Transterrestrial Musings

Comments

His comment about the safety of SS1 verges on libelous, and his speculation that it wasn't flown again for safety reasons is just that.

A quote from the comments section of this blog:

Rutan himself has said that, while he wanted to fly the SS1 a few more times, it was better off going to the Smithsonian in one piece rather than as a pile of pieces

I don't know if Rutan actually said this, but if he did, it's more than speculation.

But even if Bell were right, so what? The customers will know the risks.

Posted by at March 7, 2007 10:35 AM

that a lot of research aircraft were lost in flight test is
to be expected, that's why it's flight test.

That a lot of research aircraft were lost to simple failures
of primary systems, does speak to the immaturity of the engineering practices.

Exceeding the envelope and finding yourself in a
flight departure is flight test.
Starting the engines and having a hard start shred
the hull indicates it's a hazardous activity.

Posted by anonymous at March 7, 2007 10:40 AM

My issue isn't so much that it looks hazardous, but that I can't see a business case for it. If the product were a week in orbit for 200K, I'd buy. But for three minutes in zero g I don't see the attraction. And I'm into this kind of stuff; I'm the target market. If I'm a hard sell I can't see how you're going to sell enough people to make the numbers work.

What am I missing?

Posted by Jane Bernstein at March 7, 2007 10:54 AM

What am I missing?

You're missing the fact that you can't extrapolate a market from yourself. That's why people do market research. You might also consider the possibility that you are not the target market (almost by definition, since it doesn't seem to appeal to you, but there are many people who have put down deposits).

Would you do it for ten thousand? For five? The first to do it will be people who have more money than they know what to do with (and there are millions of them). As the flight rate goes up, the price comes down, and more people can afford it.

Of course, you're also mischaracterizing the experience. It's not just three minutes of weightlessness. It's the high gees going up and coming in, it's the out-of-this-world view, it's the bragging rights with your friends.

Posted by Rand Simberg at March 7, 2007 11:00 AM

Jeffrey Bell does not understand the learning curve.

Then again, why would anyone expect a former space *scientist* to understand the learning curve, or anything else about space *engineering*.

If a web site called "Ocean Daily" wanted informed commentary on submarine design, would they go out and hire an oceanographer?

Studying seawater does not make a scientist an authority on the design of vehicles that move through the ocean. Studying space or planetary surfaces does not make him an expert on the design of vehicles that move through space or between planets.

Posted by Edward Wright at March 7, 2007 11:04 AM

I like this bit:

Are these safety statistics relevant to the 21st-century commercial operators? Probably not.

So that means he could have just dropped the first third of his article.

Posted by Karl Hallowell at March 7, 2007 11:07 AM

So that means he could have just dropped the first third of his article.

Well, yes, but he's trying to be clever, and claim (foolishly) that the new vehicles will be even less safe than the X-planes.

Posted by Rand Simberg at March 7, 2007 11:20 AM

Ah... yes... the famous Randian "you're not the market" quote. I was waiting for that one.

The problem still remains Rand that it is very easy to get market research wrong, or, manipulate the data to get the result you need to such an extent that market sizing becomes problematic.

There certainly IS a market for sub-orbital hops, that's not a question. The question is if the market and the operational needs of the vehicles will get the prices down to the point where it becomes large enough to fund anything else.

I'm a skeptic on that point, in fact, I don't think it is. The numbers in Futron et al certainly don't make a particularly convincing case.

Of course, fan b/millionaires are free to spend their money as they like. Good thing to, the space tourism industry needs them.

Posted by Daveon at March 7, 2007 11:35 AM

Daveon, to some extent market research is completely irrelevant when you already have cash deposits on future tickets in hand, as several companies, such as Virgin galactic, do today. A lot of people have been speaking with their wallets, not just their tongues, and they have been saying very clearly that they would like a ride on a rocket. We are past the era when it was possible to cast dispersions on the sub-orbital tourist market as hypothetical and unproven.

