A Simple Mental Model for Understanding the Satellite Imagery Industry

Disclaimer: my saucy prose and cocksure opinions do not represent the views of my employer. Nor do they represent my own views should they become even trivially inconvenient to me in the future.¹

Pictured above: the process of figuring out how to reduce anything, no matter how clumsily, into three alliterative words.

There are only three basic rackets in the commercial satellite imagery industry: Mapping, Monitoring, and Mobilizing.

Pick two.

I am constantly impressed by the varied and obscure applications of satellite imagery.² Normalized difference vegetation indices. Small baseline subsets of interferograms. Convolutional neural networks. It can all feel a bit…overwhelming.

But at the end of the day, it all boils down to the Three M’s of satellite imagery. Emineminem, if you will.

I use the emineminem framework all the time. I find it both helpful at the micro-scale for clarifying my stance on strategic decisions we’re making at Umbra and at the macro-scale for making sense of industry news.

Dare I call it a mental model? Perhaps I’m being overly generous, since it’s really just a Venn diagram that I scribbled on an iPad on the plane home from Thanksgiving.

Whatever you want to call it, I hope you also find some value in it. I know I have!³

The Three M’s Explained

It’s a common fallacy to believe that the “hard part” of building a satellite imagery company is designing, launching, and operating spacecraft that produce high quality data. It is really hard to do that. At times, it literally involves rocket science.

But, the history of this industry reveals that a good portion of the people who successfully do those hard things still go bankrupt.

Therefore, I think the hardest part of building a satellite imagery company isn’t the satellite imagery part - it’s the company part. You gotta sell stuff to people for more than it cost you to make it. Few companies in the history of this industry have ever done that.

In my opinion, you can’t solve for the challenge of company building if you try to juggle all three of the M’s simultaneously - you must pick one, become the best in the world at it, and build a profitable foundation on top of it before branching out.

“The hard part is gonna be making the chainsaws and getting them to work reliably - you wouldn’t believe how complicated those things are. Juggling is relatively simple by comparison, I’m not too worried about it.”

Let’s take a closer look at each of the M’s.

Mapping

Mapping is the most mature application of satellite imagery. People have been looking down at Earth from above, taking pictures, and using that to make better maps since the mid-19th century.

It’s also extremely expensive and difficult to support - mappers tend to want very fine resolution, extraordinarily accurate geolocation, and large, seamless coverage areas.

They’re willing to sacrifice timeliness for fidelity. After all, most “foundational features,” like roads and lakes don’t change much year over year.

And yet, for all that effort, it’s also probably the least attractive of the three M’s from a financial standpoint. Lumpy, infrequent, non-recurring sales…what’s not to love?

Not to mention—the competition is staggering. Most of the pixels people actually look at in Google Map’s “satellite imagery” layer are in fact aerial. And the proliferation of consumer drones has further eroded the relevance of satellite imagery for many mapping use cases. For the cost of one tasked 50cm satellite image, you can drive to Best Buy, get a professional-grade drone, and fly your own 5cm imagery before the command has even made it onto the satellite.

When I call for the satellite imagery industry to release its archives into the public domain, the reason I don’t think it’s such a crazy idea is because mapping is a dying line of business in my opinion. Even the aerial companies are moving to cheap subscription models rather than one-off licensing deals (see Nearmap’s recent acquisition as an example).

Monitoring

Now we’re talkin’ baby! Monitoring…just checkin’ in. Keepin’ tabs. Creepin’.

Likely the smallest niche of the group in terms of direct economic value capture, Monitoring is also the fastest growing category of the bunch.

A few billion dollars of VC funding is premised on monitoring becoming a bigger niche than either mapping or mobilization. I personally believe it can replace mapping as the second most important way to make money in the space, although I’ve long felt the process will happen slowly over a decade or more. It’s not that we can’t capture lots of imagery every day…it’s that almost nobody even knows what to look for in it, let alone how to look for it.

I think VC’s love affair with monitoring is less to do with any objective demand signal for it, and more to do with its technical, financial characteristics. Monitoring lends itself to a subscription model (eg $X/km²/month), and that’s a lot more desirable revenue that the one-off purchases inherent to the other two niches.

Predictable, recurring revenue commands a higher valuation multiple due to the accounting principle of the time-value of money—the higher the confidence investors have in future cash flows, the less they discount future cashflows, resulting in a higher present-day valuation.

