There is perhaps no riskier or more profitable business in the world today than that of commercial space services. An industry that is less than a half-century old at present, commercial space is based upon using the “high ground” of Earth orbit to provide observations and services unavailable or more efficient than those based on terrestrial locations. While communication relay and precision navigation are fairly mature from a business point of view, the widespread sale and use of commercial high-resolution imagery taken from low Earth orbit is relatively new. All you need to do to see the amazing value of such imagery is to take a look on any of a number of Internet-based map services, such as Google™ Maps, and usually you will find satellite imagery embedded with the data for planning your next vacation or road trip.
Supplying this imagery is a handful of commercial enterprises, the largest being GeoEye of Dulles, Va. Composed of a conglomeration of what were pioneering space commercial ventures from the 1990s, GeoEye now operates a constellation of three imaging satellites, with another being built. Interestingly, Matt O’Connell, the man running GeoEye, is not an engineer or former intelligence professional, but a former New York investment banker with a background in Latin and Greek studies from Trinity College in Connecticut. A graduate of the University of Virginia Law School, he today controls one of the most capable intelligence collection organizations in the world.
John D. Gresham: What was it that drew you into the space services industry?
Matt O’Connell: You know, I said post-9/11 that if you can look down from the sky and see what bad people are doing, I think there is a market for it. There was, however, no commercial intelligence market at the time … there was no business. There wasn’t even Department of Defense [DoD] intelligence business [for commercial vendors]. But I just believed that there was something you could do, so I took a leap of faith. In hindsight it looks self-evident, but at the time, it was a fairly lunatic decision, especially when my kid was going off to college.
How would you characterize the risks and rewards of the commercial space industry?
I will say that we do spend a lot on development. In our new satellite, GeoEye-2, we will spend a hundred million [dollars] before we even get a shot at the [new National Reconnaissance Office (NRO)] contract. So, it’s not insubstantial. All in, it is going to cost more than half a billion [dollars] by the time we complete it, but you have a couple of paybacks. Obviously we feel good because we are helping protect the nation at a very cost-efficient price point. If you can deliver information that is crucial for warfighters and disaster relief workers at a price point that is better than the government can, then the government is going to give you anchor contracts. The government is a great anchor tenant, and in addition to them, we have been able to build a strong international business and a commercial business. We give good value to our customers, the customers pay us a decent rate, and it has turned into a good business.
That said, there’s been a steady evolution of technological developments, and additional investments by the [U.S.] government, and that’s what helped us go from 20-meter [Landsat imagery in the 1970s] to today, where GeoEye-1 collects at [less than 1-meter resolution] for the U.S. government. We have collected down to 41-centimeters resolution, which is 16 inches. So we can show people home plate [at Nationals Field in Washington, D.C.]. The most relevant thing [about what we do today] is not only can we show them something the size of a home plate but also we can tie it to the GPS grid, [accurate] within 3.5 meters [of ground truth, which] is really pretty phenomenal.
What are the present day limits of what you are allowed to sell commercially?
We are currently restricted at selling anything better than .5-meters/20-inches [resolution] in general. We sell that to the U.S. government, and we currently can’t sell anything better than 2 meters of Israel. Those restrictions are fine, and we are aware that we live within them all the time. The government recently asked us, “Say, what do you think about this? Is there a trade off?” And I said, “If you let us sell that .41-meters resolution, it’s only .9 centimeters of improvement, but if you let us sell that to American allies, we can charge them more. If we can charge them more, then we can charge you less.” So, it’s a question of a cost-benefit analysis that the U.S. intelligence community has to do. Does that additional 9 centimeters of resolution really compromise American security? Would it be smart to let us sell that to our allies? You know, you could set up a situation where, for instance, you weren’t giving it to commercial partners, as we have commercial partners out in the world too.
But let’s suppose we have an American ally, we distribute to them and they know that we give the government .41-meter resolution imagery. They would like to get the .41-meter imagery and heck, if it gives the U.S. taxpayer a break, I think that 9-centimeter difference is not going to compromise anybody’s security. One of the tougher questions that we face is that the foreign vendors we compete with don’t have any such restrictions. They can sell anything, any time, anywhere. Now, we are not saying that we want to sell to anybody at all. We don’t think it’s good business. We don’t think it’s good for America. Having said that, if we are allowed to sell to somebody at all, we are scrupulous about that. So having these restrictions is a bit of the U.S government tying our arm behind our back. We live with them, we are happy to live with them.
