The EO Revolution is Yet to Hit Top Speed Despite its Obvious Potential

The satellite Earth Observation (EO) industry has seen huge advances in technologies in recent years. As the fight against climate change becomes ever more real, the role of satellite companies will be ever more important. However, it is a crowded market, with many companies looking to carve out a niche.

At the inaugural Earth Observation (EO) Summit in London in June, a number of speakers gave their thoughts on this market, with different perspectives on what needs to happen for this market to develop further.

The Investment Environment

Barclays Director Marc Robins says the EO finance landscape has dramatically changed in recent years with the increase in interest rates. With a tougher financial environment, company valuations have decreased and funding is less available.

“We are no longer seeing an environment where you could raise $200 million,” he says. “The size of the funding rounds has come down significantly. Iceye raised less than $100 million [$93 million] recently, Unseenlabs also raised only around $92 million this year.”

Yet Robins says the public equity markets are bullish and he believes this optimism could bleed into the private markets.

What could get investors re-energized in the EO market? “As an EO business, the question is how big is this market, and what is the future growth of this market. One of the ways [to answer this] is to talk about your pipeline, assurance about your future revenue potential,” he says. “What is your pathway to EBITDA positive? If you look at some of the first generation EO companies, they are only starting to breakeven. One of the questions is how can companies get to profitability much earlier? Government revenue is important, but showing a track record is also important. Investors naturally have a bias toward the government market.”

Robins says he would like to see the IPO market open up. He spoke of the fact that there were 25 IPOs last year on the NASDAQ. At the moment, there is a lot of excitement around AI and companies like Nvidia. Robins hopes EO companies can change the market perception in the near future.

“I think it will be interesting to see some EO guys list and change the perceptions of EO companies. There are investors that remain very bullish on the sector. You saw Blackrock invest in HawkEye360 last year. I think there is investor enthusiasm, but there has been a reset,” he says. “Advent International invested into Maxar recently — they like businesses that have government revenues. This is a great thing for the industry as whole, a blue chip investor buying an asset in this sector. It shines a light for others.”

Martina Ecker, managing director of the EMEA Clean Energy Transition Team for Citi, also highlighted Iceye as an example of how “tough” the financing environment is for EO companies. Companies need governments as customers.

“Private investors are looking for certainty around cashflow. Having a government customer helps that. I think there is less risk appetite. Planet has raised a lot of money. What I really see is a re-alignment of private money. It is working out after the crazy COVID days,” she says.

Ecker believes the EO is full of small companies with different use cases. She says one of the problems the sector suffers from is that there may be a number of great use cases, but there can sometimes be a lack of vision to grow beyond that.

“Investors prefer companies with different use cases. So, if sector A is not growing, you need to have others. Your niche might not have enough to grow. You need a clear case on how you are going to become profitable,” Ecker says. “I would like to see more commercial adoption by big corporations. I think this will put the EO use cases more firmly on the map. It will start feeding the ecosystem, and then you will see IPOs. There is a risk adjustment going on right now. It is too early to say whether investors are dissatisfied. EO has been put on the map of many investors and many different types of investors. The challenge is finding the right companies. These companies will become more attractive when they are bigger in size.”

Potential in the Insurance Market

While governments are the anchor customers for EO, commercial sectors such as insurance and agriculture offer some interesting prospects. As the world sees more and more natural disasters, insurance has become a huge issue. Satellite imagery can play a key role in redefining the market.

Vania Hernandez, innovation project manager of Descartes Underwriting, recounts how 2023 was full of record-breaking events in natural catastrophes and extreme weather. She highlighted extreme weather events such as floods in China where 16 provinces were affected by record rainfall. She also highlighted the Earthquakes in Turkey and Syria which she said was the costliest natural catastrophe (Nat Cat) event in Middle East and EMEA in modern history.

With climate scientists talking about how these events will only increase in frequency, it will put pressure on the insurance industry, which is still very analog in a digital world. “Traditional insurance is not built for quick event response. A high share of Nat Cat losses remain uninsured. On average, 70 percent of Nat Cat losses since 1980 were uncovered. It can take 18 to 24 months to get claims settled,” says Hernandez.

The big idea is parametric insurance, a more tailor-made insurance to improve the efficiency of paying out where Nat Cat losses happen. A parametric type of insurance is one that looks to cover the probability of a pre-defined event rather than insuring the actual loss that occurs. This is where EO tech and solutions can come in.

Hernandez gives an example. She says, “For example, in tropical cyclones, we can define things like the windspeed. During the cyclone we will be monitoring the windspeed, if it goes beyond a certain speed, a pre-agreed indemnity will be paid to the client. We have a deep expertise in climate risk, we have a data driven approach which incorporates multiple data sources — satellites, sensors, meteorological stations, radar — and ML to model the underlying phenomena.”

Hernandez talks of how satellite technology is advancing the parametric insurance market. She says it is unlocking more access to more granular, precise atmospheric and meteorological data to enhance its understanding of emerging risks.

