I could see even ULA's pricing pendulum swing all the other way: they could start bidding for contracts at a loss, using their other business sectors to prop up the space division until they drive SpaceX out of business.
Exciting times...
I do. In the '90s I was working for a company that was used to bidding cost plus contracts when DoD contracts pretty much dried up as a result of the collapse of the Soviet Union. Management tried very hard to realign the company to compete in the commercial sector and failed miserably.
Changing the focus of a large organization like that from performance to cost is extremely difficult. Your people aren't organized properly, your finances aren't organized properly, and you have a cost+ culture that's hard to kick.
A much cheaper and safer strategy is to get Congress to wire defense contracts for you. ULA has manufacturing all over the place. What that means is job losses at ULA will be politically unpalatable. Beyond that, a logical argument can be made against putting all the national space eggs in one basket.
If that argument actually carried any weight, then ULA wouldn't exist, but Martin, McDonnel Douglas Aerospace, and GD Convair would. That is, the DoD and the defense companies trot out any arguments they feel like, and hope that Congress accepts them.
I concur on your analysis of companies that are fat and happy bidding and working on DoD contracts. It's really, really hard to turn those companies around.
Times have changed. I think Congress may have seen the error of its ways on this one.
Either that or Congress realized they can't sweep under the rug how much taxpayer money they could be saving.
Individual congresspeople might see why a past decision did or did not work out well in the long run. That's very different from seeing whether the same decision is politically expedient in the present moment. Nor does it necessarily imply that Congress as a whole is even capable of forming stable memories that can reliably retain that sort of knowledge.
The other issue is capacity. Even if ULA dramatically cut their costs to drive SpaceX out of business, that will stimulate a huge surge in demand for launches. To drive anyone out of business, ULA would have to meet all of that demand on their own. I don't believe that's possible for them, they just don't have the capability to ramp up capacity fast enough, so SpaceX and other operators would pick up the excess business anyway.
If only that were true. It does happen in many markets, but not currently in the space market. Space is still in the early-stage / chicken-and-egg mode. A bit of simple value chain analysis shows why.
TL;DR: we may be closer than I think to the space business moving into traditional economics, but even then it's probably decades out.
There are three disjoint space markets: - military: largely price insensitive; volume unknown to me but not enormous; has specialized needs so a lot of it couldn't be satisfied by COTS launch systems - science: some of which (earth sensing) can use COTS, the rest is low volume, has non-commercial requirements (e.g. non-LEO) and often has weird timing constraints depending on what the orrery says. - commercial, which is what we all want to explode in volume! Today this is 100% LEO.
Science is largely the space side of NASA and I personally am convinced congress only funds in order to provide enough economic volume that the contractors are available to support the military. I.e. a fig leaf for the military just like the DoE (whose hands are all over space science as well).
So commercial: the chicken and egg problem the compound of two (used to be three, see below) issues: launches are rare and expensive, so satellites are few and far between, which makes them expensive, which doesn't encourage volume, which doesn't encourage launch capacity development, which keeps them expensive... This is one of the reasons why previous private efforts (e.g. Rotary Rocket) have foundered. Despite what my libertarian friends say, it's almost impossible to break out of this trap without government incentive; the activation energy is too high.
Now almost is not the same as 100% and this is where I'd like to believe and agree with you. And I do agree, except the time base I believe in is too slow to support the phrase "huge surge in demand"
One thing that has been great is the folie à deux on the part of billionaires Bezos and Musk (I believe that SpaceX and Zip2 are the only companies Musk actually founded, right?) has allowed ego to try to break that cycle for LEO applications. Unless Google or Apple or Amazon can start pumping out satellites for internal use in high volume the overall market will grow slowly (who else is likely to buy a lot of satellites? I'm not sure). And even so that effort will take time to ramp up. If not...hard to see who will take up the slack.
I also look forward to non-LEO applications, like mining. It has its own bootstrap problem.
However my main point is still true: today commercial and non-commercial applications have quite different needs and thus different economic drivers.
ULA is safe for a while due to the DoD's requirement that they keep two domestic methods for space access alive.
Previously this was met with the combination of ULA's Atlas V and Delta IV. Now it'll be the F9 and Atlas V, with the expensive Delta IV being phased out (it's still occasionally needed as it's the largest booster still in operation worldwide).
However ULA's in trouble if another SpaceX shows up. I assume that's why they're working so closely with Blue Origin, better to capture that player now and get a cheap engine provider out of it.
Another input: cost isn't everything; the Atlas V has never lost a payload, while the F9 has. An extra $40m doesn't look like much if your payload is a half billion dollars, for example.
