Grants, Business Models and Incentives: An Independent View on EO Markets
Venturing into the world of earth observation (EO) and remote sensing has been an unexpected journey. It all started with a casual conversation about business ideas, where the concept of EO was mentioned, almost in passing. Little did I know, this casual mention would open the door to a realm that I now find incredibly fascinating.
Having been active in this field for almost 2 years now, one observation stands out: There seems to be a selection process at work, such that only people with a particular set of traits enter the industry. I’m not just referring to skills or knowledge; it goes much deeper than that. Everyone I’ve had the pleasure of meeting in this field shares a common trait: a genuine sense of care. It’s as if this industry not only attracts professionals, but also individuals who are truly passionate about what they do. This shared passion creates a unique and inspiring atmosphere of community, where people come together to collaborate and solve bigger issues. It is as if people understood that 1+1 > 2.
I see immense potential for positive global impact in EO, and I am on a personal mission to find and/or develop self-sustaining business cases. By self-sustaining, I mean business models that can thrive based on their revenue streams, independent of direct subsidies. This is crucial for ensuring service continuity, fostering innovation, and maintaining sustained stellar performance.
However, it appears to me that in the EO industry, there is a tendency to remain in an exploration mode rather than capitalizing on innovations. To illustrate this, let’s consider the analogy of a miner exploring a piece of land. The miner keeps digging exploratory tunnels until he discovers a rich vein of gold. At this point, it wouldn’t make sense to continue exploring, right? However, in the EO industry, it seems that the logic of exploitation/capitalization on innovations is not always followed. Instead, there is a strong emphasis on technology-first approaches.
I have a hypothesis as to why this may be the case:
- Many companies in the industry rely on grants as a primary source of funding
- which come with a set of incentives
- that steer companies (implicitly or explicitly) in a certain direction.
Don’t get me wrong: grants play a crucial role in sparking innovation, a key driver in propelling our society forward. However, it’s important to acknowledge that sometimes these well-intentioned schemes can be misused, with entire business models being built around them. Starting a fire is not enough. You need to gather wood to keep that fire burning!
This brings us to an essential, maybe uncomfortable, discussion point that needs our attention and that I would like to dig deeper into.
As we delve into this topic, I want to make a few things clear: The arguments brought forth reflect my own, independent views. They center around the (private) market facing end of the value chain (as outlined here: Untangling the European Space Market) and should not be generalized to be the modus operandi for the entire industry. My aim isn’t to bash the industry or spread unconstructive negativity. Instead, it’s about opening a dialogue, exploring different perspectives, and seeking solutions.
Being part of the industry for only about 2 years, I do recognize that some of my arguments may not capture the full picture. Yet, I do not shy away from engaging in constructive dialog. I value discourse and different perspectives. After all, the aim is to draw a comprehensive picture, to learn and to grow.
EO Adoption — The Case of Grant-Based Business Models
Shield
Grants are an important mechanism to foster the innovation necessary to bring us as a society forward. On one hand, grants provide essential financial support, enabling EO companies to embark on innovative projects without the immediate pressure of market forces. This is particularly useful in research-driven environments to provide the necessary resources to think freely. However, there’s a significant downside to this reliance: It shields EO companies from brutal and destructive yet creative market mechanisms.
Markets are unforgiving, compelling companies to outperform each other, take calculated risks, and demonstrate commitment to their visions. The market’s demands ensure that organizations not only create but also deliver tangible, impactful solutions that solve problems. These mechanisms tickle through all layers of an organization affecting individual decision-making, problem-solving strategies, creativity, etc. that accumulate in the organization’s behavior as a whole.
I do recognize that these market mechanisms can yield pressure, stress and anxiety on individual levels (I speak from experience here). However, I am also convinced that these forces demand the best of you, providing ample opportunities to learn, to grow, and to excel. I am under the impression that many EO companies lack these incentives and are thus being held back from exploiting their potential.
TRL
Focusing on grants creates a strong incentive for companies to develop innovative ideas every time they apply for a particular tender.
This is usually a time and resource-intensive task that tends to suck up the company’s high-performing resources. It always baffles me that the most qualified personnel are caught up in securing funds and writing proposals. Academia operates along similar lines. Who is responsible for securing funds? That’s right, it is professor, Ph.D distinguished chair member and head of the department. These high-value assets should focus on research, innovation and solving problems and not compete for public resources. Further, these grants typically support development only up to a modest Technology Readiness Level (TRL). The journey from a Proof of Concept (POC) at TRL 3–4, through a prototype at TRL 6–7, and ultimately to a scalable product at TRL 10, is a non-linear process. Going from TRL 7 to TRL 10 is significantly more challenging than going from TRL 3 to TRL 6. The last mile is hard!
