By Jason Bates

When the first commercial imagery satellites were proposed, owners and investors had visions of billions of commercial dollars dancing through their heads. But the commercial market forecasts for the industry were proven to be wildly exaggerated, and the satellite operators struggled for years.

Today, the industry has righted itself, thanks to help from the U.S. government. New satellites scheduled for launch throughout the next few years promise to increase the choices available to users, and the interest of Internet search engines in commercial satellite imagery promises to introduce the technology to an even wider array of potential customers.

The Commercial Market Today

The U.S.-based imagery satellite operators struggled early in their existence, as neither the commercial market or the expected support from the U.S. government materialized. "The commercial market has existed," says Bill Wilt, senior vice president of domestic sales and mission support for Geoeye Inc. "There has been aerial imagery, and in a lot of places, space imagery could do the job; sometimes better depending on the application. That said, when Lockheed Martin, Raytheon and Mitsubishi formed Space Imaging in the vanguard of the industry, to some degree, even though we were armed with the Frost & Sullivan reports, they were depending on a build-it-and-they-will-come kind of thing. It was a brand new service in the market, but now the industry is gathering legitimacy in the marketplace and notoriety."

The U.S. government finally signed on as a major supporter of the industry in 2003 withe the Clearview program. Under the effort, the U.S. National Geospatial-Intelligence Agency (NGA) awarded contracts to the three existing U.S. imagery satellite operators to provide raw data and products. The NGA then pledged to support the future of the industry, awarding Nextview contracts to Digitalglobe and Orbimage that would support the development of their next-generation imaging satellites. Space Imaging, the first U.S. company to actually orbit a commercial imagery satellite, Ikonos, was the loser in the government’s contest to determine which operators would survive, and the company was acquired by Orbimage in January, creating Geoeye.

Now with the near-term future of the commercial operators secured thanks to government help, the companies are placing some more emphasis on developing the long-sought commercial market. At one point, the U.S. government accounted for 80 percent to 90 percent of some satellite operators revenues, officials say. Today, that number has dropped closer to 60 percent, and an increase in the profile of commercial satellite imagery could help shift the ratio of revenues from mainly government to mostly commercial. "Some of the growth has been through industry efforts, some through technology, and there has been a lot of work the companies have done with the media," says Chuck Herring, spokesman for Digitalglobe, which operates the Quickbird satellite.

Other industry officials doubt that the satellite operators will ever see commercial operators reduce their dependence on government customers too much. "There is more flux and change now in the industry than ever before, and that makes it interesting," says Clark Nelson, a spokesman for Spot Image, the U.S. marketing arm of French imagery satellite operator Spot Image. "But the reality of it is that sales are now and will continue to be 80 percent government. The equilibrium that has been achieved throughout the year hasn’t wavered much, and you don’t see it wavering much in the future.

The companies will continue to make sure that the NGA, the satellite operators primary source of revenue, remains well served, says Ed Jurkevics, an analyst with Chesapeake Analytics. Other sources of revenue, such as licensing fees from foreign ground stations and from commercial customers and international governments, will contribute, but "the overestimation of commercial markets led to unrealistic expectations," he says. "The industry should have first been called ‘privatized remote sensing’ not ‘commercial remote sensing.’ Originally the NGA sat back, thinking that the commercial players would get on their feet with commercial markets, and the U.S. government would be able to come on board when and as they pleased. But this was a miscalculation all around. The late adoption by the NGA practically killed the industry, as Ikonos was past the half-way point in its design life before Space Imaging got their first order from the NGA. The commercial markets had a significant latency, and could not make up the difference."

But that does not mean that imagery satellite operators and government customers around the world would not like to see the companies grow the size of the commercial market, providing another source of money and stability for the industry that governments are becoming more dependent on. "The U.S. government, particularly, is keen to know that we are a diversified industry, and we are keen to be as well," Wilt says. "We don’t want to be dependent on any single provider. We are looking to do a spread of revenue. I believe that today, we are fairly diversified in the marketplace."

Internet Search Engines Entering The Market

Today, the commercial market consists primarily of longtime customers such as the oil and gas industry, forestry companies and other large industrial users. But imagery providers are seeing a shift in the number and types of commercial customers for their products, driven in part by large Internet companies promoting the data that is leading to wider use of the data in mapping, real estate and other personal consumer uses, markets that the satellite operators have not previously had the resources to try to access.

"We’ve seen a real shift throughout the last year in the acceptance of satellite imagery in more consumer applications," says Tom Kubancik, director of business development for Harris Imagelinks, a value-added reseller of satellite imagery. "Real estate has been a big driver in that area, and two good examples are Microsoft and Google. The change that we see that, we’re excited about. In the past, commercial organizations or government agencies have been the primary purchasers of imagery and imagery solutions, but now we are seeing the consumer in the game. When they get in the game, the affect the market in very positive ways. The broad expansion of usage typically drives price points down significantly."