Posted by Robin Goodfellow at March 7, 2007 11:45 AM

What am I missing?
You are missing a lot of news, and the big picture.
Go read the latest Armadillo update for instance, where they say, that flying Pixel on its Lunar Lander Challenge test flight costs about $1500, and it basically has the performance to go 100km up suborbital, and they specifically state that going suborbital wouldnt cost significantly more.
Thats cost, of course, not price, and that doesnt include passenger insurance and whatnot, additional costs that come with actually operating the vehicle. But even at tenfold increase, say, $20K, its still a bargain.

Posted by kert at March 7, 2007 11:54 AM

Re: Jeffrey Bell..
Posting a table of X-plane data, which by definition are eXperimental, relates to operational rockets how ?
Take any type of experimental vs. operational vehicle, be it air, land or sea, and the only conclusion that you can draw from there is that experimental vehicles fail. A lot. Depending on the environment they run in, the failures are either mostly of nonfatal, or fatal types. Planes fall in the latter category. End of story,where is the news ?

Posted by kert at March 7, 2007 12:03 PM

Well, let's see... just looking at his X-15
statistics, he gives a "date of loss" for several
"different airplanes" - the only actual "loss of
vehicle" was the X-15-3, which did break up and
crash (when the "adaptive control" system went
haywire and threw the plane into a +- 13G pitch
wiggle, just after it had recovered from
re-entering in a flat spin).

He lists the X-15-1 as "grounded 12-68": this was
an "end-of-program" retirement.

The "loss" of the X-15-2 was actually an
emergency landing after an engine problem
at startup - a combination of the unusually
hard landing and a manufacturing defect caused
the fuselage to break in two at a bolted joint;
the airplane was repaired, made a number of
flights, and was eventually modified to become
the X-15A-2.

Describing the last flight of the X-15A-2 as a
"meltdown" is rather melodramatic - the flight was
completed safely, though post-flight inspection
revealed heat damage to the structure (mostly due
to unexpected shock wave impingement effects from
an experimental scramjet mockup on the bottom of
the vertical tail) - the vehicle was repaired and
returned to Edwards in mid-1968 but not flown
again, as the program terminated later that
year. (Again, an "end-of-program retirement"...)

The X-15-3 "engine explosion" (actually a plumbing
system explosion during a ground run attempt with
the new "big engine") damaged the tail of the
plane, but it was rebuilt, made multiple flights,
and was later (as noted above) lost in flight.

So he's showing 4 "losses" for 3 airframes, 2 of
which were still intact when the research program
ended...

-dw

Posted by dave w at March 7, 2007 12:06 PM

Jane,

As Rand points out, you can't extrapolate the market from yourself. I'm just like you in not understanding the long term viability. However, I do recognize that the first ocean going cruise liners could only be afforded by the very rich. The first trans-continental airlines could only be afforded by the very rich. I admit they were still point-to-point, but the very rich will provide the initial capital to build a capability that would allow travel as you and me would expect for $200K.

I do know people willing to pay $200K for a short trip. I know people willing to pay several $K for an item that has been to space. I suspect you have met folks like that too. Odd to me, but they exist.

Posted by Leland at March 7, 2007 01:37 PM

All I know is, I've often said how cool it was, during the time of Concorde operations, that anybody with the bucks could pay to do, and do longer (fly at Mach 2+) what the 'Right Stuff' test pilots of the 50's and early 60's could only do with great difficulty, and a few minutes at a time.

Why should not suborbatal (and eventually orbital) flight eventually go the same way? What were those X-projects for, if not to tell us how better to operate in those speed and altitude regimes?

Granted, Concorde was an air-breather, but I don't believe that seriously changes my point. Some X-planes were jets, too.

Now, Concorde failed economically, but that's another issue. And its only fatalities involved runway debris damage that potentially could've downed almost any aircraft.

Posted by Frank Glover at March 7, 2007 03:10 PM

He could study early jet aircraft... They had engine explosions and every failure imaginable.

Posted by mz at March 7, 2007 05:57 PM

The very first aircraft passenger flight - on a Wright Flyer - ended with the death of the passenger. So for a while, passenger aircraft had a 1-in-1 fatal crash rate.

I'd be interested in seeing Mr. Bell extrapolate that to the modern airline industry.

