The Big Bet on the Emerging Space Economy

Welcome to the Cogs of War podcast. I'm Jonathan Panther, Executive Editor of the Cogs of War Vertical, brought to you by War on the Rocks and Booz Allen Hamilton. Today we're discussing the emerging space economy. I am joined by Joseph Yaffe, Chief Operating Officer and Chief Legal Officer of Cowboy Space, a deep tech startup building vertically integrated orbital data centers. I'm also joined by Brian Whedon, Director of Civil and Commercial Policy for the Center for Space Policy and Strategy at the Aerospace Corporation, and Dan Wald, Director of Space and AI at Booz Allen Hamilton. Gentlemen, welcome to the Cogs of War podcast. Let's do a quick round the horn. Would you each tell me what your company or organization does? Can we start with you, Brian? Hi, I'm Brian Whedon. I work at the Aerospace Corporation. We are one of the major federally funded research development corporations. We specifically focus on space. In general, the corporation does a lot of research on space, but we also do a lot of research on space. We have a lot of technical administrative support to a variety of government space programs. I work in our Center for Space Policy and Strategy, where I lead our team that focuses on all things commercial space policy, civil space policy, and also regulatory. Great. Good morning. Joe Yaffe, Chief Operating Officer, Chief Legal Officer of Cowboy Space Corporation. At Cowboy Space, we're building an American energy grid in orbit, and we're doing a couple of different things. We're building very large orbital data centers, that'll be part of a vertically integrated vehicle. So we're standing up a launch program, aiming to put data centers in orbit, which will contain a megawatt of compute power per launch. At the same time, we're launching satellites to collect solar power in low Earth orbit and beam it to Earth by infrared laser, which we'll be demonstrating later this year. I run global operations. My background is as a lawyer. I like to say my primary function is to keep the trains running on time at the company. My name is Dan Wald. I'm a Director of Space and AI and the Director of Commercial Space within Booz Allen. Booz Allen is a high technology company. We've been focusing on bringing value as a partner to many space programs over the last 60 years. My main focus over the last few years has been about how do we bring AI to the space segment, to on orbit. We have done some wonderful demonstrations over the last few years, bringing the first generative AI to space, which I think is really going to be transformative as far as bringing advanced AI to these orbital data centers that you're talking about, Joe. The topic, of course, today is the commercial space economy. And like some other topics we've covered recently, such as AI, it seems that if I'm not reading every day, I'm very outstripped by events. When I think about space, at least in our lifetimes, historically, when people spoke about space, they meant either scientific research like that conducted by NASA or the Hubble Telescope or astronomers, or they meant military applications in space, missile warning and tracking, GPS, and things of that effect. But now, apparently, there's $626 billion last year going into the space economy. Some people project a trillion by the 2030s. I'm interested to know your take just off the bat, how much of that is hype? How much of the space economy is real? And how much of it is still government driven? That is a really good question there. I mean, we have discussions in our community, what is the space economy? How do you measure it? And you get some different estimates on that. I think one, it is real, right? We are doing real things in space. There are companies now driving revenues. There are publicly listed companies. And while the government still plays a role, things have changed quite a lot in the last couple of decades. We did a paper a couple of years ago asking this question, what is the space economy? And we looked across multiple different other ways people value it. When we think about it, we tend to think of two different approaches. One is a top-down approach where you're summing all of the public revenues and what companies say they're investing, what government said they're spending. There's also sort of more of a bottom-up approach where you're looking at what are the actual labor use and capital expenditure, all those sorts of kind of outputs coming out of it. Both give you a little bit different answers, but in general, so there is something real here that's going on. How big of an answer you get between those two different approaches? Are we talking about a few hundred billion? It's in the ballpark. The estimates, different reports are somewhere between, I would say, 400 and 600 billion. And that is summing corporate revenues, as well as government expenditures. It's an interesting question when you talk about the size of the space economy, because one prism, and it happens to be the one that we're looking through, is that what we're looking at is actually the convergence of the tremendous amount of capital flowing into AI and AI infrastructure, which is effectively creating an opportunity to turn the space economy into the regular economy. And then what we're going to be talking about very quickly is doing, engaging in commercial and capital-intensive activities in space that are also being conducted on Earth. And it's just a new domain. If you look at it through that lens, I'm not sure 626 billion