
SpaceX’s entry into $70 billion U.S. launch market draws Lockheed jab - rdp
http://www.washingtonpost.com/business/economy/spacexs-entry-into-70-billion-us-launch-market-draws-lockheed-jab/2012/12/23/a0e4fd0c-4a2e-11e2-b6f0-e851e741d196_story.html
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jusben1369
"The Defense Department on Nov. 27 directed the Air Force to end a launch
monopoly" "A week later, the service awarded the trial missions to Musk’s
firm, known as SpaceX." "SpaceX...now has the opportunity to prove that its
rockets are capable of launching satellites serving Pentagon planners, ground
troops and the nation’s spies." "The missions, scheduled for 2014 and 2015,
are designed to help the company become certified to carry the military and
spy satellites."

\- Much will be made here of Lockheed's comments. To me the real story is a
h/t to government for opening up and encouraging disruption in a key market.
Given the general negativity (often deserved) towards government by
entrepreneurs it's important to acknowledge when they do positive things.

~~~
pbateman
_Given the general negativity (often deserved) towards government by
entrepreneurs it's important to acknowledge when they do positive things._

It's important to also realize they aren't doing this because they're
motivated to disrupt the military/industrial complex, they're doing it because
Elon is a master of public relations and has promoted SpaceX heavily.

~~~
doe88
Or maybe because they (the government) think they have a shot to lower the
cost of actuals 460M$ launches. Competition is great even for public
contracts.

Moreover in this case it seems quite unexpected some peoples have been crazy
enough to start building rockets and one day directly concurrence and disrupt
Boeing and Lockheed. I'm sure Boeing and Lockheed would never have thought
such possibility. It's amazing imo.

~~~
pbateman
I'm not sure the government is particularly concerned about cost containment.
It's the canonical example of people spending other people's money.

~~~
ebf
If their budget gets cut, then they will be concerned.

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pbateman
_“You can thrift on cost. You can take cost out of a rocket. But I will
guarantee you, in my experience, when you start pulling a lot of costs out of
a rocket, your quality and your probability of success in delivering a payload
to orbit diminishes.’’_

This sounds similar to the cry of every company that is about to be painfully
disrupted.

~~~
confluence
This is why assume-worst-case/at the edge/corner case thinking is particularly
useful.

> _OK guys let's invert our thinking and stop joking around for a moment.
> Let's say SpaceX is going to destroy us. Now what do we do?_

Being able to think like that should somewhat immunize people against
disruption.

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gregpilling
Lockheed and Boeing are both very capable of building planes at scale, and in
a competitive environment. Currently their space vehicles are built on a cost-
plus model, but I think that L-B can adapt. Musk has an advantage today in
cost, and should be able to maintain that for a few years, but don't think
that Lockheed or Boeing can't compete once they realize that the gravy days
are over.

It should be an exciting next decade for space travel. Maybe all the sci-fi I
read will start to come true. Getting anything into space is a big challenge
and hopefully soon the market will have several private companies competing in
a real market for space travel. For a nice short story, look up "The man who
sold the moon" by Robert Heinlein. Then we can discuss whether or not Elon
Musk is the re-incarnation of the fictional character DD Harriman.

~~~
btilly
I don't know why you say this. Changing your cost structure is _extremely_
hard for businesses. Particularly if, as with Lockheed and Boeing, your cost
structure is distributed through a web of other businesses (ie subcontractors)
who are all going to be inclined to push back.

~~~
gregpilling
Which particular this are you referring to? Just the changing of cost
structure forced upon you by the adapt or die that sometimes happens in the
marketplace? or were there other parts that required more explanation on my
part.

~~~
btilly
That changing of the cost structure exactly.

It is much harder than it looks like to do, and is exactly the sort of change
that existing industries routinely fail to do, leading to their demise.

I believe that in 20 years SpaceX will have serious competition. I'm pretty
sure it won't be Boeing or Lockheed-Martin.

