EO Fields of Dreams
Investment in the Earth Observation (EO) and related downstream analytics markets has massively increased in recent years, with 2021 more than doubling due to a number of satellite operators that announced plans to go public via SPAC routes.
The commercial EO market is becoming increasingly competitive, with an ever-growing diversity in business models that offer satellite imagery in different spatial, temporal and spectral resolutions. NSR’s Satellite-based Earth Observation, 13th Edition research report forecasts that banking off these trends, a cumulative revenue opportunity of nearly $62 billion for EO data and derived products is expected during the next ten years.
To leverage this revenue stream, over $4.7B has been invested in the commercial EO market through the last decade, with more than 34% of it in the last year alone. Downstream activities that used satellite EO/remote sensing and data analytics demonstrated an accelerated potential as growth markets during the early phases of COVID-19 related lockdowns.
Furthermore, the supply of EO data alone is forecast to increase tremendously, with over 1,500 satellites announced to launch in the coming decade. A majority of this will be sub-500 kg satellites, and more than 75% with optical sensors. More players are chasing after an untapped market comprised of demand for continuous monitoring and data analytics at high revisit rates and even higher resolution. There is an expectation that once LEO constellations are in full operations, the EO market will attract more customers and more potential uses of the data via advanced analytics and ML algorithms. A build it and they will come approach is taking hold on the EO market. Where will this demand come from?
Market Applications are Diverse
While Defense and Civilian Govt. applications will continue to drive the bulk of demand and revenues throughout this period, there is significant growth opportunity in the commercial markets, particularly for downstream big data solutions. This commercial demand is forecast to take up nearly 52% of the global market by 2030.
Markets such as energy and managed living resources have well entrenched EO ecosystems, having adopted it much earlier into their business processes. However, customer friction still exists, especially outside of a few key major buyers, and this is an untapped market driving opportunity for most upcoming operators and analytics service providers. Overall, the commercial market opportunity is expected to reach approximately $4.6 B by 2030.
Of particular interest here is the BFSI (Banking, Financial Services and Insurance) vertical in the services segment, which is expected to grow the fastest, at a CAGR of 13.7% through the coming decade. As new non-imaging datasets and weather data undergo commercialization, the weather vertical is also expected to grow in the mid-to-late forecast period.
The increased investment in new data types enabled by such unique sensors is also forecast to boost demand in the long term, leveraging data from infrared (IR), microwave (MW), synthetic aperture radar (SAR), radio occultation (RO), hyperspectral operators, amongst others. Currently, this market is nascent and is driven by early contracts and preliminary, niche data demand from players such as, GHGSat, HE360, Spire, etc. Greenhouse gas monitoring is a key application in this segment. There is growth opportunity forecast in the provision of downstream apps and derived information products in the long-term, while data will remain a key growth factor in the near- to mid-term.
Non-imagery players now have an opportunity to learn from the lessons of the optical and SAR markets that have come before, in developing business models that meet product market fit requirements. Only then will operators have a chance at going beyond just government and military customers to tap into applications in other markets, such as weather and services.
Business Models Need to Evolve
To tap into upcoming opportunity however, business models and the EO landscape must evolve. Breaking away from a government and defense-oriented market will need a diverse range of solutions and channels for the delivery of EO data. The way EO business is handled now requires effort that goes into customized contracts and purchases that have inherently long sales/procurement cycles. Product/service offerings vary quite a bit currently, leading to two key challenges that have constrained the revenue opportunity: a lack of standardization, and inconsistent pricing of data across the market.
The market is evolving, as new and emerging service models enter the EO arena. More investment is being pumped into models such as pay-per-pass, data subscriptions, insights-as-a-service, application-agnostic analytics platforms and data marketplaces. While most single purchase EO price listing mentions the traditional $/km2 metric, there is a push to shift contract pricing toward alternative subscription-based models.
The Bottom Line
The traditional Gov/Mil market continues to reign supreme in terms of demand, with interest in the commercial markets being fragmented and challenged by a lack of standardization of data and solutions. On the other hand, the landscape is shifting, as service models evolve in the form of aggregators and platforms aimed at driving interest from the untapped commercial market.
Infrastructure development will be essential, both on ground and in space, for newer subscription- and cloud-based models to grow. However, the market is still far from commercialization, and the untapped markets will remain just that: untapped, unless such a shift makes its way throughout the EO landscape.
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