is the number that I would focus on. I'd probably focus on $7 trillion of AI infrastructure build-out, the largest infrastructure build-out in human history. And this is really, I think, an inflection point because the best way to expand development to seek technological breakthroughs is to bring capitalism and the forces of capitalism to bear on that technology. And AI is really, in our view, creating that opportunity in a way that hasn't been seen in the previous iterations of the quote unquote space economy. I think there's one thing I'd love to add to this conversation. So I live in the space coast over in Cape Canaveral, Florida. What I could say is I can not only see the increase of the space economy here, I can feel it in my bones quite literally. With every launch, it's rattling my windows. And one of the things that I would say is driving this kind of expansion is, of course, the reduction of launch costs, the expansion of power availability, solar cells, the increase in our comms rate. And also the increase of compute that is available on these satellites, and in fact, is going to be commoditized inside of orbital data centers. For me as a software and an AI professional, what this does is it really unlocks the opportunity for us to scale to these valuations and to simply the number of satellites that are planned to be in orbit. We need to do things differently in order to keep up with that and in order to take advantage of this new infrastructure build-out. I think Joe raised a good point. What is the delineation? What is the correlation between what counts as a space economy and the rest of the economy? We had this debate 15, 20 years ago when the single biggest driver of the space economy was broadband, was televisions beamed from geosynchronous satellites, DirecTV. We had a whole question, does DirecTV count as a space company? And do you count the television revenues as space revenues, or is it just the satellite? I think what we're seeing is that further blending. If we're now doing things in space, is that a data center thing? Is that a space thing? Is that an AI thing? It's just making this question a little more complicated. But in my mind, I think it's part of what I was kind of sort of the normalization of the space world, right? We used to be kind of off in the corner by ourselves doing cool things, but was treated separate from the rest of the world and the economy. I think what we're seeing is that is all blending and blurring together. So that's really interesting. I never thought about that. I'm interested in the implications of that. In the case of Cowboy, we know that you are clearly a space company, vertically integrated, right? But then you have potential users of data coming off of space. Is there a problem if we blur the distinctions between the two? Are there regulatory issues? What sort of policies are we abutting up against if a company is designated as being in the space sector or not? We do have a lawyer here who might be able to answer this. I wake up and I see regulatory issues is the facetious answer to part of that question. But here's what I would say. I actually think that's a good question. I think that's a good question. I don't really think that we think of ourselves as a data center company. You want to talk about blurring the lines. If you focus on it from a business perspective, whether that customer is a government customer or a commercial customer, what they care about is resilient, reliable compute that they're able to purchase at market competitive rates. Whether that compute is being done in space or whether it's being done in Northern Virginia or East Texas is really secondary to the customer's concern in all of those cases. I think one important point. In terms of regulatory issues, yeah. I mean, look, I think anybody who does work involving the space economy knows that right now we're dealing with a very disaggregated regulatory regime that creates opportunities, I think, to be shaped in a way that further streamlines while protecting and doing the things that regulatory authorities ought to be doing because we're engaging in new activity and novel conduct in space. Whether it's talking about the work that the FCC is doing on space modernization or through to how you integrate different approval agencies, the FAA, FCC, and NTIA, and others. I view that as a challenge in one part, but an opportunity to do it the right way as we're heading into this new world. Yeah. Just to kind of put some more background into that. One thing that's different about space is the US government is required under national law to authorize and continually supervise its space activities, which is a little bit different than what happens in other domains. The way we've done that traditionally over the last few decades is there are three government agencies that, they've each been given authority to regulate a different part of space activities. Federal Aviation Administration has regulatory over commercial space launch and reentry. Federal Communications Commission, as you mentioned, has regulation over commercial uses of radio frequency spectrum for space. And then the Department of Commerce, the National Oceanographic Atmospheric Administration, NOAA, has authority to regulate satellites taking pictures of the earth, essentially, because those were the three big things we did in the commercial world. What we're seeing, as was is all these new things coming online. that the commerce sector is doing or wants to do that don't fall cleanly into