Major Software Companies: Friend and Foe of Satellite?

Throughout the past few years, the names of major software companies quietly have crept into more and more satellite-related business developments. Google, Microsoft, Cisco Systems and Apple are just a few of the powerful software firms that have been partnering with satellite companies on a variety of projects.

Whether it is to provide enhancements to interactive TV platforms, imagery software or the global expansion of broadband coverage, there is clearly a vested interest in the success of satellite on behalf of Nasdaq’s blue chip giants. While the financial antes of these major players often pale in comparison to the figures put up by the satellite industry’s leading companies, the celebrity of universally recognized brand names has often rendered the small and private satellite fraternity starstruck.

The Google Constellation

In September, Google, the largest global online software company with a value of about $31 billion, made waves in the satellite sector by investing in a small startup with an ambitious Ka-band constellation project intended to bring high-speed Internet to underserved regions around the globe. O3b, which stands for "the other 3 billion," referring to what it believes to be the number of potential customers in can reach, was the surprising recipient of a 43 million euro ($57.8 million) investment from Google. While this could be considered a small investment from a company of Google’s size to a constellation that has been projected to cost $650 million, the fact that Google single-handedly put O3b on the map, overshadowing the manufacturing contract won with Thales Alenia Space to build the satellites, caught the attention of analysts and executives industry-wide. "For Google, the more Web traffic there is, the better it impacts the global economy," says O3b CEO and founder Greg Wyler. "There are 3 billion people who are currently not able to be economically integrated with the rest of the world due to lack of communications. This constellation will level the playing field of the world economy."

Wyler’s startup also received fiscal backing from Sirius XM’s savior, Liberty Global Inc., as well as HSBC Principal Investments, and has taken off since. Not even a month after O3b was brought into the satellite spotlight, it landed its first major satellite partner, Gilat Satellite Networks. The Israel-based satellite solution developer contracted with O3b to design a line of VSAT terminals and gateway components, based on its SkyEdge platform, to support the ground segment of O3b’s constellation. This partnering with Gilat enables O3b to leverage automatic tracking and handoff between its satellites. Plans for the terminals will support an array of high-speed applications including 3G cellular/WiMax backhaul, IP trunking, and broadband connectivity for small and medium enterprises, and ISP backhaul.

And despite criticism from some analysts, the deals kept rolling in for the Google-backed project. As recently as March, Satconsult, based in Ghana, signed a multi-year, multi-million dollar contract for high-speed, low-latency IP trunking with O3b, which will provide its managed carrier service, Quick Start, to help Satconsult expand their services throughout East and West sub-Sahara Africa. "While I certainly think that in this economic climate, it is the worst time for an expensive broadband infrastructure development, I have to say that Wyler’s aggressive drive and long list of partners and supports is getting the attention it deserves," says Steve Rago, principal analyst for the electronic market research firm, iSuppli.

Wyler believes that the payoff for his company’s $650 million vision is justified in his market research. "There are two bellwethers that are very clear indications of the potential of our target markets," says Wyler. "The first is the growth of the GDP [gross domestic product] in 150 emerging market economies around the world. Some of these emerging markets have GDPs that are growing phenomenally fast, between 2 and 10 percent GDP growth per year. That means they have more cash in their pocket to spend. The second bellwether is the investments being made in cellular and mobile infrastructure… in these emerging markets. That gives a good indication of what communication pipes are being laid that need to be filled. If billions are being spent on these pipeline infrastructures then you know that these pipes will need something flowing through them and that is where our network comes in," he says.

Wyler says the demand for broadband connectivity in emerging markets is tremendous and if his customers can get affordable access to the service, it will only continue to grow. "Telecenters with shared computers all around the world are jam-packed. Customers pay a fee and get their 10 minutes of online time. These customers are just like customers in developed markets. They want YouTube, MySpace and Facebook. The problem is, you have 10 computers sharing a single 56k connection, and there is no way to adequately feed this demand," he says.

O3b’s conquest now brings Wyler to overlooked corners of the world, such as the island of Fiji, where he is presenting regional customers with a preliminary assessment they would pay around $600 per megabit per second of throughput, plus an initial activation fee for the ground equipment of about $350,000 for orders placed by May. After a May meeting with information and communication technology ministers from Tonga, Wyler says the reactions he receives reveal a measure of enthusiasm and anticipation for the O3b project. "It is a pretty cool system," he says. "However, there is really no new technology. It uses the best existing technologies in a way they have not been used before."

While it is true that O3b is not necessarily a pioneering project or next-generation development, the Google stamp of approval definitely has separated O3b from the pack.

