Building Smallsats blocks from the Imperial Palace
By Blaine Curcio
August 29, 2019
The small satellite (smallsat) industry and related value chain is a wild west of New Space companies. Startups in the industry have business models that fall along a wide spectrum of satellite manufacturer, constellation operator, services provider, and various steps in-between. Separately, smallsat companies today tend to fall along another spectrum ranging from primarily paper business models on one end, to well-developed revenue-producers at the other end.
AxelSpace of Japan is one of the more intriguing companies in this crowded smallsat industry, falling at interesting points on both the value chain spectrum and the business model spectrum, and doing so with a unique style that positions the company to benefit from a confluence of domestic and global factors.
<p>Who is AxelSpace?</p>
<p>AxelSpace is one of the more established New Space companies in the world, having been founded in 2008 in Tokyo. The company manufactures small satellites for earth observation, meteorology, and other applications, with a highly customer-focused business model involving an 11-step design and manufacturing process. AxelSpace is noteworthy in that having been founded in 2008, the company did not need to raise outside funding until 2015, having sustained itself for 7 years on revenues.</p>
<p>Having raised around US$43 million since its first round of funding in 2015, and having successfully launched a handful of smallsats for a variety of Japanese customers, AxelSpace has to now attained a spot among the premier Japanese New Space companies. The company is also becoming increasingly visible and competitive on the international stage, including most recently being named a finalist at the FinSpace competition at the upcoming Euroconsult World Satellite Business Week. This has been made possible through innovation, in terms of both technology and business model.</p>
Figure 1 WINISAT-1R Diagram. Source: Nikkei Asian Review
Smallsat Manufacturing
<p>Other smallsats manufactured and launched by AxelSpace have included Hodoyoshi-1 and RAPIS-1, being manufactured in partnership with University of Tokyo and JAXA, respectively. Both satellites aim to develop new technologies in addition to their primary missions. Among other things, AxelSpace has been working to develop higher-speed laser communications between satellites, relaying information from satellite navigation satellites, and other technologies.</p>
<p>AxelSpace’s position on the smallsat value chain is one of both smallsat manufacturer and, more recently, earth observation (EO) constellation operator, with the company manufacturing, launching, and operator its own EO satellites based on the GNUS smallsat platform, developed in-house by AxelSpace. On the smallsat manufacturing side, AxelSpace has launched a variety of small satellites for both government and commercial purposes. The consistent theme, however, has been that AxelSpace has had an internal business case to launch the satellites. The company’s first satellite, WINISAT-1, was a 10kg microsatellite built to monitor sea ice in the Arctic Sea. The satellite was launched for WeatherNews, the world’s largest provider of ocean weather data, and the business case was immediately fairly clear—an increasing number of ships are going via the Arctic Ocean as sea ice is melted, and there is not sufficient data on the location and size of the remaining sea ice in the region, which poses a threat to the aforementioned ships. By launching a microsatellite, AxelSpace was able to empower WeatherNews to get more accurate, more up-to-date information, for a satellite that cost a similar order of magnitude to a helicopter. While the first WINISAT satellite stopped transmitting data after several months, a second WINISAT satellite (WINISAT-1R) was launched in 2017 to replace the first. With the microsatellite, WeatherNews becomes the first private meteorological company to have its own satellite. The satellite ultimately cost a fraction of what it may have cost several years prior.</p>
<p>Other smallsats manufactured and launched by AxelSpace have included Hodoyoshi-1 and RAPIS-1, being manufactured in partnership with University of Tokyo and JAXA, respectively. Both satellites aim to develop new technologies in addition to their primary missions. Among other things, AxelSpace has been working to develop higher-speed laser communications between satellites, relaying information from satellite navigation satellites, and other technologies.</p>
Greasing (or GRUSing) the Axel
The above smallsats manufactured by AxelSpace tend to have one commonality—AxelSpace develops a solution around the customer’s need, and is oftentimes then able to leverage the technologies developed in new and intriguing ways. With AxelSpace’s newest and most ambitious project, the company aims to do this at scale.
AxelGlobe is an EO constellation being deployed by AxelSpace, based on the company’s GRUS smallsat platform, and aiming to eventually reach enough satellites to hit an unparalleled daily revisit rate.
. In the words of AxelSpace, AxelGlobe is Earth Observation infrastructure for a new era, with the goal of imaging the “whole civilized world with a resolution of 2.5m every day”. In short, AxelSpace aims to create and maintain a database of reasonably high-resolution EO data of every part of the earth of economic activity.