There’s just one issue…

Monitoring has long been the domain of billion-dollar scientific missions with global coverage and exquisitely calibrated data. Billions have gone into these projects - stuff like Landsat, Sentinel, NISAR.

Unfortunately, due to Physics™️ and the inherent tradeoff between spatial resolution and coverage, it’s tough for commercial providers to sufficiently differentiate themselves. Sure, you can achieve a higher resolution and faster revisit cadence on a lower cost-basis, and you might even be able to reach parity on the spectral/radiometric calibration. But you’re competing with free. Free as in beer and speech.

It will always be tough to justify the (infinite?) premium you need to charge customers for a commercial, global monitoring product. But…crack that nut and it’ll rain B2B SaaS-esque forward revenue multiples from the rafters like confetti.

Mobilizing

I admit it. Mobilizing is the most contrived “M” of the bunch. Hear me out, I think I can make it work…but it’s a little weak.

Mobilizing refers to the phenomenon of a customer reacting to an event by tasking a very high resolution, low latency image to further characterize that event. It could be verifying troop movements in a war zone, or estimating impact during and after a major flood event, or checking to see whether or not a manufacturing facility is currently in use. Whatever the reason - something acute and fleeting is motivating the customer to ask for that satellite imagery.

The key is that the imagery offers sufficient spatial resolution to see human-scale changes and is delivered quickly enough to inform a rapid response (ergo…”mobilization”). This use case is the backbone of every profitable satellite imagery company in history.

People often ask, “What is the killer application for satellite imagery?” Well, this is it. And I mean that very literally. Targeting is an example of a mobilization use case.

Mobilizing doesn’t naturally result in recurring revenue, because it’s inherently uncertain and reactive. However, it can be structured in a recurring way, sort of like a retainer on future capacity (e.g. the “direct access” programs that sell dedicated orbits to customers). How convenient!

Customers looking for this product are less price sensitive than their monitoring and mapping counterparts - it’s hard to assign a value to a piece of information that can literally save a life if delivered quickly enough and with high enough fidelity.

And unlike mapping, there often isn’t a viable alternative - you can’t easily fly a survey plane over denied airspace or use a drone in a hurricane.

A Quick Aside…

It’s nice to be back. I haven’t written for fun in over six months. Let me know what else you are curious about that I could cover in future essays (simply replying to this email goes directly to my personal inbox).

My only other half-written essay in the drafts is about something far more esoteric (how internet in space will affect the satellite imagery industry). So, I’m open to ideas.

Thanks for reading and, above all, stay saucy my friends.

---

¹ This is the first time I’ve ever put a footnote in the disclaimer, but it’s for an important reason. I think “saucy” has the potential to become my signature adjective. I intend to liberate it from its cultural imprisonment to the phrase saucy minx, a small-minded and bizarre bench role for a player with adjectival hall-of-fame potential.

² Originally I wrote, “sundry and abstruse” instead of “varied and obscure.” In honor of my decision to show restraint, I’m taking this footnote as an opportunity to remind you that, yeah, I went to a liberal arts college. I read books on rare occasions. My vocabulary is significantly above average, even among college graduates (but only if you include the for-profit online schools in that calculation).

³ In fact, I hope for a lot more than just this “mental model” being useful to you. I hope for a lot of things. I hope you find joy and happiness in your life. 

I also hope you share this essay with one person who you absolutely despise, preferably someone with no connection whatsoever to the satellite imagery industry. And, I hope when you share it, you include a note like, “You have to read this, you will love it. There’s one footnote in particular that made me think of you.” 

Maybe you’re even the person that received a link to this essay along with that provocative note. In that case, I hope that you are currently reading this footnote with growing confusion and resentment. I hope you can reflect on why someone would despise you enough to share this essay with you. 

Most of all, I hope you can see this moment for what it is. I want you to imagine your life sprawling out before you on all its splendor and preciousness — you are at a fork in the road. Along the righthand path, should you choose to take it, you will find peace and reconciliation by forgiving the person who shared this essay with you. Along the lefthand path, you will find a new career in the satellite imagery industry. 

Choose wisely. But should you venture down that sinister way into the tangled wood off to the left…welcome, friend. We’ve been expecting you.