those three buckets. I think there's another layer here that I've been focusing on primarily, which is how do we reduce the friction of adoption? Because a lot of what you just talked about is really talking through some of the challenges with deploying to space. But if the goal is to reduce those lines, to blur those lines, making this frictionless, fast and free is in like no extra tolls for us to go into space. That has been the main focus for us. And so this means from a Booz Allen perspective, how do we gain an authority to operate in the same way that we do in the cloud? How do we use the playbooks that worked a decade ago as we transitioned from on-premises compute to cloud compute, now as we transition from terrestrial compute to orbital compute? And where are the right use cases for it? You mentioned a handful of great use cases. NOAA is something that's front of mind for me. And like one of the big applications that we're pushing forward is one of, I think, the first applications is within remote sensing, vision processing enhancer. We've got a cool name for that. It's called Viper. So what we focus on there is looking faster, forming those insights faster, looking further, looking at dimmer objects and doing it all on orbit is what's going to create that latency adjustment. So that's just the tip of the iceberg though. And making that frictionless, fast and free, that's been our main focus. Frictionless, fast and free while creating an environment that can prosper for generations where the regulatory framework is at the same time. And in the meantime, protecting both existing entrants and new entrants into the business space, and also protecting people on planet Earth and anybody who plans to operate something in space. I think all of that is critical. And I think the good news is, in my experience, that folks who are thinking hard about policy changes are tuned into this, that they get it. And I think Chairman Carr and Jay Schwartz at the Space Bureau at the FCC are great examples of that. The FCC's space modernization approach, I think, is well thought out. And they're making real efforts. It doesn't address how we get three-dimensional space modernization, but it does address how we get three-dimensional space modernization. And I think that's a great example of that. SpaceX operates a constellation of 10,000-plus starlings using a pretty small crew, much smaller than the traditional military operators would because they have done a lot of automation. They built a whole system to do autonomous avoidance of potential collisions with sort of a first of its kind, which in my mind is an engineering feat on par with the reusable rocket. And I'll say the other thing I'll add is there's multiple challenges we're working on here. We're talking an order of magnitude or more increase in the number of space launches that we somehow have to coordinate and have the infrastructure for, but also coordinate with airspace traffic, because that's the only space goes up through airspace, if they're coming back through landing through airspace traffic. You now have to coordinate traffic on orbit, all these satellites going around and around. Many of them are now going to be in very, very similar orbits. So how do we avoid them colliding or coming too close to each other? How do we deal with this? How do we dispose of these satellites? How do we deal with the radio frequency mitigation? Or even if we go to optical laser comms, are there other challenges there? There's questions about optical brightness and what is that going to be doing to other fields that rely on the night sky? There's just a whole host of questions. Not saying they're all going to be showstoppers, but things we're trying to think through kind of in parallel across all of this. Other than orbital data centers, what other civilian applications are we seeing going into space? For the first time? Well, one other big area we're seeing is human space flight. That has traditionally been one of the things that only governments did because it was so hard and so expensive, there wasn't a model for it. Over the last 10 years, we've seen, of course, very publicly, the growth in tourism flights. So the suborbital flights, there's been a couple of orbital tourism flights. And the current NASA administrator is one person who actually went up on a private orbital space flight, which is kind of interesting to think about. NASA currently has plans on the books. They're planning to shift from a government-run space station, the International Space Station, to being a customer on one or more private space stations under a program called Commercial LEO Destination, CLDs. That's what they see as the potential future. So there are several companies planning to build and operate private stations to serve as hotels, laboratories, whatever comes out. That's going to be a pretty huge change. Yep. And you're leaving out helium-3 mining on the lunar surface. That's one of my favorites. How likely is that to happen? I'm not going to comment. That's not a business I'm in. I think it's fascinating, and I like to live in a world where helium-3 is being mined on the moon's surface. But this is another good example of something that's going to be done for the first time that has never been done before. I think with human space flight and the tourist flights, it's very obviously a civilian application. There are a lot of other things that seem a bit more dual use. Now it depends on the customer. So I won't name any companies. But let's say you