Posted by Roger Strong at March 7, 2007 06:31 PM

I should have been clearer. I wasn't extrapolating the market from myself. I was reasoning that a person with non-real-estate net worth sufficient to afford the fare would only part with a fifth of it or so to make the trip. Given the distribution of income levels necessary to afford the trip under this criterion, the business case doesn't add up.

In fact, the markets vindicate the argument I'm making. As far as I can tell, no financial money is going to the emergent space tourism industry. It's all visionaries. While totally new market segments are often pioneered by such people, it more often turns out that such folks lose their investments.

Posted by Jane Bernstein at March 7, 2007 07:50 PM

That's nice, Jane.

Have you changed professions from plastic surgeon to aerospace market researcher?

Show us the numbers.

Posted by Rand Simberg at March 7, 2007 08:01 PM

Show me the financing.

If there is a credible market, some banker or investment capital guy/gal is going to pony up the money needed for competitors to Virgin Galactic. If no one will, there probably is not a viable market no matter what Futron says.

Is that happening? Does Rocketplane have all the money they need to MonsterGarage that Lear Jet?

Frankly, Rocketplane's souped up Lear Jet strikes me as the coolest program of all the suborbital programs.

Posted by Bill White at March 7, 2007 08:38 PM

Show us the numbers.

Okay. I did my own research because I was contemplating an investment in alt.space. My father is an accountant and pretty hard nosed about such things, and I defer in all financial matters to his example if not necessarily his particular advice. I believe I may have posted this argument here sometime ago, but I haven't revised my judgment significantly since forming this argument last year.

At the moment only a handful of people have paid to fly in space with Space Adventures as the travel agent. Perhaps the market for such people is a bit larger than that, but I will assume that it's no more than ten people.

The reported ticket price is 20M. I'm going to assume that someone in the target market for this service would part with no more than 20% of his or her financial net worth on average in order to fly. Some people might go a little higher, but the wealthy don't get or stay that way by spending all their money on vacations. This is consistent, by the way, with Tito's and Shuttleworth's net worth - about 200M each. Tito, in particular, from what I've read, advises pension funds for a living, and must necessarily be a very financially prudent person.

Fortune tells me that there are around 5,000 people who have net worths over 100M. And with an assumed market of ten people at that level of wealth who will actually sign up to fly, that's a prevalence of 0.2 percent.

If you assume further that the price can somehow be reduced, by clever engineering, better management, or new technology, to 200,000 per ticket, you might get more takers. This would put the number of potential riders at 0.2 percent of a much larger base. Using the same net worth proportion as earlier, there are about 500,000 Americans with net worths above 1M. There are by this reasoning approximately 1,000 people actually willing to spend 200,000 dollars on a trip to space.

The market being addressed is thus about 200M worth of revenue. I'm unable to see how the investment necessary to reduce the cost of a flight to space a hundredfold can be done for such a small figure. Even if I'm off by a factor of two or three, I'm skeptical that there's profit necessary to cause that level of investment.

I see in researching this that there are market surveys indicating somewhat higher numbers. I'm skeptical. It's easy to tell a pollster, "Sure, sounds like fun" but harder to write the check.

Still, that's for a ride like the one Space Adventures arranged on a well-tested and flight-proven system - a Russian Soyuz rocket. A ride on a new machine might be palpably riskier, at least at first.

Next, I note that the 200K per flight figure is common in the space tourism community.. but they're not talking about orbiting the earth, just very brief up-and-down flights offering possibly four minutes of approximate weightlessness. This is a significantly (order of magintude?) less desirable experience, and I think the demand for it would be correspondingly less. Assuming it's a tenth as desirable, the market being addressed is probably around 20M, which doesn't cover the costs even for the Spaceship One effort, never mind the other rivals in the marketplace.

Feel free to assume different numbers if you like for any of these proportions. I might be mistaken by twenty percent or so, but I don't think it's obvious that I'm pessimistic.

If space tourism happens, I think it will be because some very wealthy person with a personal passion for the subject invests in it for his own, non-financial, reasons. But it's not a business at the moment, it's a belief. And the proof of it, honestly, is that the financial markets agree with me. No "smart money" - i.e. pension funds, corporate accounts, venture capital, or even hedge funds, have invested in space tourism. It's all personal investments by wealthy individuals. It might pay off.. sometimes visionaries make great fortunes by uncommon insight.

