Northern Sky Research

EO Markets: It’s all about the IP

Dec 10th, 2015 by Claude Rousseau   More from this Analyst | Profile

DigitalGlobe’s late October announcement on its strong 3Q2015 results came with a surprise about its commercial strategy: the operator said that it was necessary to shift gears from vertical markets to a more “horizontal approach”, a notion that left many observers wondering ‘why?’  Why ‘dial-back’ as they noted, while all major growth expected is in addressing more vertical markets with a variety of Information Products (IP) tailored to specific users?

This change comes as a result of various difficulties NSR has often noted: big companies have a hard time getting into vertical markets, not by their will but rather by the evolving nature of the EO value chain as described in NSR’s Satellite-Based Earth Observation, 7th Edition report. This evolution is entering a new era where unparalleled satellite imaging capacity, very-high resolution data, value-added and data analytics products are intertwined to stir changes leading to several major developments, which have the potential to shake up the industry. 

NSR has tracked the constant pressure on EO data pricing that commercial imagery from space has suffered for well over a decade now, as a result of more entrants and increased competition.  This pricing pressure will not only continue but actually accelerate as constellations of satellites offer daily revisit of any point on the planet and substantially decrease the cost to access it. As operators attempted to address this decline through ‘verticalization’, they encountered problems typical for big companies that are faced with hundreds, if not thousands, of ‘Mom & Pop’ shops that still make-up the vast majority of the EO downstream market.  And that is not delving into the ‘regionalism’ present in this industry where only operators’ resellers are ‘openly’ welcome at customers’ premise; or even talking about unseen pockets of sustained growth all of sudden collapsing because of economic conditions or currency fluctuation.

For most vertical markets, EO operators have had (and will continue to need) new avenues and sources of revenues, and if integration down the value chain is one way to get there, the ‘horizontal’ thrust announced by DigitalGlobe could signal an intent to ‘standardize’ data products for a larger swath of customers across various verticals.  This way, they touch more verticals than before to deliver tools to ‘experts’, who would in turn use more of their data in final Information Products.

All the while, software providers are addressing the oversupply of data with formidable capabilities unseen before to gobble up huge datasets and make sense of it. Access is made easier with online portals that leverage ever decreasing storage costs on the cloud to distribute data 24/7 with an ever growing diversity of imagery type. And the ‘specialists’ that are closest to the vertical markets are continuing to grow, and are expanding their share of the IP market by combining datasets from different sensors, algorithms, position, and locations to enable a larger user base to benefit from EO data.  

Bottom Line

One EO company (serving the financial community) with whom NSR recently spoke said “the key is usability of data” as a major driver for their business.  Their main customers are so far from the traditional end-user markets that what links them to the Earth Observation field is not the ‘E’ or the ‘O’; it is the information that the data provides and how usable it is to them. With all the tools developed by the various players along the value chain recently, it is quite clear Information Products will drive hype in the EO market going forward.