The CAGRs of Traffic Volumes vs. Revenues
As Satellite & Space Analysts there are few truths in our market: Schedules almost always slip to the right; and the volume of data always increases. While others at NSR frequently comment around schedule (see... nearly anything we publish), the second ‘fact’ requires further explanation. It is no doubt true that the amount of “data” moving through space is at an all-time high – and will continue to grow over the next ten years. However, an assumption that high data volumes translate to large total revenues does not always hold true.
Looking deeper, I want to highlight two key markets that frequently come-up in conversations across NSR – Satellite Communications and Earth Observation. We will leverage two of NSR’s studies to dive a bit deeper into this trend: recently published NSR’s Global Space Economy, 2nd Edition co-authored by Hannah Currivan, and NSR’s Space Traffic Study, in its 1st Edition. These markets represent arguably the two ‘most common’ use-cases for space-based infrastructure, yet how they approach the relationship between traffic volumes and revenue growth are very different.
The SATCOM Paradigm
NSR’s Satellite Traffic Study points to the “Growth of Traffic Volumes” – going from 8,920 PB/yr in 2020 to upwards of 126,250 PB/yr by 2030, a CAGR of 28%. Most of that growth will come from Satellite Communications, which recently released NSR’s Global Space Economy, 2nd Edition report (which also covers the same period of analysis) places at close to $530 Billion in cumulative revenues (growing at a 9.84% CAGR from 2020 to 2030.) Uh Oh – CAGR danger.
Even without further analysis around under-the-curve trends such as higher-end markets like mobility or wireless backhaul ‘driving growth’ or the transformative impacts of Non-GEO - growth rate analysis alone would lead one to believe that there is some trouble in paradise. Now, these are not strictly “apples to apples” datasets (our traffic data does not quantify the MSS S/L-bands for example, however we account for their revenues), but ‘price compression’ is a very real trend impacting business cases. Moreover, these are not isolated to ‘What do I price my Mbps? (or Mb/Gb/etc.)’ – it cuts across the entire Infrastructure landscape.
When satellite operators make buying decisions (which NSR’s Global Space Economy puts cumulative spending on Satellite Communications manufacturing + launch at $126B) they are faced with the reality of more traffic volumes at lower revenue potential – and if/where/can “Value-Added Services” be leveraged to enhance per-Mb revenues. In truth, the “most typical” VAS proposition in SATCOM is for Satellite Operators to become Service Providers and monetize their MHz directly to end-users – not creating IoT services or customized user portals.
Investments into Software-Defined Satellites as discussed by my colleague Dallas Kasaboski highlight some of these trends more specifically. In short, the data volumes vs. revenue paradigm significantly alters the manufacturing landscape. These investments are no longer about high-margin video connectivity services, but instead require sophisticated infrastructure that maximizes total cost of ownership. Lluc Palerm also digs into this topic on the ground-segment/virtualization side.
Overall, for SATCOM at a top-level (which is the biggest source of Space-based Traffic Volumes) rapid data traffic growth is not subsequently producing similar SATCOM revenues CAGRs.
Earth Observation
Full disclosure – I’m not an Earth Observation Expert (see NSR’s Earth Observation, 13th Edition)
Focusing just on CAGRs alone, Earth Observation traffic growth looks terrible – in fact, it is one of the lowest growth markets within NSR’s Space Traffic Study, second only to the CAGR for data requirements from Satellite Launches. While the EO segment yields nearly 4,500+ PB of cumulative traffic volumes (#2 behind SATCOM’s 500,000 PB), the average revenue growth is nearly 3x higher. In a market where the traffic volume growth is largely stagnant what is enabling higher revenue growth CAGRs? More important, CAGRs in one metric do not necessarily give a good indicator for CAGRs in another.
In Earth Observation, as my colleague Shiva Muruganandham explores in his EO-focused Bottom Line post the “downstream activities that used EO/remote sensing and data analytics demonstrated an accelerated potential.” He goes on to further explain that as more EO satellites are launched, it is not entirely the growth in sensor resolution, revisit rates, etc that are driving the market – but instead, the reuse and leverage of that data amongst a broad range of customer sets. Moreover, this market is, “far from commercialization, and the untapped markets will remain just that: untapped.”
With an average EO revenue growth at 12.15% between raw data to finished analytics products, one can expect a continuation towards small increases to EO traffic volumes with ‘big impacts’ on the EO revenue CAGR. Even as new technology or infrastructure is introduced into the market, these will largely impact the revenue growth side of the equation more than a pure ‘traffic growth’. As the EO business migrates away from “cost per bit” metrics towards “value-added insights”, it can leverage what satellite does best – ‘multi-point economics’.
Putting it All Together
Our industry takes great comfort in quantifying in-orbit satellite and space assets by their “Gbps”. We still haven’t entirely moved away towards the age-old “fill rate” construct. While this is still a useful way to understand some of the technical capabilities of Satellite A vs. Satellite B, it is by no means ‘the metric’ anymore. Big traffic Volume Growth does not necessarily mean big revenue growth. Sophisticated investments require sophisticated analysis.
As Shiva, Lluc, and Dallas all mention in their respective coverage areas business models need to evolve. The proliferation of software-defined and software-enabled solutions across all segments of the Satellite and Space Markets are radically changing the way the industry thinks about itself, where ‘value’ is created’, and what customers are actually buying – not what we think they want.
In Short, these are perhaps some of the lowest hanging fruit take-aways – different markets approach revenue generation vs. capacity consumption differently. Those differences, however, are critical in understanding the underlying trends, drivers, and restraints for each of these markets. The shift away from Video in SATCOM has a tremendous impact across satellite operators to satellite manufacturers and ground segment providers. Reselling raw data and analytics requires new business models and approaches to unlock the ‘next era’ of growth – if that’s even possible.
The Bottom Line
Thinking of the Satellite and Space Markets in terms of “Data Traffic Volumes” is fun, no doubt there. Creating any First-Edition Report is an intellectually challenging exercise that requires continuous model refinement. This report puts a stake in the sand to start a conversation around just how much traffic moves through space-based infrastructure. Moreover, it requires your feedback to build our 2nd Edition study to be published later in 2022. Comparing CAGR rates between revenues and traffic volumes is just one of the use-cases for this report amongst NSR’s 2022 research library.
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