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mtgx
Of course Lockheed is upset. They got used to getting fat contracts with money
amounts that had nothing to do with the cost of what they were building. Now
they'll have to actually compete as a normal company would do in the market.

~~~
Tloewald
To give Lockheed some credit — their original goal was probably reliability
over all else. In most cases their payloads are insanely expensive (ignoring
opportunity cost — how much is having a surveillance satellite in place when
needed worth?) and saving money on the launch is a false economy. Now they're
having the fat pulled out of their contract (i.e. the launches where
reliability isn't paramount but the cost structures were already established).

Whether SpaceX can establish itself as a mission critical alternative to ULA
remains to be seen — 66 launches is no minor feat (but according to Wikipedia
they have had at least TWO failed launches, is that 2/68 or 66 successes in a
row or what?)

~~~
sliverstorm
Not to mention, how much is _not_ having top-secret surveillance satellite
land in your neighboor's backyard worth?

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jacquesm
Lockheed is going to be in for a rude awakening one day, the jab they're
giving SpaceX is nothing compared to the jab SpaceX is about to deliver in
return.

Price is indeed just one factor in competition. But if your reliability is the
same as or equal to the competition and your price is substantially lower the
door is wide open for a massive shift. Ignoring that or making fun of it isn't
going to help one little bit. Maybe Lockheed is willing to postpone slashing
their prices until they are absolutely forced to but by then it may be too
late to stop the shift from happening.

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orangethirty
Some days ago, I toured a Lockheed plant. It was an amazing experience
overall. Watching how _airplanes_ get built inside a building. The scale of it
just blew my mind. But, at the same time, I was looking at the business
aspects of it. In my mind, what I was seeing was a business operating as it
still was the 60's. Sure, there were some robots, and a lot of automation. But
the whole underlying production pattern was old. made me realize that Lockheed
peaked a long time ago and is now riding the gravy train. I'm sure projects
like SpaceX will end up replacing them. Funny thing is that it won't take a
long time. If Musk manages to turn himself into a good governement supplier
(meaning he can make a good track record (so far so good)), then all these old
behemoths will have their days counted.

~~~
hatberet
Well, I think part of the problem is the size of their market. How many more
people do you think would buy Mach 6 spy planes if the cost could be reduced
by a couple orders of magnitude? Government would buy a few more, but John Q.
Public doesn't really have a need for a vehicle that can fly him to 100
kilofeet (even if it only costs a couple hundred grand). So, unlike the car
business, where you expect to sell tens of thousands to hundreds of thousands
of units _per_ _year_ , the best you can ever expect in the airplane business
is a few hundred to a thousand over the total useful life of the model.

To further put this in perspective, Honda (not the biggest automobile
manufacturer) sells almost as many Accords (not their most popular model) in
just one month as total number of 172's (the most-produced civilian aircraft)
that Cessna has _ever_ sold in all of history. Note that the wikipedia page on
this topic (<http://en.wikipedia.org/wiki/List_of_most_produced_aircraft>) is
dominated by military aircraft produced for WWII, as well as pre- and
immediatly-post-war civilian aircraft.

What this means is that you can't just hand-wave away the costs of building
tooling (for making forged parts with complex shapes, for example) and
optimizing the assembly line. Fixed, upfront costs do _not_ get amortized to a
near-zero per-unit cost they way they do with software and most consumer
electronics. This is also part of the reason avionics prices always seem to be
so badly out of step with consumer electronics: As an avionics manufacturer,
the maximum theoretical size of your market is tens to hundreds of thousands,
(there are on the order of half a million civilian airplanes in the world
today) and your suppliers usually want you to go through a distributor for
orders that size.

There was a company, named Eclipse, that recently tried to revolutionize the
way aircraft are produced. Among other things, they badly mis-estimated the
size of the Very Light Jet market (which they more-or-less invented) and
failed to over-deliver (some would say they over-promised). Suppliers,
creditors, customers, and investors got soaked, though the firm is apparently
still a going concern. One data point doesn't make a trend, and Eclipse faced
fairly daunting macroeconomic conditions, but the fact remains that the
manufacturer using the most "modern" production techniques had to go through
bankruptcy.

One final point: The aviation market also tends to be cyclical. Loans don't go
away, but you can have your employees work fewer hours.

~~~
orangethirty
Very good points. I appreciate you taking the time to make them. I'm not very
well versed in the aeronautics market or its financials(aside from knowing to
not buy airline stocks).

------
dcpdx
"First they ignore you, then they ridicule you, then they fight you, then you
win."

------
rayiner
The pot shots at LM are a little bit misplaced. Let's not forget that it was
the DOD and LM, Rockwell, etc, that built all of this technology in the first
place. The industry is now mature and ready for competitive, cost-focused
companies, but SpaceX is riding some very long coattails here.