She adds, “Satellite imagery advancements provide insights that accurately reflect the insured location’s characteristics. Satellite data is key to building more reliable, accurate and granular risk models for natural perils. We want to keep increasing the resolution of our models.”

Subit Chakrabarti, vice president of Technology for Floodbase, highlighted the fact that 83 percent of economic losses from flooding have been uninsured. Floodbase also does parametric insurance and uses the likes of public satellite imagery, as well as images from companies like Planet and Capella Space. It fuses EO, ML, hydrology when crafting its response.

Chakrabarti says parametric insurance is changing the game here. “The process can take more like days and weeks instead of the months it was previously,” he says.

Natalia Tkachenko, generative AI ethics & assurance lead for Lloyds Banking Group, is working within a new group within Lloyds that is looking at AI and data ethics. She calls it “a growing area” especially as she says AI is becoming much more powerful and dangerous.

“One of the questions I have been asked is which EO startups would we like to work with? We are looking at what the products are,” Tkachenko says. “For example, what do companies mean here when they talk about spatial data? EO data overlaps with the riskiest tech of our time – generative AI. However, EO holds tremendous opportunities for the finance and insurance sector, yet the regulatory landscape remains patchy.”

The Challenges to Scale

While the market has huge potential, there are many obstacles ahead for companies here.

Eric von Eckartsberg, chief revenue officer of Earth Daily Analytics is trying to cater to the changing demands in the industry and focused on customer needs, capturing satellite imagery with more frequency, better resolution, and more spectral bands. Earth Daily Analytics has a new constellation going up next year that will look at wide area monitoring and full coverage of the Earth’s surface.

“We built our sensors, our satellites based on buying consistent imagery, to overcome false positives. Our goal is to feed machines with data. We are looking for changes, anomalies, patterns. We have taken an integrated approach. If we move into additional analytics, that will inform our approach. Flexibility is key,” he says. “There is a lot of great free data out there. It has trained a lot of users in the value of this. It challenges the commercial community to come up with value-added capabilities. A lot of the value is the full system. You look at sectors like agriculture, and they need a full season to test data. They can’t switch on a dime to new types of analytics.”

Jarkko Antila, CEO of Kuva Space, said the commercial part of the market is still in an early phase, with the defense market underpinning the EO market so far. While supply chains for the defense part of the market have been developed, the commercial market is a different story.

“The big commercial opportunities we have aren’t unlocked at all. Customers need continuous answers. The supply chain is not really there yet. The world is going in that direction, automatic information to your mobile. You need the ability to actually analyze raw data. You need tens of hundreds of images to train your ML to get the results they need. For us, it is pretty clear, you need to be able to provide trustworthy information to a customer at high speed.”

Antila believes the potential impact for EO services across the world is huge. However, he believes the fragmented nature of the market is not making it easy for companies to scale in this market.

Massimiliano Vitale, SVP of Imagery & Analytics Engineering & head of European site operations, Planet Labs, says companies like Planet need to sit down with the end user and teach them how the technology helps their bottom line. “That is the piece where we have friction and we need to do better,” he says.

He says it is about doing the simple things well. He adds, “We are applying ML models. When you are looking at solving an end user problem, it can be completely different from one vertical to the next. We need to solve the boring problems, make the data easy to use.”

Interestingly, Vitale believes the EO market has only scratched the surface of potential markets. “EO solutions are being delivered in 2 percent to 3 percent of what is possible. To get 10 to 20 percent, and more, it will take a village. We all need to focus on what we do best.”

Vitale believes there are a number of reasons why commercial has been a little slow in adoption of EO solutions.

“EO has been very sexy. You can get a CEO of an insurance company very excited [about the potential of EO]. But it has taken a long time to show them images from a satellite," Vitale says. "The business is being driven by government. It is driving most of the business for everyone. We are encouraged by the early adoption of commercial companies, such as those in agriculture and insurance. We are seeing a lot of success which is promising for the future.”

With a tough financing environment, a slow move to commercial adoption, the road ahead for companies like Earth Daily Analytics, Planet, Kuva Space, and Pixxel will be far from easy. Awais Ahmed, Pixxel CEO and founder, says a winning strategy is a profitable one and that there are a number of different strategies.

“There is no one answer today," Ahmed says. "If you could look at the situation in five to 10 years’ time, there will be a proliferation of users. No one company can verticalize the industry. You need the highest quality data. There are no analytics in certain sectors. We can do the end user analytics ourselves. But what we need to do is earn enough money.”

Ahmed speaks of how the price has been a lot more exorbitant for the users who want to use this data.

He adds, “You need to bring down the costs, the user needs to be educated. You also need to focus on the last-mile analytics. Climate change is the most pressing problem. EO will be one of the most important datasets. The customer cares about the use case. They worry about the spend, analyzing their data, and becoming more efficient. There is no one single data set that will solve problems. A large customer can have their own data science teams, but small companies may not have their own data science teams. The answer will be different in different industries.” VS

Photo: A view of London at night taken from the International Space Station in 2015. Photo: NASA Earth Observatory