1. Review of Recent Industry-Level Studies Presentation by Ken Davidian to the First Emerging Space Industry Leaders Workshop (ESIL-1) October 26, 2011

2. 10 Recent Industry Level Studies 1. Space economics original approach: Economic Theory to the Benefit of Space, B de Hauteclocque, 2009. 2. ISU SSP Space Tourism Industry Structural Analysis Workshop, 2010. 3. Suborbital Market Overview And Application Of Disruption Theory, K Davidian, 2010. 4. Industry Structural Analysis Of Commercial Crew To Orbit Sector, B Cheetham, 2010. 5. Market Characterization: Launch of Very-Small and Nano-Sized Payloads Enabled By New Launch Vehicles, I Christiansen, D Vaccaro, D Kaiser, 2010. 6. An Industry Structural Analysis and Strategy Insights for the Commercial Crew Transportation Industry, D Kaiser, I Christiansen, J Foust, K Davidian, 2011. 7. Applying Disruption Innovation Theory in Emerging Markets for Crew On-Orbit Transportation, I Christiansen, K Davidian, D Kaiser, J Foust, 2011. 8. Are Commercial Space Transportation Industries Emerging?, K Davidian, J Foust, D Kaiser, I Christiansen, 2011. 9. Disruptive Innovation Theory Applied to Commercial Cargo and Crew Space Transportation Markets, K Davidian, J Foust, D Kaiser, I Christiansen, 2011. 10. Strategic Evaluation Of Commercial Crew To Orbit Transportation Industry Structure And Status, B Cheetham, 2011.

3. 10 Recent Analyses Arranged by Commercial Space Market Segment Market Segment Disruptive Innovation Theory by Clayton Christensen Industry Structural Analysis by Michael Porter Suborbital Transport 3. Suborbital Market Overview And Application Of Disruption Theory by K. Davidian, 2010. 2. ISU SSP Space Tourism Industry Structural Analysis Workshop, 2010. Earth to Orbit Transport Cargo/Crew 9. Disruptive Innovation Theory Applied to Commercial Cargo and Crew Space Transportation Markets by K. Davidian, J. Foust, D. Kaiser, I. Christiansen, 2011. 6. An Industry Structural Analysis and Strategy Insights for the Commercial Crew Transportation Industry by D. Kaiser, I. Christiansen, J. Foust, K. Davidian, 2011. Crew On- Orbit Transport 7. Applying Disruption Innovation Theory in Emerging Markets for Crew On-Orbit Transportation by I. Christiansen, K. Davidian, D. Kaiser, J. Foust, 2011. 4. Strategic Evaluation Of Commercial Crew To Orbit Transportation Industry Structure And Status by B. Cheetham, 2011. 10. Industry Structural Analysis Of Commercial Crew To Orbit Sector by B. Cheetham, 2010. Nano-Sats5. Market Characterization: Launch of Very-Small and Nano-Sized Payloads Enabled By New Launch Vehicles by I. Christiansen, D. Vaccaro, D. Kaiser, 2010. Other Studies 8. Are Commercial Space Transportation Industries Emerging? by K. Davidian, J. Foust, D. Kaiser, I. Christiansen, 2011. 1. Space economics original approach: Economic Theory to the Benefit of Space by B. de Hauteclocque, 2009.

4. 3. Suborbital Market Overview And Application Of Disruption Theory  Engineers like solving technical problems, so sustaining innovations are common.  Fiercest competitive environment.  High tolerance of marketing risk argues for a new-market disruptive innovation.  Multiple failures prior to success likely.  Q: What’s the best entry to accelerate and ensure long-term industry viability?  A: Low-cost disruptive innovation.  Lowest overall risk, but doesn’t meet the needs of innovator/early-adopter customers.

5. 9. Disruptive Innovation Theory Applied to Commercial Cargo and Crew Space Transportation Markets  The most influential customers (gov’t defense, intelligence and space agencies) exert pressures on firms to deliver a higher performing product.  The result is a product that is not affordable to any other type of customer.  True of False? No matter how many rockets the government buys, the industry will never be interesting to non-government customers.

6. 7. Applying Disruption Innovation Theory in Emerging Markets for Crew On-Orbit Transportation Gov't and Corporate Research to ISS is an Established Market with Sustaining Innovations. Orbital Space Tourism Market is Over-Served. Ripe for Low-Cost Disruptive Innovation. Gov't and Corporate Research Non-ISS Segment Could Be a New- Market Disruptive Innovation. Spacecraft Servicing could Evolve from a New-Market Disruptive Innovation.