Given the repetitiveness of this grant cycle (idea → proposal → grant → development of low TRL solution → reporting) renders EO companies to a.) sit on treasure troves of low TRL features, b.) serve a broad landscape of use cases (horizontal integration) and c.) have respective staffing structures. Note that I chose the word “feature” carefully over “product”. A product is something shippable, attached to a checkout process of some sort and with a particular price. Features are part of a product. While horizontal integration is a diversification strategy that makes EO companies resilient to market fluctuations, it is a resource-intensive strategy as multiple independent stakeholders have to be served. As a consequence, development focus is scattered and prioritized according to often outdated roadmaps that were defined in the initial grant proposal a long time ago, thus adding to the feature vs. product problem. This set of incentives ultimately dictates company staffing structures, as extensive overhead management for effective project execution is required. This sucks up available resources and inhibits hiring technical staff or building marketing/sales teams to verticalize a particular set of features.
Grant-based business models come with a substantial opportunity cost that needs to be factored in: focus.
Moving Targets
Grant-based business models incentivize EO companies to “dance at all weddings”. This metaphor aptly captures the dilemma of horizontal vs. vertical integration, and is the result of a three-body problem.
As a horizontally aligned EO-downstream analytics firm that wants to get its foot into commercial markets, three major trade-offs have to be made:
- Choosing one industry over another.
- Choosing one market segment over another.
- Choosing one technology over another (EO & non-EO).
Strictly speaking, “no general closed-form solution exists, as the resulting dynamical system is chaotic“ [1].
Imagine trying to prepare a meal (technology) that everyone likes in a group of people (industry) where each person is coming from a different continent and where each person is travelling (market segment) independently by different means across the globe, and you have to gauge when everyone will be at your house. When faced with such a task, I can only hope you have good heuristics in place.
Ends // Value
EO companies often lack a fundamental understanding of the commercial markets they would like to penetrate. By that, I mean a complete understanding of underlying market mechanisms, use cases and pain points. This should not be too surprising, given that EO companies are often horizontally integrated and provide data and/or analytics. We — the EO industry — like satellites, technology and fancy-looking maps. But commercial end-consumers do not care. They only care for their problem to be solved. Whether this is being done by an actual person driving through the fields to see whether plant growth stages have reached a specific phenological state or by a satellite monitoring fields does not matter. Determining the specific phenological state efficiently is what matters. This, I believe, requires a shift in mental state. We need to stop focusing on selling pixels and instead focus on selling insight.
However, this appears easier said than done. One fundamental problem I see in the EO industry is a tendency towards communication within isolated bubbles (EO experts talking to EO experts — I wrote about this in An Unexpected EO Journey). I myself find it difficult to explain to a 65-year-old farmer what EO can do for him in a way that he actually understands. And this seems to be a widespread problem (more on this issue later). Thus, gaining market access to find self-sustaining EO business models is very challenging and more often than not requires external assistance, such as partnerships with market insiders.
In any case, finding paths to commercial markets is without alternative. Technological developments, access to compute and data as well as a very active open source community enables pedestrian developers to develop tailored EO algorithms over the weekend. Things have become easier. In other words, EO data processing capabilities are no longer a unique selling point (USP), and EO companies need to get their hooks into verticalized use cases.
Marketing
I think EO has a reputation problem stemming from a narrow focus on project delivery rather than a broader product-centric approach. As hinted at before, communicating the value EO can bring to the business is a difficult task. This, I assume, is because the underlying business case is often not understood well enough. Most outbound communication efforts from EO companies are very similar: fancy colorful maps, monitoring and some UI to click on (with countless filtering options no one understands). It is up to the user to figure out what to do with the information provided. Focusing predominantly on technological advancements or eye-catching visualizations overshadows the fundamental problems these technologies aim to solve. Further, the market’s inherent pricing opacity adds an additional layer of complexity for potential clients. Trying to get quotas is sometimes a steeplechase, including signing NDAs and whatnot. It feels as if some companies are trying to extract every single bit of utility from their clients, which obviously does not help EO adoption. Imagine someone trying to sell you premium TV services without telling you what exclusive content there is. There is no live demo of the platform, but you can look at some slides. Oh, and you won’t know the price unless you sign this contract. Would you buy in? The EO industry needs to work on its communication strategies, with transparency and value-orientation as guiding principles
What next?
Well…the picture I drew is not pretty. It feels like the industry has reached a critical juncture, with a huge legacy and naturally grown structures on one side (with “known” problems as outlined above) and a new, commercially focused era (with an entirely new set of problems) on the other side.
The critical question we need to ask is if the market-facing side of the EO industry is capable of carrying itself? And if so, how do we get there? So far, I have not seen this puzzle solved.
In any case, I am hopeful, as I see this problem being tackled from various angles. There must be a solution. While putting together this piece, many strategies came to mind…
If you would like to discuss those, just drop me a message (LinkedIn).
Stay tuned,
this is Matthias
