Northern Sky Research

EO Markets: Vanishing Value-Added Services

Sep 1st, 2015 by Claude Rousseau   More from this Analyst | Profile

With hundreds of satellites planned in the next few years, the Earth Observation (EO) industry will enter a transition phase to lower data prices and a potential oversupply of imagery.  A key consequences is that value-added-services (VAS), which includes processing and applications that transform raw data into information, is exposed to further shrinkage with the attraction for operators to move further down the EO industry value chain.   VAS will not disappear, but where will it go?

NSR considers that VAS markets, where imagery cost represents a significant portion of the final product or service price delivered, will see more data providers or operators going down the EO industry value chain towards the end user by doing more value addition/processing to the raw data.  This move is compounded by a big jump in automated data processing, which decreases the length of time between image acquisition and delivery to the customer or providers of information products (IP).  At the same time, this results in a myriad of players in the highly fragmented IP market taking their business in the opposite direction by moving up the value-chain and incorporating VAS within their final product and services offering.

There are also examples that led operators to enter the high-resolution imaging era and data analytics, which through small satellites and constellations found a strong foundation for future growth.  Deimos Imaging (now part of UrtheCast) is one such company that started by offering data and VAS and ventured into information products with data analytics through its UK division, for agriculture and forestry notably.  If we add falling data storage costs, an increase in computing power, and the strong need for local knowledge, there are more compelling reasons than ever for VAS to take the road down the value chain. The story of these smaller platforms launched in high numbers flooding the market with cheaper data, which require less processing power and time to market further amplifies the shift that VAS is taking into data market on one hand and IP markets on the other.  

And as cloud-based delivery and processing of satellite imagery leads to more cost-effective distribution to customers, it helps change the focus more towards providing data analytics and greater intelligence through information products (IP) to end-users.

Taking stock of these developments expected in the next decade, NSR’s recently-released Satellite-Based Earth Observation, 7th Edition report forecasts VAS markets will flatten out after 2019, adding $227 million to the current $442 million.  The large overlaps between the data-VAS and VAS-IP markets is a driver in this scenario, as decreasing costs to move up or go down the EO industry value chain occur. 

But for operators, does the potential of competing with their customers who offer information products to the end users alter this trend of including more VAS? It is almost certain that partnering with regional IP customers who know more intimately their customers, and for new vertical market entry, it will be a continuing story for many years. But in markets where operators have more ‘control’ and visibility over the value chain, it will not alter the strong undercurrent that ‘squeezing’ more VAS with data will move operators into areas that they did not explore before.  Furthermore, free low resolution data and open-source GIS software is pushing data and VAS providers to create additional value in their final product offering to justify their services pricing.

 

Bottom Line

So who will provide satellite imaging VAS ten years from now, since revenues are expected to stop growing? NSR believes that government markets, where many have in-house expertise to transform such data into IP, will continue to have a need for VAS.  But as the barriers to enter the more lucrative IP market reduce and pressure builds up to drive data sales in the upcoming oversupply scenario, VAS as a segment is expected to converge as a necessity to an offering within IP and as part of data sales, respectively.