But usually not.

Posted by Jane Bernstein at March 7, 2007 08:44 PM

Jane, there's one obvious flaw in your reasoning, which is that you've forgotten about birth and death. You have assumed that the only source of revenue for a suborbital industry is (for example) the 500,000 Americans with a net work of 1 M$ right now.

But old millionaires die and new millionaires are born (or rather rise from the ranks of submillionaires) each year. With an 80 year life span, a crude estimate is 1/80 = 1.25% turnover every year, or about 5000 new millionaires per year. If the cost of developing a suborbital industry is to be amortized over 20 years, then your available source of customers is not only your initial 500,000 millionaires, but also the 20 x 5000 = 100,000 new millionaires that will arrive during that time. Furthermore, if this is still not enough capital, all you need to do is amortize it over a still longer period. A century would give you a million millionaires, and so forth. (And if, as seems reasonable, you include the entire world instead of just the United States in your calculation, you get probably another factor of 2 in your potential customer base. An Indian software millionaire is perfectly capable of flying on an American service.)

Hence I suggest the deeper flaw is in assuming that the fundamental obstacle, if any, is the ability of initial ticket sales to cover the development cost. Really, this just determines how slowly the process goes, because it determines how much you have to spread out the costs. I think the more important question is whether the revenue plausibly available in the future will cover the marginal cost of the service. If the answer to this is yes, then I suspect the capital will find its way to the project.

Incidentally, I also think the fact that pension funds and other such conservative "smart" money beasts aren't investing in suborbital flight means dick. They didn't invest in Internet technologies in 1990, either. They buy Microsoft stock now, but they didn't buy it in 1982, when you could have made a fantastic profit. That's the nature of "smart" money -- it only invests in near-sure things, which of course have low rates of return because everyone else invests in them, too, which reduces the interest rate the investment needs to pay to attract sufficient capital.

That's why the rate of return on your mutual fund is nowhere near what a visionary achieves on his way to becoming rich. You can only become rich by finding nonobviously profitable schemes.

Whether Branson et al. have done just that is, of course, still unclear. But we do know one thing: no enterprise that later proved fantastically profitable has ever been started, or ever will be started, with "smart," conservatively-invested money. Following the "smart" money is therefore only smart if you value high security over high return.

Posted by Carl Pham at March 8, 2007 12:40 AM

I believe Jane has expressed her position very poignantly.

If we insist on trying to compare private space flight to early days of other nascent travel technologies then I don't think it would be appropriate to compare this to a transatlantic flight or cruise ship. This is more akin to trolling about a harbor in a yacht or charging a $1 for a 15 minute flight over a barn. If private space flight only has short duration flights up its sleeve or zero G trinkets for sale then I fear it may have to much competition to contend with the likes of Mig-25 flights, deep see diving, or summit attempts to Mt. Everest.

Posted by at March 8, 2007 12:50 AM

Next, I note that the 200K per flight figure is common in the space tourism community..
Here is another fatal flaw. You cant take one number from one company's press release and call it common. See my post above about Armadillo, or talk to guys at Masten Space.
The market equations are funny things, because a lot of things are completely n0nlinear ..which makes the feasibility predictions a rollercoaster. Enjoy the ride.

Posted by kert at March 8, 2007 12:54 AM

In short, what i am trying to say, is that if some people dont see the business case, doesnt mean that nobody will or it does not exist. Rumours have it, that this has happened before, throughout the history ;)
Besides, seeing a lot of talented and smart people putting their efforts behind this, is a clear clue that they might see or think something that you are missing. Both can be wrong, but it might be just worth trying to get all the data ..

Posted by kert at March 8, 2007 12:59 AM

Jane writes: "Next, I note that the 200K per flight figure is common in the space tourism community.. but they're not talking about orbiting the earth, just very brief up-and-down flights offering possibly four minutes of approximate weightlessness. This is a significantly (order of magintude?) less desirable experience, and I think the demand for it would be correspondingly less. Assuming it's a tenth as desirable ...."