Now, you have an actual constellation of three imaging satellites. This includes the legacy IKONOS 1, and your newest “bird,” GeoEye-1. Can you give us a little background on the successful development, production, deployment, and launching of that system?
Well, we went with a terrific group of suppliers. We had General Dynamics build the satellite. They had a subsidiary called Spectrum Astro in Arizona, and for that size and class, General Dynamics had a great track record. We used an ITT camera. ITT, as you know, bought the old Kodak space cameras division, and they still are the best. No one comes close to ITT right now, anywhere in the world. We also had Boeing do the launch. So, we stepped up, we had a great group of suppliers that were top-drawer folks and they cost top-drawer money, but we ended up with a great satellite that is the best commercial imaging satellite in the world today. I will tell you that it was a little nerve-wracking seeing it launch. My wife said that she has seen me manage increasingly higher levels of stress over the past couple of decades. We were sitting there waiting for launch and we had struck a partnership with Google to give them the online rights to distribute GeoEye imagery. Well, the two Google founders came, and one of them, Sergey Brin, turned to me as they are doing the countdown, and Sergey said, “So Matt, when can we do another one of these?” I turned to him and said, “Sergey, I am a little distracted right now!” I remember, I think it was The Washington Post that called me the night before and said, “So, you have spent four years and $500 million. Are you nervous about this launch?” I said, “Absolutely not! We have got a great team, they have done a great job, and besides that, I am going to do a triathlon next week, so I am exercising like crazy and I am getting rid of all the anxiety. …”
Well, it is an all-or-nothing proposition whether you get into orbit with a functional satellite or not.
It is all or nothing, and you have to spend a fair amount of money. However, the amount we spend on these things is a lot less expensive than what the U.S. government spends on satellites. They are a bargain at these prices. The next satellite (GeoEye-2), which Lockheed Martin is building, is going to cost even more than the last one for a number of reasons. The next satellite is going to have vertically controlled movement gyros [CMGs], which are great because they increase the agility with which you can swivel and look at different discrete targets. The issue is that they are kind of nerve-wracking, finicky things. And you really have to know what you are about when you are building them. Lockheed has the best history in the business, I would say, putting together satellites with CMGs. So, as we look at the future, and as we look at the importance of the upcoming Enhanced View contract, it’s important to us to win it. And frankly, it’s important to the nation that it have eyes in the sky that they can depend on at the right time. So, we decided to go with Lockheed.
Lockheed has a great history. The IKONOS satellite, which they built, has already lived past its useful life. Every couple of years, Lockheed does a check-up on the satellite, and while they don’t tell us that it is going to last for a certain period, they tell us that they don’t see any reason why it will stop functioning. You know, that’s been a terrific partnership, and so, we have gone back to them. It will cost more money because of the new CMGs and other stuff that we are throwing on it, like better optics. You know, our current satellite, GeoEye-1, has a resolution of .41 meters. We will be better than that for this next satellite; it’s designed to be as good as .25 meters. Frankly, I think that we would probably image it in the mid-.3s – .36 meters or something like that – because we’ll get more area coverage and the government will get better resolution. It’s a question of what the customer wants again. So, if they want to pay for the higher resolution, we’ll do it. But, when you are looking at a program whose basic point is an assured supply of imagery, then you go with somebody who you know can deliver the goods when you need it at the price you need it at.
As of 2010, what is the breakdown of your business base, and where are your revenue streams right now?
We have three different business areas: We collect imagery, we process imagery, and increasingly, we deliver advanced-information services. So, the collection of imagery we do through 3 satellites. We have GeoEye-1, the biggest, the best; IKONOS 1, still an industry leading satellite; and OrbView-2 – you know, it’s showing its age but it’s still a great satellite for monitoring the ocean. The imagery revenues alone have grown substantially over the last couple of years because everybody realizes we need to know more about the world, whether it’s for defense and intelligence, disaster relief, or commercial applications like Google, engineering, or land use overseas. Actually we are doing more support of land use overseas than America does. For instance, China is using us for land use a lot right now. Europe is using our products and services for land use and urban planning, that kind of thing. I think that we’ll see that pick up in America, so our imagery collection is doing very well globally. In America the planned Enhanced View project indicates that the imagery demand should increase. We hope that we can win something under that program. If we do, we’ll accelerate the build of our next satellite, GeoEye-2. Normally we would launch that in 2017, but if they want it earlier – I mean, we suspect that they may – then we’ll accelerate that. We could launch it in 2012, and that’s what Lockheed is signed up for.