The adoption of satellite imagery by the gigantic Internet search engines, which use the imagery in mapping programs such as Google Earth and Microsoft Virtual Earth, will expose the technology to a much wider audience, says Wilt. "The public now has a much wider understanding of what is possible," he says. "That, coupled with our government business, does make us viable in the commercial marketplace. The challenge for the satellite operators will be finding a way to capitalize on the exposure to the consumer market and derive revenues. "The way the search engines go to the marketplace is slightly different, as is the way the get revenue, but it’s certainly there," Wilt says. "Microsoft has things other than search engines. They are applying the imagery to a range of services. We’ve gone beyond the era of paying for clicks, I think companies are in the business of actually selling products to the search engines, so the business has matured."

But there are pitfalls that must be avoided, and there is not yet a clear indication of how the satellite operator and value-added providers will recognize clear revenues from the Internet distribution channels. "The entrance of Google, Microsoft and Yahoo represents an inflection point in adoption by consumers and businesses," says Jurkevics. "The importance of it is that for the first time, the power of the consumer market is now coming into this business," he says. "There was no path for revenues from the consumer market, so this represents now, the consumer market taking a share. Don’t know how large it will grow, but there is optimism that they will form a fourth basis of revenues for these satellite imagery companies." The key will be to not fall into the trap of again overestimating the impact of the market. "It is not clear how it will develop, but it does look like it’s going to be represented by a few very large customers who sort of control the consumer access. The hardest part with that is that a few, powerful customers can exercise a lot of negotiating leverage."

Impact Of New Satellites

While the Internet provides great hope for the long-term future of the commercial imagery industry, the companies also expect a boost in the short term from the upcoming launches of several next-generation.

Digitalglobe will be the first to bring a satellite capable of providing commercial imagery of a half-meter or better, with the company’s Worldview satellite scheduled to be launched by the end of this year. While the resolution provided by Worldview iwill not be that much greater than the company’s Quickbird satellite, which collects imagery with a resolution of 0.62 meters, the real differentiator will be in the amount of collection capacity that Worldview will provide Digitalglobe, about four times greater than that offered by Quickbrid, says Herring. "The onboard storage and communication downlink capability will be greater, and the satellite will have much more agility, meaning we can pick up targets more quickly."

Geoeye, already operating a pair of high-resolution satellites, plans to launch its next-generation spacecraft, Geoeye-1, in February 2007. The satellite will capture imagery with a resolution of 0.41 meters and be able to collect three times the amount of data provided by Ikonos and Orbview-3 combined, says Wilt. "Some of the benefits are obvious," he says. "With the accuracy of the pixels, it opens up more uses for the imagery. Twice the accuracy is going to open the marketplace. We have to explore how, but we hope the offer is compelling."

Geoeye also believes that the increase in capacity and decrease in revisit time will provide one of the biggest improvements in its service to commercial and government customers. "The combination of two satellites has been interesting to use and interesting to some of the customers," Wilt says. "In collecting pixels that don’t have a temporal requirement behind them, it’s not as profound, but where you’re trying to sort through what is on the ground today and what is happening, as with Hurricane Katrina, it provides twice the opportunity to collect information. In theory, we will be able to collect any given target at half the time it would have required."

Canada’s Macdonald Dettwiler and associates, which operates the Radarsat-1 imagery satellite, also is gearing up to launch its next-generation Radarsat-2 spacecraft. While Radarsat-1 was built primarily for the use of the Canadian government, which uses the data for purposes such as monitoring ice movement and illegal shipping activity, Macdonald Dettwiler has built a significant commercial business based on the radar imagery. "One of our biggest challenges, as opposed to optical imagery satellites, is that we’ve had to put quite a bit of effort into educating people on what the data can do."

The launch of Radarsat-2, set for December, should expand the reach of the business even further into the commercial marketplace, says John Hornsby, general manger of MDA Geospatial Services. "We have made the business plans on our best expectations and knowledge of the marketplace and where the technology may fit in," he says. "As the data stream comes down, we may start to find out things we did think of and some you didn’t in positive sense that could materialize into real business. Moving into Radarsat-2, we are trying to steadily grow the business, because we will have new technical capabilities, resolution, polarization and operational performance. There is an expectation that we can take a jump from the business standpoint with the new capabilities."

The planned launch of the new satellites, even though all have been built with significant government financial support, shows that the commercial remote sensing industry has achieved a sense of stability that has been lacking for several years, Hornsby says. "On the commercial side, the business plans haven’t achieved what was originally set out, but there are a lot of missions planned, and that reflects some degree of acceptance within the overall user community," he says. "Obviously there is value here. We have gone beyond where we started. We gone from research oriented and non-operational uses to having high-volume, single purpose users getting high volumes of services from Earth observation satellites."

Seizing The Opportunity

The commercial imagery satellite operators learned some valuable lessons in their early years of operations, ones industry officials hope they can use to take even greater advantage of the opportunities that will be made available by the Internet search engines.

"There is more flux and change now in industry than ever before, and that makes it interesting," says Nelson. "Our industry just got turbocharged by the Microsofts and Googles, and they are not going to be happy with our companies just spitting out telemetry and data. We’re turning millions more people around the world on to satellite imagery, but the next step I think is something much more dynamic than that."

Jason Bates is the Assistant Editor of Via Satellite magazine.