Imagery Investments

Simon Willis, vice president of Cisco System’s Internet Business Solutions Group global public sector, is in search of satellite partners for an imagery project designed to assist municipal governments with a variety of managerial applications. "Our project will use space segment imagery to help urban and rural city governments collect the information they need to develop intelligent transportation, renewable energy, electrical smart grids, water grids, recycling, and intelligent urbanization," he says. The result is Planetary Skin, a non-profit organization backed by Cisco and NASA that will use $350 billion in funding per year between 2010 and 2020 for infrastructure to provide information related to global adaptation to climate change. The organization has a wide range of projects and goals that will depend on strong support from the commercial satellite imagery sector.

"We will be announcing partnerships soon, and we are very active in seeking out what we need," says Willis. "We already have several governments from major cities on board that want imagery to provide them with comprehensive sets of data, such as how efficiently a certain area of a city is using its electricity or even assessing the cause of economic growth or decline in certain neighborhoods. We know that space imagery has the potential to do this." Willis says the project is a zeitgeist of U.S. President Barack Obama’s support for renewable energy and smart-grid technology, as outlined in his 2009 economic stimulus package signed in February, and Cisco is not riding the wave alone. Google, Microsoft and Cisco all released statements following the passage of the stimulus package lauding the bill for providing them with an incentive to back supporting industries such as satellite.

The major software players were not slow to act on their promises. Satellite imagery provider GeoEye has won numerous delivery contracts with Google. In March, the GeoEye-1 satellite was contracted by Google to deliver a bank of new map-accurate global imagery. Google also has been a loyal customer of GeoEye’s rival, DigitalGlobe, since 2002. In September, Google extended and expanded its service agreement with the company in a multi-year, non-exclusive advanced Earth imagery content agreement utilizing the WorldView-2 satellite. "One of the things that satellite imagery improvements will allow customers to identify is, to different degrees of variance, wet versus dry ground cover. This is very important not only in agriculture but important in oil, gas and mining as well as other environmental and energy areas," says Michael McCarthy, DigitalGlobe’s senior director of business development. "We see enthusiasm continuing through WorldView-2 and the next-generation satellites that are on the horizon today. We also continue to see interest and demand for alternative energy exploration increase as we continue to see demand using this data from the satellite for analysis and exploration of opportunities there."

DigitalGlobe’s clientèle also includes Microsoft, which has contracts with the company to provide 460 million square kilometers of satellite and aerial imagery for the software giant’s Virtual Earth program. The fact that DigitalGlobe can share business between two of the largest competitors in the world illustrates the value of the space segment commodity. "We have chosen not to do any exclusivity. The market requires variety and we are an equal opportunity provider, so to speak, of imagery to both the consumer online portal space and the enterprise online mapping space," says McCarthy. "We have had a relationship with Microsoft for a couple of years. Our deal with them is really a formalizing of that imagery provider relationship. What is exciting about it is the inference that this relationship could lead into other areas of partnership with Microsoft."

Willis says satellite imagery partnerships with software giants are the clearest and most immediate examples of how satellite companies can use their exclusive resource to benefit from cooperative civil space projects. "Planetary Skin is a golden opportunity for satellite providers and an opportunity to advance research that benefits society and our environment as a whole," he says.

Cellular Success Stories and Missed Opportunities

The July 2008 release of Apple’s 3G iPhone could be interpreted as a catalyst for satellite industry mobile voice and data investments. Some analysts believe that the data application integration features of Apple’s handset may have had a hand in the acceleration of Sirius XM Radio’s decline in 2008. At the time of iPhone debut, Shaw Wu, an analyst for American Technology Research, called the iPhone an "open-ended growth story," and projected that 14.6 million iPhones would be shipped by the end of 2008 and 31.6 million units by the end of 2009. While the decline of the consumer market, driven by the global recession in the second half of 2008, made Wu’s estimate generous by about 4 million units, iPhone application downloads were extremely successful, specifically ones that provided free services. AOL Radio, provided by the one-time king of Internet software, America Online, was one of the more popular applications. "AOL Radio and Apple brings a great radio platform with a huge amount of content," says Lisa Namerow, managing director of AOL Radio. "We offer over 350 stations for free. That’s a pretty valuable and compelling offer for consumers to take advantage of."

Sirius XM Radio, which was bogged down in a merger battle with the U.S. Federal Communications Commission (FCC), may have been too late to counter the iPhone’s growth as a radio player, but the device also has been transformed into a medium for satellite competitors. A third party software company, Millard Software, created uXM and uSirius, applications for the iPhone G3 which give listeners streaming access to XM and Sirius feeds. Even though a valid subscription to the satellite service is needed to obtain the feeds, it allows customers to skip out on buying new hardware. Another application, Pandora, also swayed a chunk of radio enthusiasts to a free service away from satellite.