Well, quality is what the customer says it is. Surveys I've seen seem to show that weightlessness is outweighed by scenic value in prospective customer perceptions. And that's not the end of it: In reading Mark Shuttleworth's account of his trip, by far the most thrilling part of the story was re-entry. Consider also that there are opportunity costs (both professional and recreational) in becoming a Space Adventures customer. Of those who have gone up so far, most remarked that the long training period was a feature of the experience. However, not everybody who wants to go into space wants to go through astronaut training.

Thus, when you add up costs (including opportunity costs, which could itself include leisure time spent more pleasurably), a short suborbital flight might have more cost-benefit going for it than present orbital experiences.

As for the $100M+ plus demographic, yes, let's not forget that there's a new member born every now and then, if not every minute. Also, isn't the Forbes list limited to the U.S.? The world economy is going to continue generating multi-millionaires, and billionaires, as economies elsewhere develop. I agree that a $200M market hardly gets you started. But $2B probably does.

Or maybe I'm just rationalizing furiously here ;-)

Posted by Michael Turner at March 8, 2007 02:26 AM

"Well, yes, but he's trying to be clever, and claim (foolishly) that the new vehicles will be even less safe than the X-planes."

Actually, as I read it, he's pointing out that they'll probably have to be much safer. His comments about litigiousness shouldn't be blithly ignored. Just because the person who dies accepted the risks doesn't mean that his heirs won't go after the industry in the wake of a loss. The children and spouses of the rich tend to be rich themselves, and there is never a shortage of good lawyers for the rich.

People believe in what they've seen. They've seen SS1. They've gotten excited about it. Some of them have put down money to ride its commercial successor. However, they haven't seen a Virgin Galactic craft fail fatally, during commercial operation. When they see that, we'll know more about the psychology of this market.

I think Jeff's also got a good point about general social tolerance for risk. My parents taught at an ice skating rink, and I vividly remember the day in the early 70s when this rink, which had been in operation since the 30s with no injury-related lawsuits, faced closure unless they could somehow get general liability insurance. (Hey, the sign *says* "Skate at Your Own Risk"! What part didn't you understand?) Recently, the same rink is facing closure for similarly stupid reasons. Its ammonia-based refrigeration system suffered a vapor release that probably damaged the health of panicky neighbors as much as *I* was wounded in my tender years by ammonia fumes wafting from what (in the days before disposables) we used to call a "diaper pail". People hear "toxic" and they don't say, "OK, but, *how* toxic? I mean, *beer* is toxic, right? That's almost the whole point of beer, come to think of it: you drink some and you get *intoxicated*." No. Instead they shriek and panic.

I could now further support my point by talking about the death toll from the Korean War vs the Vietnam War, and the Vietnam War vs the Iraq War, but that would *really* start an off-topic argument, wouldn't it? Let the point stand: people are a lot more risk-averse, and a lot more litigious, than they used to be.

Posted by Michael Turner at March 8, 2007 02:57 AM

Jane, flying on a Soyuz to ISS requires lots of training, both physical and mental, and takes a lot of time. They go camping in the woods for survival training etc.

Suborbital flights would be much easier to do, maybe a weekend or so.

I don't believe there are many suborbital customers at 200,000 dollars or even 20,000. But I also don't think it should be that expensive for eternity, rather perhaps 10,000 dollars (price, cost should be even lower). The whole thing lasts only for a short while so even a small vehicle could fly multiple times per day, generating a lot of revenue.
Of course the model could have problems with Spaceshiptwo because it has to be carried aloft slowly by the White Knight motherplane and then after landing it's hybrid rocket motor's solid part needs replacing.

But what Armadillo and Masten are doing, I easily see much lower costs and faster missions and turnarounds because of the vertical "elevator" model to flight. Since Armadillo is privately financed, I'd recommend Masten Space for investment. (And you get a big portion for little as it's such a small company!)

(I happen to talk with Jon Goff a lot through the internet so I'm not entirely an impartial side on this.)

Posted by mz at March 8, 2007 05:21 AM

Mz,
As much as I enjoy having other people trying to sell our company to investors, I think it is worth mentioning that MSS's primary initial market is *not* suborbital tourism. We'd like to go there eventually, especially if we can get the reliability we'd like out of our initial vehicles, but all of our initial target markets are unmanned.