Next is product production. Our St. Louis [Mo.] production facility is a world leader in picking imagery from any source, and that’s unique. We are the only satellite operator in the world that can blend imagery from any satellite. It’s not a hubristic statement; it’s just objective fact. We take our imagery, whatever imagery the customer wants to give us, whether it’s American, French, Indian, Korean … even Russian, and make them a perfect picture of whatever they want. That’s an art really more than a science, putting all that stuff together. The demand for that has grown up so much that last year we had to increase the physical footprints in St. Louis by 50 percent. That’s a terrific growth. Then in Denver [Colo.] we do a lot of production, and not just of IKONOS imagery. We produce something called the airport-mapping databases. This is an information product kind of business, but we do it with all our satellites: OrbView-2 and with GeoEye-1 and IKONOS. The imagery is only part of the story. It then takes external information and blends it together. So these airport-mapping databases are 3-D models of airports. Sure, pictures are interesting, but what is more interesting is that you give pilots 3-D models and say, “here is how long and wide the runway is, here is where the terminal is, and here is the elevation of the mountains surrounding the airport.” The demand for that was so great we had to triple our classified production space in Denver, and we are on the verge of announcing our first international sale of an airport-mapping database. What is also cool about that is it’s going to be on a subscription basis. It’s a continuing revenue stream and that’s great because it gives you industrial assurance, and that makes it easier to raise money to finance expensive satellites. So, the imagery collection business is doing well, the imagery production is doing well. The third sector, information services, also very exciting. You see an increase in the out years of new international satellites. They are not as good as America, but these guys are aggressively going at it. So, if you look out five to 10 years, you are going to have more international satellites. You don’t just want to be a provider of pixels. Besides, as people have seen things like Google Maps and [Google] Earth, they don’t just want the pixel; they want to know what it does for them, and how to tie into other information.
A fusion of all?
Exactly! We are about to finish Beta with the NGA [National Geospatial-Intelligence Agency] for a program that is public – I can talk about it – called Rapid Dissemination of Orthomosaic Geospatial Information. And what’s cool about that is that we collect imagery, and we deliver a digital map of an entire country, ortho-rectified. All nicely tied together, border-to-border, accurate, and terrific. Then, after we deliver, we continue to host it on our server so deployed personnel can access it anywhere in the world. If you talk to Gen. James Cartwright, the vice chairman of the Joint Chiefs of Staff, he’ll tell you one of his goals is to have network speed information delivery. He said, “I can’t afford 10-year built cycles and 10-year asset cycles when IEDs [improvised explosive devices] are changing every three or four months.” We have to get information to the warfighter on the front lines at network speed and adaptable at network speed; by hosting this, we create another place that NGA can go to, on a secure basis, and access information and do it much faster. We have to get the data out there where the men and women in the field actually need it … that’s very exciting. So this move away from the desktop toward faster, more flexible, more fluent delivery is terrific. You don’t want to say to somebody, “Hey, I’ll ship you a CD,” when they are going out on a mission in Afghanistan or when they are trying to save people in Haiti.
What are your plans for completion and launching of GeoEye-2, be it 2012 or 2017?
We are going ahead with GeoEye-2; the timing of that depends completely on the award results of the Enhanced View contract. If the government wants the satellite early, we’ll deliver earlier. If not, we’ll build it on a schedule to get it up in 2017. You know, I am not an engineer; I have the blessing of stupidity. I can ask “stupid” questions like that and then make decisions as a business guy. These are complicated pieces of machinery. They are not as complicated as the government stuff, but you know, they are up there. You can’t send someone up to fix it. You hope that if something goes wrong, you will end up with a minor glitch that does not affect the life of the satellite or the ability to collect imagery, because that’s the most important stuff.
You take pictures and supply data, but you are also collecting history. What are some of the things that you’re proud that you snapped pictures of?