You can't really "capture" a billionaire's business.
(I used to work for Lockheed, although not in the missiles and space business. I wouldn't hold my breath expecting ULA to match SpaceX's prices.)
That would be blatantly anticompetitive dumping, by the textbook definition.
An alternate end-game would be ULA stringing together a few contract wins, pushing SpaceX to the brink, and then ol' Elon gets a nice offer from Boeing and Lockheed...
You wanted that to be blue ok, that's an extra 2 million.
I also wonder just how much of the technology and the pace of development we're seeing from SpaceX hasn't originated from the military themselves.
[1] http://arstechnica.com/information-technology/2016/03/f-35-radar-system-has-bug-that-requires-hard-reboot-in-flight/Not to mention the supply of those engines is highly predicated on maintaining a solid relationship with Russia for what that's worth.
It's certainly not obviously more efficient or quicker reuse, it's likely to be slower and far more costly if they actually do manage it, so saying it is more efficient is just a way for ULA to try to sound like they are still a contender, even out their launches are still significantly more expensive and they haven't even tried to reuse engines.
Also, they're at totally different places along the technological readiness curve. They're proposing a theoretical concept, SpaceX has already recovered two first stages. Even if their parachute concept was theoretically superior (which I don't think it is) by the time they got it working, SpaceX would have years of operational experience with hoverslam.
THAT has to end. Then let's see them compete.
I'm in for $999M
Remove that subsidy and they implode instantaneously. Their cost per launch would be just about the highest in the world.
"Monopolies drive progress because the promise of years or even decades of monopoly profits provides a powerful incentive to innovate. Then monopolies can keep innovating because profits enable them to make the long-term plans and finance the ambitious research projects that firms locked in competition can't dream of."
http://www.wsj.com/articles/peter-thiel-competition-is-for-l...
I.e. both of which provided by a de-facto ultimate monopoly which can afford "luxuries" like basic research because they don't have to worry it won't pay off next quarter.
> (...) and venture capital.
I want to see VC-sponsored ambitious research projects. VC-money-induced thinking is very short term.
Isn't that exactly what YC research is?
I am not necessarily a fan of monopolies, but I think we owe it to ourselves to understand the tradeoffs and consider alternatives. E.g. how do you do basic research if there is so aggressive competition and shareholder look only 3 months ahead.
It is also worth nothing that the case of ULA isn't necessarily a case of merely monopoly but also how how that monopoly works. E.g. being a monopoly shouldn't require a cost plus contract. Secondly GM and the other big three are certainly not monopolies but have not proven any more capable than ULA in competing with Tesla in creating an electric car.
SpaceX is beating lots of other rocket companies which aren't necessarily monopolies. I think it is easy to overstate how bad ULA is when perhaps it is really about how good SpaceX is ;-)
Also remember the Russians also operated government monopolies for rocket building and yet managed to build considerably cheaper rockets than the Americans. I think there is a lot more to this issue than whether it is prive/public or a monopoly.
Put simply, monopolies do have greater capacity to innovate. When you're stuck in brutal competition, it's hard to funnel money into research which might not pay off for decades—your competition might have driven you out of business by that point.
On the other hand, the allure of monopoly profits is hard to ignore. It's tempting to simply funnel the profits into shareholder pockets and that's the approach investors will generally favor. For any middling CEO, it's the path of least resistance.
This is why founder-controlled monopolies (Google, Facebook, Amazon, etc.) are such a potent force. They have the incentive to preserve the companies long-term legacy (it's their personal legacy as well) through ambitions projects while also having the credibility and power to resist investor preferences for short-term profits.
There's also a big difference between natural monopolies (like electricity or gas distribution networks) and IP monopolies. Monopolies that are established by providing a vastly superior product require continuous R&D investment to maintain and natural monopolies do not.
This means little reinvestment, little customer service, and a product/service only good enough to keep the conservative party from admitting that sometimes a little regulation is necessary (aka just about never).
That analogy is not applicable here because PT is referring to businesses who capture market by innovation and growth and become monopolies. I am reasonably sure PT is not referring to monopolies like USPS/AT&T/COMCAST/Cable Companies who have become monopolies using government's coercive power.
If you are running a business where your only customer is government and you are a monopoly I don't think anyone cares about innovation much. I would love to see counter examples if you have any.
With an arguable rare exception being AT&T from the early 20th century up until about ~1980 perhaps, nurturing within it the renowed Bell Labs and its predecessor(s).
There are of course exceptions - like Elon, who has and for whom the profitability of the company is only a secondary, supporting concern.