I have to say that Jane is talking about investing her own money, so she has a right to be careful and skeptical, and shouldn't be blasted for trying to do due dilligence. I've seen similar analyses that have come to completely different conclusions based on fairly subtle difference in assumptions. But it is possible that Jane's numbers are closer to reality. It is still a speculative market.

That said, I have a hard time believing that Virgin Galactic has taken receipts for 100% of the total market size, and that Space Adventures has another several percent of that... :-)

~Jon

Posted by Jonathan Goff at March 8, 2007 01:44 PM

Jane Bernstein said: Okay. I did my own research

Jane you are awesome, well said, I could add more, but I don’t see any point. Will you marry me?

Posted by brian d at March 8, 2007 01:51 PM

Jane, if you're serious about wanting to invest in this industry (I'm not recommending that you do--it is very high risk), you should attend the Space Access conference in two weeks in Phoenix. It's a good opportunity to meet the players first hand, and "kick the tires" of the various prospects.

Posted by Rand Simberg at March 8, 2007 01:56 PM

Rand, thanks for the suggestion. I can probably combine it with some continuing medical education I need to do, and extend into the weekend. It might be fun to actually meet some of the people I've been chatting with here, in any case.

To me, the fundamental issue is that the market being addressed, even with perfect capture, is not demonstrably large enough to justify the investment necessary to reduce the cost of space access. I do think there are other markets that might, perhaps, be large enough, and as part of a clearly focused longer term strategy maybe a few of them might be combined into a compelling business case.

I should stress that I'm pretty conservative with my long money (I have most of it in an interesting new index fund with an odd weighting factor that improves returns by a percent) but my short money goes into startups and things like that. But even then I like to make slow and careful decisions about such matters.

Posted by Jane Bernstein at March 8, 2007 09:26 PM

Greetings to those of you interested in this subject and the post by Dr. Bell. Dr. Jeff Bell is returning to The Space Show to specifically talk about his article which is the subject of this discussion. Jeff will be on the program live 7-8:30PM Pacific Time Thursday evening, March 15th. This will be your opportunity to call him and speak directly with Jeff to either show and tell him where he has gone wrong or if so inclined, to support and praise him. You can get all the details by going to www.thespaceshow.com and click on the Newsletter in the upper third of the page. The newsletter promoting this show will be uploaded Monday morning PDT, March 12th. If you have any questions about listening to the show, calling to speak to Jeff or anything related, send an email to me at drspace@thespaceshow.com. Don't miss out on your opportunity to challenge Jeff, to point out his "errors" and all of what so many are saying about his post on the various blogs. Step up to the plate and engage him directly. The only rule when calling The Space Show is politeness and no personal attacks allowed. Idea attacks are always fair game.

I look forward to your making this a lively and spirited Space Show discussion with Dr. Bell.

David Livingston, Host
The Space Show
www.thespaceshow.com

Posted by David Livingston at March 8, 2007 09:51 PM

Space Cynics have thrown down the gauntlet on this.

http://tinyurl.com/38zxrw
"The challenge to the alt.spacers is to prove us wrong: Get the investment capital, build and test and prove the sceptics wrong. Quit arguing about how many angels are dancing on the head of a pin and PROVE US WRONG."

Sounds like fun to me.

Posted by Ed Minchau at March 9, 2007 12:18 AM

Carl, I sort of see your argument, but stay away from very long amortization. That's bad accounting fiction. You wrote:

Hence I suggest the deeper flaw is in assuming that the fundamental obstacle, if any, is the ability of initial ticket sales to cover the development cost. Really, this just determines how slowly the process goes, because it determines how much you have to spread out the costs. I think the more important question is whether the revenue plausibly available in the future will cover the marginal cost of the service. If the answer to this is yes, then I suspect the capital will find its way to the project.

IMHO any viable scheme never stays at the initial ticket price. If you're counting on that trickle of new millionaires to keep buying your $200k tickets, then you will go out of business. You either need a lot of repeat customers or a lot of new customers. That means evolution to either a really astounding trip or a much cheaper one. In particular, that means that the business you get needs to contribute to paying your development costs. I don't see that the initial revenue has to pay for development costs, but it needs to be substantial enough to generate cash flow for continued development of the vehicle and trip experience.

