Page 29 - International Space Station Benefits for Humanity, 3rd edition.

The Emerging Commercial Marketplace in Low-Earth Orbit

The global space marketplace has evolved and grown over the past decade. From a valuation
of $176 billion in 2006, the global space marketplace has expanded to an estimate exceeding
$345 billion in 2018. Perhaps the clearest illustration of the expanding interests of the private sector
in space endeavors is the growth in venture capital investments over the past 2 decades. Consider that
from 2000 through 2014, space start-ups received a total of $1.1 billion in venture capital investments,
or roughly $73 million per year. In 2015 alone, more than $1.8 billion in venture capital investments
were made. In 2016, more than 100 investors contributed $2.8 billion into 43 space-related start-up
companies in 49 deals, with an average deal size of $57.1 million. In 2017, more than 120 investors
contributed $3.9 billion into commercial space companies—an investment increase of nearly
40% within one year.
The ISS, and changes in contracting mechanisms associated with the ISS, have played a significant
role in nurturing the emerging space economy. Since 2006, procurement policies for the ISS have
shifted away from the traditional cost-plus approach to one that employs a pay-for-performance
framework whenever possible. The resulting dynamic has helped generate an influx of venture
capital and an increasing number of start-up private space endeavors.
One of the changes credited with improving cost-efficiency, while also promoting the growth of new,
privately owned space companies and stimulating greater competition in the space launch market,
is a transition in procurement philosophy from “cost-plus” contracts to “fixed-cost” contracts.
Cost-plus refers to an arrangement where a contractor is paid for the expenses incurred, along with
an additional payment to provide profit. Cost-plus procurements are appropriate when the level of effort
required is unknown. For example, NASA has traditionally used cost-plus-based contract structures to
design and develop new space capabilities, including the space shuttle, the Space Launch System, and
recently the Orion multipurpose crew vehicle. However, cost-plus becomes impractical once preliminary
exploration, studies and risk reduction have indicated a high degree of probability that the development
is achievable, or when reasonably firm performance objectives and schedules can be established.
In contrast to cost-plus structures where most of the cost, schedule and outcome risks are borne
by the government, fixed-cost procurement contracts shift many of the risks toward the contractor.
With fixed-cost procurements, the contractor receives a pre-negotiated (i.e., fixed) value regardless
of incurred expenses. Shifting cost responsibility to the contractor provides a positive profit incentive
for cost and performance control, motivates the contractor to meet milestones, and allows for fair
and reasonable price negotiation at the outset.
Increased use of fixed-cost contracts represents significant progress toward a market-based space
economy. Employing a procurement philosophy that encourages more public-private partnership
is another way in which the ISS partner countries are using the ISS as a catalyst for expansion of
commercial interests in space—both encouraging and shaping the way the LEO economy is perceived
and accessed by commercial interests.

As part of the economic valuation effort used to generate the valuation summaries provided in this
section, three broad areas of International Space Station (ISS) impact on the emerging space economy
were investigated: space access, commercial research facilities, and the proliferation of small satellites.
Positive impacts to the space launch market, reduction in cost of conducting research and proliferation
of commercial facilities and capabilities available on the ISS are discussed below.

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