SpaceX is killing the competition

SpaceX visits the Space Station

SpaceX visits the Space Station

SpaceX sits in good company. It is a Californian technology start-up that is revolutionising the industry in which it operates. That sentence could easily describe Apple, Google, Amazon, or many other companies. But SpaceX aren’t in the business of building computers, providing search engines, or offering inexpensive consumer goods. They build spaceships. They build rockets. And they build them well. They build them so well that the Germans ask how they can make them so efficiently, and the Chinese want to know how they make them so cheaply.

Making rockets is not easy; it is so hard that it is held in the public mind as one of the hardest things anyone can do. This is exactly rocket science. Building and flying rockets is a long and costly process, and developing a design from blueprint to hardware is even harder and more costly. Traditionally, agreements to enter into this work acknowledged these difficulties by means of “cost-plus” contracts, whereby the client pays for everything, and then hands over extra payment on top of the overheads.

Cost plus contracts do work, though as a side effect they produce huge lumbering behemoth companies that have no reason to cut costs, as clients will pay whatever you charge them. The United Launch Alliance (ULA) are NASA’s favourite contractor. Name any space probe and ULA launched it. The Space Shuttle? ULA  built it. The Space Station? ULA own it. They are one of the biggest spaceflight companies in the world, but they are terribly inefficient. Ultimately, they’re an engineering company, but they have seven managers for every engineer. All their contracts are cost-plus contracts, as these are seen as the only way anyone would agree to do business. After all, you’d have to be mad to want to do rocket science just for the sake of it. And here enters SpaceX.

SpaceX are only 12 years old, but in that time they figured out how to build rockets extremely cheaply. Quite simply: they build everything in-house, they don’t sub-contract, and they have an efficient management structure. The launch industry is so terrible that those three things are all it took for them to attract the biggest backlog of launches of any company globally. Customers are climbing over each other to ride on the SpaceX Falcon launch fleet. If SpaceX continues to prove itself, ULA is completely finished.

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