Also amortizing costs over ridiculous time periods? It's cheaper, more accurate, and probably more legal (especially if the company wants the option of selling public stock) to write off the current investment as a loss. In fact, the only reason I could see for overly long amortization is to hide that initial investors lost money. The key problem is that indefinite amortization disguises the opportunity cost of chucking money at a project that doesn't pay off compared to the risk-free return that the investment could earn instead.

I don't know what amortization time scales are traditionally used by accountants, but I gather it's probably less than 30 years maybe even less than 20 years.

Anyway, to continue, here is my naive impression of these business plans. Initial investors fund completely the development of the first generation of the vehicle and trip experience. They probably contribute substantially to the development of the next generation. The ticket price covers costs of opperating expenses. It has to at least cover the marginal cost of the ride. Ie, demonstrate that the business is viable at that level.

Depending on how much funds they have or can obtain (keeping in mind the strings attached), the revenue may also need to cover some degree of development costs. In any case, one would not expect the first generation (unless you had a really tight operation and a great, high margin market niche) to turn a profit including development costs. The second generation should be profitable in theory.

Posted by Karl Hallowell at March 9, 2007 01:02 PM

No argument from me, Karl.

But there's economics working here, too, not just accounting. The costs of things are sometimes amortized over enormous time periods. For example, what were the true, full development costs of the airplane? You'd need to include the development costs of the internal combustion engine, of high-strength steel, of combustion as a power source, of using interchangeable parts so each flyer wasn't an individual work of art, and so on. These costs stretch out over centuries, although none of them found their way into the Wright brother's balance sheets.

My point is only that, economically speaking, as long as an activity can be run profitably on the margin, it will happen, sooner or later. Could be much later, even centuries later, after some slow creeping advance in the appropriate tech. That doesn't, of course, have anything to do with whether Jane should invest because the investment will pay off in her lifetime. But I do think her argument is fundamentally flawed. She'd be better off going with her gut instinct about whether the tech will succeed, and whether enough rich people will be wowed by it to want to ride again, or convince their friend to ride. (Of course, maybe she did, and the argument is just rationalization for a gut decision.)

There's little doubt the initial development is going to have to rely on visionaries and enthusiasts. It's like home computers, I think. In 1976 you could buy a 8-bit computer with 4k RAM for something like $4000, if you were willing to solder it together yourself. It came with no operating system, no disk drive, and no applications. The only way to program it was punch in numeric codes for machine instructions on the front panel, and about all it could do was play mathematical games like add 24 digit numbers real fast.

So what kind of nut would do that? Well, I did. That money supported, sooner or later, the development of the modern miracle you can buy for $500 (probably $200 or less in 1976 dollars) that strikes most people as almost indispensable.

I don't think a good decision about whether or not to invest in these weird start-ups like Microsoft or Apple in 1976 could have been made by analyzing how many crazies there were like me, who would buy the initial (crappy) product. Nor would you have gained much insight into the future by noting that the big boys, like IBM, were not touching the home computer market. The big boys, then as now, are conservative.

Generally my point is that investments in new tech are like betting on a horse: if you bet on the favorite, you don't get much return on your investment, and if you want a spectacular return on your investment, you need to bet on the dark horse.

Posted by Carl Pham at March 9, 2007 03:58 PM

It's like home computers, I think.

Ah, there it is. No New Space thread is complete without the PC analogy. Thanks, Carl; you've made my day.

Posted by Monte Davis at March 9, 2007 05:09 PM

A better analogy might be the early days of America. I'm a Brit, so my American history is rusty, but if memory serves the first colony nearly died out entirely. Nobody sane, with no pressing reason to go, would have gone to America then, and nobody sane would have invested in it any money they couldn't afford to lose.

But now there are 300+ million of you, and America is stronger than any empire in history - the only one that ever came close is ours.

Maybe space's equivalent of the Mayflower colonists will turn out the same way?

Of course, this will probably mean that America's power will go the same way as Britain's did. And maybe preventing that is the true purpose of NASA.

But Americans aren't the only ones who can build rockets.

Posted by Fletcher Christian at March 10, 2007 05:29 AM

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