have, there are competitors out there who are also putting data centers in space. And some of that work is for banks or other civilian applications, and some of it is for military customers. Now we have a dual use product. What sort of risks do you foresee there? Do any of you foresee in terms of a perceptual risk of adversaries misunderstanding what a particular satellite or capability is for? I think perception is one of the biggest areas of potential risk. In order to have autonomy, we need to detect, track, classify, predict. That's where anything is going. And that has some real applications for robotic autonomy, but also for counter UAS, missile defense, all sorts. And the reality is the modern AI approach for this is so flexible that we end up seeing the same approach being useful in many different applications. This is both the power of what we're talking about with multi-use technology, but also some of the challenge as well, which is our adversaries might find. Is something as low risk as a refuel to be potentially a very difficult operation to understand and accept? It's easy to identify the risks. I think challenging for at least a commercial operator to articulate exactly how to resolve those risks. If you take the case of AI data centers in orbit, you're talking about dual use, a single orbital data center can run multiple workloads, government workloads, probably you mentioned banks, running a financial services model. You're talking about a company model on the same data center. All of that happening 24 hours a day or virtually 24 hours a day and instantaneously. So that blurring of the line for that particular piece of hardware is very real. And in the context of a contested domain, and by the way, a contested domain that probably has fewer real world optical and political repercussions when conflict arises in that domain because it's simply invisible to the naked eye on the average person is of concern. How we resolve it, that I can't tell you. We have to plow ahead because we think it's so valuable. Yeah. I mean, I think in general, this question of how do you manage dual use perceptions? It's not new for the space world, right? We've been dealing with that since the origins of the industry and of the community. Remote sensing is the classic example here, right? My satellite is taking a photo. Am I going to sell that to a farmer or am I going to sell that to an intelligence agency? It could be the same satellite. What is different, I think, is the expansion. Of these kind of activities, many more countries are getting involved with their own commercial sectors, doing their own things. Many more governments are now trying to leverage commercial capabilities as a way to get at having a sovereign capability, right, instead of running on satellites. So the question is not new, but the complexity, I think, is different. And these questions of how does all this fit, particularly when governments are using them in armed conflicts, that is a huge question. And we're seeing that. We've seen that play out in Ukraine over the last few years, where it's the first time there's been a real public and international focus on commercial space playing a role in an armed conflict. And what does that mean for how you do intelligence, for how you do targeting, all these questions for lawyers to sort out and trying to go through? That, I think, is one of the things that we still need to put maybe some brain cells on to figure out. What does that mean? I agree. And I think one of the things that really underlines, though, is the need to really focus on diversity in supply chain and resilience. We kind of a couple of times alluded to, for example, launch infrastructure, where there's a lot of work to be done just on the ground to create an environment for the purpose of just by itself protecting assets in space, you know, it's kind of woefully underbuilt at the moment, not to mention just what is necessary to kind of propel the commercial side and the private commercial side of the space business. You know, the same thing holds true for just the necessity. You know, there's the need to have, you know, multiple heavy launch pump companies that are able to deliver orbits into space, you know, at cadence with redundance, not just because I'm a big believer in competition, just because I think that's the right thing, because in large part because of this dual use capability of all this technology. I agree with you. I think there's an inherent tension there, though, with something we discussed earlier, which is that when we're in these large national races for sovereign capabilities, be they economic or military against our peer competitors. Let any effective company pull ahead, right? If it's us versus the Chinese on launch or us versus the Chinese on space-based data centers, if a company is doing well, let them do very well. Now the tension with that is given that first advantage and scaling advantages, suddenly we have a sole source dependency and that abuts against our desire for resilience during armed conflict. I don't know if there's an answer here, but I'd be curious to ask you guys when you think how one achieves resiliency in this particular economy. Well, if I can jump in just for a little bit. One of the ways that Booz Allen approaches this resiliency is to really focus on a modular open source architecture, MOSA is what we call that. And we do this intentionally such that our trustworthy applications and platforms don't all have to be vertically integrated. Which means if