Well … the Obama presidential inauguration picture really got us a lot of coverage, because we are the only overhead color image of the inauguration event in all its phenomenal detail. You can see the rotor blades on Marine 1, the helicopter that was going to take the Bushes away, as it sits outside the Capitol Building, and you can see the vans moving the Obamas into the White House. That’s kind of cool, you see both ends of the political transition process right there. We also showed the North Korean No-Dong missile launch. We showed the nuclear facility in Qum, Iran. The Port-au-Prince earthquake coverage was great because we happened to be over there. Some of this is [Johannes, astronomer and mathematician] Kepler’s laws … Is your satellite in the right place at the right time? We were over there the morning after the shock, and we were able to deploy imagery very quickly. It helped people immensely that we could show them before and after pictures of the area. In fact, people used that imagery to go dig people out. It also helped them [with situations] such as should an ambulance take this street and not that street? And if you are trying to get somebody to a medical center, you’ve got to be able to drive. We got great feedback from the field, wonderful e-mails that said the equivalent of, “I was blind but now I see. Thank you for this information.” That made everybody here feel good, and we gave away a lot of imagery.
Chile was interesting because in Chile they had such good building codes that many fewer people were affected, because the buildings were stronger. We also worked in the Zechuan earthquake relief effort in China. They had bad building codes, as everybody knows now, so our relief work there has gotten us a lot of kudos and I think that’s a goodwill story because we know people around the world know we helped them. You know, people in a lot of the world are happy to throw rocks at America, but let’s face it, our technology in this field is the best and when something bad hits, America is there first … giving aid to people on the ground. So that was great. We also caught the demonstrations in Iran earlier this year. You can get snapshots of people taking a picture with their cell phone and sending it out. But if you want to see the group activity, overhead coverage is pretty dramatic too.
You obviously are leaders in a fairly new industry. What do you see for it 10 or 20 years down the line?
I think that America has adopted a policy which will allow America to retain the technology leadership in this field and that’s very important. The shrinkage in the industrial base is serious and America doesn’t have unlimited funds. I hope that America retains the technology edge. I think that this is set up – policies that Clinton, Bush, and Obama have put in place, realizing that we really are the most cost-effective solution for the aerial mission – is great. I think that we will continue to have two suppliers. The government said a couple of years ago, “We don’t need three, can’t support three, but can support two. We want to play them off against each other like Boeing and Lockheed in the aircraft business.” We do a good job at a good price, and I think they’ll keep using us. On the production side, as you get more international satellites, that threatens our international imagery collection work, but on the other hand, it means that there are more and different satellites for us to produce imagery [products] from, so as the competition increases on imagery collection, the supply will increase … for imagery production.
I think the really most exciting thing is this growth in information, solutions, advanced services. If you look at the industry – imagery collection – it’s presently about a $900 billion industry and growing at just under 10 percent a year. Production is bigger than that. And the biggest is information services. It’s growing substantially faster than imagery collection, and I think it will continue to grow faster as people fuse more sources and add more external information. I think that one thing it’ll do is be a hedge against foreign competition on the imagery side. Any time you add value, you have a stake in your relationship with the customer. They like you more, they change vendors less frequently, and you can charge them a higher margin. So, I think that the industry is going to grow. We are going to be doing more work through the Web, not through the desktop, and I think that the advanced information services are going to be increasingly important.
Through Google and through the efforts of our own staff for instance, getting the inauguration image on CNN was really fun. They said at CNN, in fact, that our turnaround was what they believed to be the fastest civilian turnaround [of an] image that they could remember. It took us longer than we wanted to, it took about two hours from the time we collected it to the time we delivered it, because we had to polish out some clouds so that you could see the crowds on the mall. But that was great for us. Then, as we have actively reached out to help people in trouble, whether it’s the tsunami, the Zechuan and Haiti earthquakes, and Hurricane Katrina, people have started seeing satellite imagery more and more. Then they begin to expect it, and then they want it at the drop of a hat. I don’t think we’ll get to where they want anytime soon. Anybody who thinks these days that they can just call me and ask for a picture right then, that’s not quite the way it works. There is, however, a much greater public awareness of what this information can do for you.
And it’s a cool business?
This article was first published in The Year in Defense: Aerospace Edition, Summer 2010.