<p>While not the only company with this aim, AxelSpace does have some interesting advantages in building out AxelGlobe. While AxelSpace has financed the first three satellites—of which one has been launched—the fourth satellite in the constellation is being financed by the Fukui Prefecture Satellite Technology & Research Association (FSTRA). In such an arrangement, FSTRA will have access to resources from other GRUS/AxelGlobe satellites, while AxelSpace will have access to the FSTRA satellite when it is not being used by the FSTRA. In this way, AxelSpace has the advantage of being in a country such as Japan, whereby it is feasible for regional governments to have the funding, expertise, and infrastructure required to enable such projects. With that being said, the potential for future collaboration between AxelSpace and other Japanese institutions, universities, governments, or other organizations is clearly significant, with this to say nothing of the huge number of similar organizations in countries such as China that could also be a market. AxelSpace’s business model is in some ways like a platform business, insofar as AxelGlobe will have increasing value as more companies invest, as the constellation gets larger, the dataset will likewise get larger, and the appeal to invest will increase.</p>
<p>In this way, AxelSpace is able to grow its constellation with comparatively less financial risk and comparatively faster build-out speed, with the FSTRA agreement, for example, essentially allowing for the ordering of a 4th satellite along with the 2nd and 3rd with FSTRA as the financing partner/owner. Not only is the FSTRA a strong financing partner for a satellite that will, by 2020, make up 25% of the AxelGlobe constellation, but the Association is also a potential future customer for more AxelGlobe capacity, or indeed, additional satellites. AxelSpace is positioning itself as a franchise of sorts, and is opening itself for selective franchisees to come and get shares of its AxelGlobe constellation.</p>
Figure 2 AxelSpace CEO Yuya Nakamura, Fukui Prefecture Governor Issei Nishikawa, FSTRA President Tetsuji Shindo, Seiren Co. Ltd. Director Hideyuki Yamada, Source: AxelSpace
Getting a Little Help from Its Friends
<p>While finding excellent partners for smallsat manufacturing, and for the buildout of AxelGlobe, AxelSpace has also gotten help from its friends in more unconventional ways. Most notably, AxelSpace is one of several companies worldwide that manufactures small satellites in the core of expensive urban real estate markets, in this case Nihonbashi in Tokyo. One of the most expensive districts of one of the world’s most expensive districts, having an office in Nihonbashi is a clear status symbol for any company. Having one’s own building in Nihonbashi, complete with brand-spanking-new space-age architecture, a mere 20 minutes’ walk from the Japanese Imperial Palace? A privilege reserved for a more select few than naturalized Japanese citizenry. And yet, AxelSpace in 2017 moved into its sharp new offices in Nihonbashi, a building that looks almost like a smallsat. How does a New Space company with a few tens of millions of dollars end up with such a prime piece of property in one of the world’s most expensive real estate markets? In the true AxelSpace way, through exceptional partners.</p>
<p>One of AxelSpace’s investors, customers, and general business partners is Mitsui Fudosan. Mitsui Fudosan works in logistics, real estate, and a variety of other businesses, and has been working with AxelSpace since 2009, with AxelSpace originally having rented office space from Mitsui Fudosan. Mitsui Fudosan later started using AxelSpace’s satellites, before in 2017 providing AxelSpace with land in Nihonbashi for its own office building, which is the one shown above. Mitsui Fudosan later further deepened its ties with AxelSpace by leading the company’s series B round of funding (a round totaling ~US$25 million). At the time, the two companies announced a strategic partnership, while AxelSpace was selected in the first portfolio of Mitsui Fudosan’s “Growth-Stage Project”, a venture fund targeting growth-stage startups.</p>
Figure 3 AxelSpace Office
What to Watch For
<p>Moving forward, AxelSpace will likely continue to build out its AxelGlobe constellation, while also pursuing other smallsat manufacturing opportunities for customers in Japan and abroad. Having established itself as one of Japan’s premier New Space companies, AxelSpace is surely set to be one of the major beneficiaries of a rapidly-growing New Space economy. With a certain degree of vertical integration, AxelSpace will also have strong advantages in competing with the plethora of other EO and smallsat companies globally. Having now secured considerable funding for expansion, AxelSpace may benefit from further vertical integration. One challenge in Japan, for instance, continues to be the relative inconsistency of private launch companies, and the absence of very cost-effective small launchers. While surely looking for more customers abroad, AxelSpace may also benefit from securing launch capacity from foreign launch providers, as a way of further vertically integrating. Beyond this, the global nature of AxelGlobe will necessitate global partners. Having secured several blue-chip partners in Japan, AxelSpace may benefit from establishing agreements globally, leveraging its technical expertise, design excellence, and eventually, data. The company manufacturing smallsats in Nihonbashi ultimately has big ambitions. Sitting at a convergence of the Japanese space industry and all its resources, and a global space industry and all its opportunities, AxelSpace is poised to compete fiercely in the rapidly evolving EO and smallsat markets.</p>
About The Author
Blaine Curcio
Founder at Orbital Gateway Consulting
Blaine Curcio has spent most of his career working in the satellite communications and commercial space industry, with experience at satellite operator SES, and with a multiple industry consulting and research firms. Blaine has spent his entire career in Asia, and is a recognized expert on several topics related to China. This has included giving lectures on the Belt and Road Initiative, China’s macroeconomy, and the Chinese space industry. He regularly attends conferences throughout Asia as a speaker and moderator, and is a contributor to SpaceWatch.Global, Talk Satellite, and the Satellite Executive Briefing, among other industry publications.
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