7. Threat of New Entrant - High  1a. Supply-side economy of scale - Med  1b. Demand-side economy of scale - Low  1c. Customer switching costs - Low  1d. Capital requirements - High  1e. Incumbency advantages independent of size - Med  1f. Unequal access to distribution channels - Low  1g. Restrictive government policy - Med Power of Buyers - Med  3.a Buyer concentration - Med  3.b Standardized products - Med  3.c Switching costs - Low  3.d Buyers backward integrate - High  3.e Buyer price sensitivity - Low Power of Suppliers - Med  2a. Suppliers concentrated - Med  2b. Suppliers diversified - Med  2c. High supplier switching costs - High  2d. Supplier differentiation - Med  2e. No substitute - Low  2f. Supplier can forward integrate - High Pressure from Substitute Products – High (Huh???)  5.a Numerous competitors - Med  5.b Exit barriers - High  5.c Goals other than profitability - High  5.d Similar products - High  5.e Low marginal costs - Med Rivalry Among Competitors - High 6. An Industry Structural Analysis and Strategy Insights for the Commercial Crew Transportation Industry

8. Threat of Entry - Low  Numerous high barriers of entry result from the high technological challenges.  Government subsidies, tax incentives, research and technology development can help overcome the barriers.  Due to high exit barriers, strategic stakes, and limited market size.  Gov’t involvement is a significant factor of industry structure and behavior. Rivalry Among Competitors - High 4. Industry Structural Analysis Of Commercial Crew To Orbit Sector Power of Buyers & Suppliers - High  Due to the small size of the industry and its reliance on critical suppliers and long-term buyer commitments it is very vulnerable to cost pressures.  Bargaining power must be carefully applied: new market demand for suppliers, critical capability to buyers.  Excessive pressure from either could severely damage the industry.  The industry will be very reliant on buyers and suppliers for long-term success.  Buyers will exert significant pressures on the early industry. Pressure from Substitute Products – High  Caused by political priorities and high exit barriers for gov’t-operated vehicles.

9. 10. Strategic Evaluation Of Commercial Crew To Orbit Transportation Industry Structure And Status Threat of Entry - Low  1a. Economies of scale - High  1b. Product differentiation - Low  1c. Capital requirements - High  1d. Switching costs - Low-High  1e. Access to distribution channels - Med  1f. Cost disadvantages independent of scale - Med  1g. Government policy - Low  1h. Expectation of Retaliation - Low Bargaining Power of Buyers - Med-High  3a. Volume Relative to Industry Sales - Med  3b. Standardization of Products - Med-High  3c. Credible Threat of Backward Integration - High Bargaining Power of Suppliers - Med  4a. Concentration Relative to Industry - Low  4b. Industry is Emerging Customer - Low  4c. Product is Important to Industry - Med-High  4d. Threat of Forward Integration - Low Pressure from Substitute Products – Low  2a. Size and Relative Strength of Competitors - Low-Med  2b. Rate of Industry Growth - Med-High  2c. High Fixed Costs - Med  2d. Diverse Competitors - Med-High  2e. High Strategic Stakes - Med-High  2f. High Exit Barriers - High Rivalry Among Competitors - Med

10. 8. Are Commercial Space Transportation Industries Emerging?  Suborbital and orbital commercial space transportation markets are emerging.  Both bear a “medium” resemblance relative to traditional emerging markets.  The moral of the story: The future is not as close as some would like it to appear.

11. Conclusions by Market Segment Market Segment Disruptive Innovation Theory by Clayton Christensen Industry Structural Analysis by Michael Porter Suborbital Transport The best entry to accelerate and ensure long-term industry viability is a low-cost disruptive innovation due to lowest overall risk, but doesn’t meet the needs of innovator or early-adopter customers. No adequate results to date. Earth to Orbit Transport Cargo/Crew The most influential customers (gov’t defense, intelligence and space agencies) exert pressures on firms to deliver a higher performing product that is not affordable to other types of customers. So, no matter how many rockets the government buys, the resulting product may never be desirable to non-government customers. High “Threat of New Entrants” High “Rivalry Among Competitors“ Med “Bargaining Power of Suppliers” Med “Bargaining Power of Buyers” High “Pressure from Substitute Products” Crew On- Orbit Spacecraft Gov't and Corporate ISS Research is Established Market Benefiting from Sustaining Innovations. Orbital Tourism Could Be a Low-Cost Disruptive Innovation Market. Gov't and Corporate non-ISS Research Could Be a New- Market Innovation Market. Low/Low “Threat of New Entrants” High/Med “Rivalry Among Competitors” High/Med “Bargaining Power of Suppliers” High/Med“Bargaining Power of Buyers” High/Low “Pressure From Substitute Products” Nano-SatsComing Soon... Other Studies Suborbital and orbital commercial space transportation markets are emerging, and both bear a “medium” resemblance relative to traditional emerging markets. The future is not as close as some would like it to appear.

12. 5. Market Characterization: Launch of Very-Small and Nano-Sized Payloads Enabled By New Launch Vehicles