Just seven years since it was first announced, SpaceX's Starlink has evolved to become the world's biggest (by number of satellites) and most popular satellite broadband internet system, with plans to offer service worldwide.
With 145,000 customers, Starlink may not be the biggest in terms of customer base. (Hughesnet has more than 1 million customers, and even Viasat's customer base tops Starlink's by several times). But Starlink has grown 14-fold in just its first year of operation, making it easily the fastest-growing internet satellite service in the world -- and convincing management that the time will soon come to IPO Starlink.
And yet Starlink is in trouble.
Image source: Getty Images.
Starlink math
The problem with Starlink was something we talked about one year ago. Here it is in a nutshell.
In internal planning documents obtained by The Wall Street Journal in 2017, SpaceX described how it planned to make Starlink the profit driver for its business, generating as much as $30 billion in internet service revenue by 2025 -- at operating profit margins in excess of 60%. Such massive profits would make Starlink a promising prospect for an IPO, giving SpaceX immediate access to the kinds of funding it will need to attempt a colonization of Mars.
Of course, all of this is predicated upon Starlink's ability to attract -- and support -- enough users to generate $30 billion in annual revenue. At current pricing -- roughly $99 a month or $1,200 per year, per user, for internet service, this implies a customer base of 25 million is needed to reach $30 billion in annual revenue.
Problem is, even once Starlink has all 12,000 of its planned satellites in orbit (it has fewer than 2,000 today), the combined bandwidth of all these satellites won't support more than 2.8 million users utilizing the service at advertised minimum rates of 100 megabits per second (Mbps) of download speed.
Musk has implicitly acknowledged this constraint, noting in a recent tweet that "Starlink can only support a limited number of users in [any given] area".
SpaceX standard antenna production rises rapidly this year, so those with orders shouldn't have to wait long.
-- Elon Musk (@elonmusk) February 2, 2022
Note, Starlink can only support a limited number of users in an area, so best to order early.
Still, not all users will be online simultaneously, 24/7, so SpaceX can probably "juggle" its users and stretch out its available bandwidth somewhat beyond 2.8 million. But even so, it's not clear the company will be able to make the math work without greatly upgrading the throughput of its satellites, and/or launching a lot more than the originally planned 12,000 satellites. (Plans have been floated, for example, to launch as many as 42,000 satellites to help with this -- and that might be enough to do the trick.)
When all else fails, raise prices
Of course, there is another option SpaceX might try -- and as TheVerge.com reported earlier this month, an option it will try: Raise prices on Starlink.
As Musk announced in a post on Twitter on Feb. 2, SpaceX is introducing a new "Premium" tier of service on Starlink, beginning in Q2 2022. For the low, low price of just $499 a month (i.e. 5x the price for plain vanilla Starlink offering download speeds between 100 Mbps and 200 Mbps), Musk & Co. are now offering customers the chance to sign up for a premium service that will offer ...wait for it ...download speeds of 150 Mbps to 500 Mbps!
I'll say that again: Five times the price to guarantee the same midpoint speed that is now advertised for Starlink (with the potential for maximum speeds 2.5 times higher).
That's quite an interesting offer SpaceX is making. For each customer that SpaceX can convince consumers to bite on the new deal, it can theoretically quintuple the revenue it gets, without providing much more bandwidth than originally envisioned -- such that instead of needing 25 million customers to reach $30 billion in revenue, a mere 5 million would suffice.
By creating this new "Premium" tier of service and advertising it as an up-market offering specifically for "small offices, storefronts, and super users," SpaceX may have figured out a way to bridge the gap between what it hopes to earn, and the amount of traffic its system can support. This is one more step toward viability for the service, and moves Starlink one step closer to being ready to IPO.