Other satellite companies have harnessed the potential of the cellular market by listening to research studies and partnering with terrestrial companies to add global positioning elements to handsets. Right on cue, the names of software giants enter the scene. Google is constructing its own reference databases of cell tower and Wi-Fi hot spot locations through user-generated content and self-learning mechanisms, allowing Google to offer location-based services (LBS) independent of carriers. ABI research analyst Dominique Bonte asserts that Google does not plan on stopping there. "It is likely [Google] will make its location assets available to smaller vendors, further endangering the position of the carriers," she says. Bonte’s research also shows that the handset market, backed by the growth potential of LBS enhancements, is recession proof. In a separate study released in January, "GPS-enabled Handsets," Bonte and ABI claim that shipments of these handsets will climb to 240 million units despite a projected drop of 4 percent to 5 percent in 2009. ABI called the performance of GPS-enabled handsets "surprising" and driven by the ongoing demand for feature-rich smartphones — a group that includes the Apple iPhone 3G, RIM’s BlackBerry devices and Nokia N series phones. "Shipments of the devices will increase at an average annual unit shipment rate of 19 percent through 2014. During the period, GPS chipsets will continue to penetrate this segment with 9 of every 10 smartphones containing GPS chipsets in 2014, compared with one in three in 2008," says Bonte.

These figures, combined with the strategies exhibited by global software giants, are not going unnoticed. Globo Mobile, a division of the European-based satellite and mobile software provider, Globo, says it will create a partnership network of major organizations in the mobile industry to position itself among the mobile divisions of major companies such as Google, Apple, Yahoo and RIM to benefit its new CitronGO platform, which is powered by hybrid satellite systems to provide ubiquitous coverage. Costis Papadimitrakopoulos, CEO and founder of Globo, says there are plenty of customers in the market to go around. "By 2012, over 80 percent of the world’s population will own a mobile phone and 3.8 billion of those will have a mobile Internet connection," he says. "Compare that to only 1.2 billion fixed connections and you can see the difference — the number of mobile connections looks set to rise to 5.6 billion over the next few years. The use of mobile Internet is expected to grow by more than 20 percent in the near future, and we [are] uniquely positioned to help consumers share this growth as it is the first solution to support any handset or service provider."

IPTV’s Silent Software Instigators

There is a general consensus among industry analysts and executives that IPTV will have an impact on the satellite sector. The real question is, what kind of impact will it be? The major software companies will, once again, play a role in the development of IPTV. Microsoft has been particularly determined to make an impact in this sector, and already works with a number of the world’s biggest telcos here. "IPTV had been a success story for several telcos, while others are struggling," says John Krzywicki, a partner at Analysys Mason’s U.S. Strategy Practice. Kryzwicki says there are a number of compelling reasons for telcos to launch IPTV services. "IPTV opens up new revenue streams. It allows recovery of investments in a next-generation network. It enables multiplay bundling and increases customer stickiness as a result. It also protects telcos against the stiff competition of cable operators in the broadband market."

Steve Reinhardt, a senior applications engineer for satellite distribution systems at Motorola, agrees. "Many of the new IPTV operators launching MPEG-4 set-top boxes will have a competitive advantage over satellite."

But it is Ian Tapp, senior vice president of business development for Tandberg Television Americas, who highlights the most dangerous aspect of IPTV services to satellite providers, where major software companies have invested heavily. "IPTV is able to blend entertainment and communications, social networking and web media on the TV, and making the TV service more personalized," he says. This type of threat to satellite was identified months ago by Rago, who noted that IPTV’s interactive advertising and programming features will seem to speak directly to customers and reflect the television habits of the viewer — much like one of the most popular Internet browsers, Google.

In May 2008, Rago issued a report, "IPTV Acceleration Puts Satellite in a Corner," that cited figures emphasizing the effectiveness of interactivity in advertisement and programming and related that to the success of modern Internet search engines like Google. The first software giant to acknowledge the success of Google’s format was Microsoft, which had just unveiled its own IPTV platform, the Microsoft Mediaroom Advertising Platform. "As the IPTV market matures, we are seeing interest from operators on first-generation platforms and homegrown solutions to migrate to Microsoft Mediaroom," says Ben Huang, director of product management for Microsoft Mediaroom. "These service providers need to add high-definition and advanced digital video recording and video-on-demand features that are now fundamental to any competitive TV offering, and they want to remain competitive by being able to easily deploy advanced interactive applications. We are currently engaged in assessing migration opportunities with a number of customers and have been approached by many more. Platform migrations are complex, so this program has been developed to assist with business and technical planning, and reduce the cost and pain of migration."

"Microsoft is looking ahead," says Rago. "They are targeting the video-game generation. These are kids that grew up with interactive video games and comprehensive Internet multimedia."

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