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huhtenberg
> _You can take cost out of a rocket. But I will guarantee you, in my
> experience, (snip) your quality and your probability of success in
> delivering a payload to orbit diminishes._

What else, conceivably, could Lockheed say?

~~~
xiaoma
"Here at Lockheed, we know just how much is involved in making a successful
launch like this and we'd like to congratulate SpaceX. Well done, and we
welcome your competition. Ultimately, new competitors push us and advance the
market as a whole. Over the course of our 66 consecutive successful missions,
we've blah blah blah..."

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binarray2000
Knowing that the military-industrial complex has strong influence on US
government and its agencies one has to both wonder and be surprised that
SpaceX (presumably not part of that complex) gets such a lucrative account.
NASA is one thing but US military...

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davedx
In sales they teach you that making fun or otherwise disparaging your
competition is not the way to close deals. I guess it doesn't apply when
you're a billion dollar corporation and you can throw your weight around. Or
think you can?

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Vivtek
Well, they've stopped ignoring! Next will be attacking.

~~~
sliverstorm
I love how that quote has generally been re-interpreted as proof that being
ignored means you're winning.

~~~
confluence
The quote uses conditional probability - you must have an aforementioned high
impact strategy to make it a useful quote.

For example - starting a PC company in the 70s would be a good place to use
this quote.

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tobyjsullivan
This must be my favourite (worst) argument ever:

“Cost doesn’t matter at all if you don’t put the ball into orbit," said
Lockheed’s Stevens, who is retiring as chief executive [officer]...

Effectively trying to rationalise doubling costs of every project as
"necessary". He thinks this will win him credit in any industry?

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confluence
I have a list of contra-indicators, which are indicators that I use to
probabilistically look for interesting industries that are about to change a
lot/see a lot of disruption/have various competitors who are about to head
downhill.

Making fun of your competitors or suing them into the ground to show your own
superiority is indicator #7. If you have to talk to explain your walk then you
will soon be mocked.

MSFT is doing that with it's Google attack ads. AAPL is doing that with its
various Samsung lawsuits and general adolescent behaviour.

~~~
rickdangerous1
What are the other indicators?

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31reasons
Its a great timing for SpaceX as all government agencies are looking to reduce
their costs with fiscal cliff and all.

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joering2
Have anyone noticed that Musk is distrubing too much in two important
industries whith billions of bollard involved: military/space and
transportation? I am seriously concerned about his health, if you know what I
mean...

~~~
oijaf888
No I don't...what do you mean?

~~~
jff
It's a bullshit conspiracy reference meant to make the GP look ever so cynical
and wise. Specifically, saying that GM, Lockheed, Honda, and Boeing will all
get together and assassinate Musk.

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jstrate
Launching a multi-billion dollar satellite is a different than a hello world
rails application. The ULA record of successfully putting dozens of satellites
into the _correct_ orbit is important here. Which I don't even think SpaceX
has done yet.

~~~
JshWright
All three times Dragon has flown, it has ended up in the correct orbit. SpaceX
also put RazakSAT in the proper orbit atop a Falcon 1. The Orbcomm failure was
only due to the extremely tight restrictions placed on the mission by NASA
(the mission called for relighting the second stage to raise the Orbcomm
sattilite's orbit, but since they had used slightly more fuel than planned due
to the engine outage, NASA didn't let them relight, it's quite likely the
rocket was _technically_ capable of completing the mission).

Obviously they have a ways to go before they can be considered 'tried and
true,' but comparing SpaceX to a couple college kids putting together the next
Instagram-for-Cats in their basement is disingenuous, at best.

~~~
jstrate
I suppose the point I'm making is to the general sentiment I'm seeing in this
thread. It will take better than a 50% success rate of putting satellites into
orbit before Lockheed starts thinking about the huge disruption I keep hearing
about on this website. If you were to put a billion dollar satellite into
orbit who would you choose?

~~~
DanBC
That satellite is a billion dollars _because_ of the expensive existing launch
options.

Having a launch option an order of magnitude less than what exists at the
moment is pretty important - it means people can build and launch two
satellites for the same price.

~~~
sek
True. The highest cost is development, producing a second one is far less
expensive.