a competitor comes by later with a better solution, we can replace it with that solution. And we do this for a couple of reasons. One is, of course, economically, we don't want to force any of our customers to be vendor locked. But secondly, exactly for this reason, we're a government partner. We focus on really the mission first in all things. And when it comes to that, the right solution is the best solution. And sometimes that best solution is a partner solution. So how do we integrate that in, in a way that doesn't break our underlying infrastructure? So that's kind of the Booz Allen approach to this, but that's more of a software centric view of the world. Dan, I think what you're hitting on here is there isn't one answer. It fits everything, right? That there's a, there's a whole range of ways you can build resiliency and how you assemble those is probably different for the different mission areas, right? We can't just easily create, you know, a dozen new heavy launch centers, right? But we can create a whole bunch of new satellites. So if we lose a satellite, we can go somewhere else. From my perspective, you know, it really depends what are you talking about, a resilience architecture for remote. Sensing is different from launch is different from data centers is different from ground mission ops. So you really got to go to the next level down to, to be able to figure out what sort of a more detailed answer is. Yeah, I agree with all of that. I'll maybe a slightly different perspective that's in accord with both of what you guys have just said is that if you start with something I said at the outset, which is a thesis is a capitalism spurs technological growth, which in turn spurs resiliency and redundancy. I think it's really critical that we. Take advantage of the opportunity we have right now in the industry to attract capital and to create. And I think that we have the ultimate public company comp in SpaceX, which is extremely helpful to looking at what the financials of this industry can do. And I'm not weighing in plus or minus on the value of SpaceX, but it's out there as a public company comp and it's a unique comp. I think you marry that with things like spaceport bonds, which frankly don't get enough attention, but I think going to become a very critical resource. Not only as people build out things in the Cape and in the space coast where you live, but I'm hopeful that we see that same type of expansion of on the ground launch infrastructure out on the Western Range, which by the way is critical because we talked about polar sun synchronous orbit. The Western Range is our pathway to polar sun sink orbit. And I'm very supportive of Vandenberg's spaceport expansion plans. I think if it was up to me, I'd go 10X further because I think that the industry, both private sector and dual use, will support that. So looking for those opportunities to let all flowers bloom without denigrating first movers who have done incredible things and everybody is standing on their shoulders, but creating the opportunity for 2.0, 3.0, 4.0. To wrap up here, I'd like to ask each of you, what's the thing you're most excited about in the coming years in the commercial space economy? What excites me and gets me interested is all the innovative ideas that I see coming across. I mentioned we kind of have these classic cases of space is launch. It's about sensing and it's broadcasting electrons, and that's still kind of the case, but almost every week I see a new innovative proposal that says, "Hey, I'm going to use technology and I want to apply it to this problem, or I'm going to use it in this new different way." And that's great. Even if those all don't pan out, just seeing that creativity and what could be and how people are using technology to solve new problems, I find that fascinating. I think we don't even. I have an early view on exactly what the incredible cadence of AI development is going to mean for the country and the economy and the world. And I'm looking forward to sort of, as we talked about at the outset, the blurring of the lines between ground and space and that the access to solar energy and what we start to do in orbit kind of fundamentally restructures the relationship between earth and energy. And we look back in whether it's 10 years, 20 years, and we say, "Wow, everything looks a lot different now in terms of how energy and AI have converged together and impacted people's qualities of lives on the ground." I'm going to take a slightly different approach. I think this infrastructure that's being built out over the next few years is going to enable some of the most inspiring discoveries and moments in time, and that's the sort of thing that inspired me to get into space technology in the first place, was watching the astronauts' landing. I was the person watching them fix the Hubble telescope as a child. And when I realized that this is just a job and I could do that, too, and of course then decided to go build satellites instead, that was a huge inspiration moment. Just like the Apollo 11 moon landing was an inspiration point for the generation prior to me, just like I imagine the Artemis moon landing, which is to come, will be a massive streamed event that we're going to watch on Hulu, Netflix, you name it. These are the sorts of things that I think is going to inspire the next generation. And, boy, I'm excited to see it. It's a great note to end on. Gentlemen, thank you for joining Cogs of War. Thank you. 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