This is by way of a personal subject this time, but is linked because I wrote about Airbnb in a previous post comparing their business model with our sector.
I have just tried to use their services for the first time and am astonished and extremely disappointed to find them not entirely honest in their actions. I am traveling to UK for a long weekend and thought that I would book accommodation through Airbnb. I specifically set my options to have prices in GBP and expected to pay in GBP. I was then surprised to find that the bill was presented in Euro. I challenged this as I always follow the policy to pay in local currency on other sites to avoid the hidden charges which are applied. In other words, the credit card company use a competitive exchange rate and do not make administrative charges. Amazon is quite bad in this respect and must make a lot of profit on currency dealing for their customers but they do offer the option of which currency to pay in so as long as you are aware of this and careful then it is OK.
But Airbnb policy is to charge in the currency of the country where you live. When I challenged them on this they pointed me to a clause in their conditions which indeed states this. Of course this brings an extra 3% charge to me as this is the administrative charge which Airbnb make for effectuing the currency change - which I do not wish for. In reality they have no costs at all because they are accepting and paying in all different currencies so it is merely a question of balancing their accounts. An extra €20 on each transaction certainly contributes nicely to their bottom line and of course I learn that it is in line with their declared policy; but I can't help feeling it is taking advantage of their customers in a way which I find unpleasant.
DigitalGlobe’s decision not to sell its data to clients which are offering map products based on that data for free makes perfect sense; even if the initial market reaction (a sharp fall in the share price) seemed to the contrary. However, logical the move towards free and open data may be, it has a strong impact on the market for satellite data. In our “Geese and Golden Eggs” report in 2013 we stated that commercial operators would be affected by the decision to offer Sentinel data free of charge. We also noted the commoditisation of satellite data as more suppliers enter the market and that these two forces would be driving the cost of data down.
This is still happening and the threshold point at which value can be obtained from selling data is being forced down from 5m to lower today. The limit of free data coming from government satellites remains at around 5m to 10m driven by the Sentinel 2 performance but the arrival of the new businesses like Skybox, Planetlabs and Urthercast has put more commercial pressure on data prices and pushes the price of imagery down at lower resolutions ie around the 1m mark.
But the free and open philosophy does not just stop at satellite imagery and Google and others offer many map and geospatial products for free based on other open sources. The Internet abounds with free products as new companies seek to develop new business models and find new sources of revenue; open sources are everywhere. This is a very disruptive market and I have previously noted the similarity between the forces on the satellite data market and on taxi services (from Uber) and hotels (from Airbnb).
Hence, whilst DigitalGlobe is able to offer a premium product without much competition, they have two options; accept a premium price as the price for allowing an open license on the data, or restrict sales. If they choose the former then customers who do not want an open license will demand a lower price in compensation hence they choose not to sell data on those conditions. Hence either Google and others introduce a charge for products containing DigitalGlobe data or they cannot have the data.
Since there is no competitor which today can undermine that policy, DigitalGlobe can protect the price point in the market and has taken the decision not to sell to Google and others. How long can this endure? Airbus and Imagesat are supposedly already working to bring higher resolution data to the market in competition with DigitalGlobe. But it is unlikely that a second source will be enough to force change. Will other suppliers emerge with a 25cm resolution offer? These are expensive high performance systems which require a lot of investment. DigitalGlobe state that 65% of their sales are to the US government and whilst the DG of the NSA recently said he would be looking at some of the new systems as potential suppliers of data, the military and security demand for the highest resolution will remain. Whilst we can hope (expect?) that this proportion will fall as new markets emerge, it would seem that government policy will remain the key determinant for the satellite operators.
But perhaps the biggest risk for DigitalGlobe and others is that refusing to supply a large client may induce them to develop their own sources. Google has more than sufficient resources to support Skybox with more performant systems. It is always dangerous to refuse to supply a major player in any market. Power in the value-chain is everything (just ask the french farmers for their views on this), hence maybe the biggest risk for DigitalGlobe from this policy could be to induce a new competitor which would ultimately also eat into its share of the US government market.
The article with that title in the Economist last week left me thinking about the impact on our sector. The empire concerned is Silicon Valley and the Geeks are those who have made their money in early internet ventures and which now form the main source of new venture-capital funding.
The author describes how companies in the area are worth over €3 trillion, yet of those which have not yet gone public (IPO’d) or been bought out by other larger companies such as Google, Microsoft etc, a large number are privately owned. Whilst in 2000 companies were coming to the market (as an IPO) on average 4 years after start-up, today it is 11 years. So it is often young, technology-savvy, private investors who have made their money earlier in the dotcom bubble who are financing the firms of today and tomorrow.
The Economist wonders if this will lead to problems in the future as, without the pressure of public oversight, a lot of this capital is probably being misallocated ie higher risks are being taken than traditional capital from Wall Street would accept and which will not lead to profitable return. They also point to the lack of transparency as a result of private ownership and hence the propensity to avoid paying taxes and other social obligations through the ability to move revenues and resources around. But this is the future and today we see this “new” capital also being deployed in the EO services sector in Europe; but as industrial investments not merely financial ones.
Two recent examples illustrate this quite clearly as I wrote about in my last blog; Deimos Imaging acquired by Urthecast, Blackbridge/Rapideye being acquired by PlanetLabs. Further back, in 2012, the Spanish GIS/mapping company CartodB was acquired by ON24 a large Silicon Valley based company and, whilst many of the technical capabilities remain in Spain, the company is now based in New York and all the non-technical management positions are based there. As was reported in start-up beat in September last year:
A Q&A with CartoDB VP of Marketing Álvaro Ortiz. The New York City-based start-up, which offers an open source spatial mapping application, announced earlier this month the closing of an $8 million Series A funding round. It was founded in 2012 by Sergio Álvarez-Leiva and Javier de la Torre.
Hence future investment decisions and all the returns are taken outside of Europe even if the technical jobs remain. I am sure there must be other examples as well. Hence European value-added companies are being squeezed with the data, the software and the IT platforms all becoming dominated by larger US companies.
Is this a good thing? It highlights the strength and desirability of European technology. But it also shows the lack of risk appetite from European investors. In Europe I believe we have plenty of innovators and entrepreneurs, but we only have the “old” money which is far more risk averse and less technology oriented. The “new” money is not very much available in Europe. In the short term, it can be good news for the companies wishing to develop, but in the longer-term it means that Europe risks to miss out on the EO services sector and that most of the returns will end up in Silicon Valley.
What can we do? Should we do anything? After the investments made in Europe over the last 2 decades and especially that now being made in Copernicus, personally I would be very disappointed if we cannot foresee at least one player capable of competing in the global market. I should like to see a European platform emerge which is not beset by fractional interests of the Member States. Can we do this? I am not sure but if we do not try, the fruits of decades of investment risks to be lost.
Am I being too pessimistic? Please feel free to comment and discuss on this and any other issue. At EARSC we shall continue to fight for the European EO services sector and all views and contributions are welcome.