩︎
- Some examples I can think of include: crew/cargo delivery to commercial LEO destinations, space tourism in general, OTVs, internet telecom and D2D megaconstellations, orbital data centers, and there are probably several others. ↩︎












