NASA's earth observations commercialization applications program A model for government promotion of commercial space opportunities

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Space Policy 1995 11 (1) KM5 0 1995 Elsevier Science Limited in Great Britain. All rights reserved 0265.%46/95/$10.00

NASA’s Earth Observations Commercialization Applications Program A model for government promotion of commercial space opportunities

Molly K Macauley

The role of government in promoting space commerce is a topic of discussion in every spacefaring nation. This article describes a new approach to government intervention which, based on its five-year track record, appears to have met with success. The approach, developed in NASA’s Earth Observations Commercialization Application Program (EOCAP), offers several lessons for effective government sponsorship of commercial space development in general and of commercial remote sensing in particular. Molly K Macauley is a Senior Fellow at Resources for the Future and an Associate Professor of Economics at Johns Hopkins University. She has worked with NASA on the economics of EOCAP under a cooperative research agreement. She can be contacted at Resources for the Future, 1616 P Street, NW, Washington, DC 20036, USA. The author acknowledges the partial suport of NASA for this research. Responsibility for errors and conclusions rests solely with the author. continued

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Involvement by the US government in commercial space activity has recently been subject to increased critical scrutiny. Federal budgetary shortfalls, the perception that US industry is losing a competitive edge in world trade, and renewed debate about whether government intervention can be effective in fostering commercial markets are among the factors prompting this appraisal. It has included a review of several programs by which government has attempted to foster space commercialization, including the Small Business Innovation Research Program (SBIR), under which the US National Aeronautics and Space Administration (as well as several other agencies) funds small-scale business research activities intended for commercial development, and NASA’s Centers for the Commercial Development of Space (CCDS), typically university-based organizations engaged in research and development of space-related technologies that are considered to have potential commercial applications.’ The studies have concluded that the programs appear to have had mixed success, but critically note that success is difficult to measure because monitoring of the programs’ economic returns has been virtually nonexistent. Indeed, few if any systematic procedures for rigorous, business-like review of these programs have been established. Yet such review offers significant benefits, including information to judge if the programs represent a good use of taxpayers’ resources; to improve the effectiveness of officials managing these programs; and to provide benchmarks for success to spur the businesses who participate in these programs. Such review is increasingly even

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continuedfrompage 53 other commer‘There are numerous cialization programs, but the small business and commercial centers programs have been the focus of the most recent review. Examples of the scrutiny of these programs include US Congress, General Accounting Office, 1989, 1991 and 1992. In-depth and frequently critical discussion of the relationship among government, industry and universities in commercializing technology is offered in the collection of papers by Alistair M Brett, David V Gibson and Raymond W Smiler, 1991. *These programs also include opportunities for commercializing space technologies. 3Additional information about EOCAP is contained in EOCAP I: Final Program Report, 7992, available from NASA’s Stennis Space Center. For discussion about broader remote sensing policy issues which provide the context for commercial remote sensing in general, see Joanne Gabrynowicz, ‘The Promise and Problems of the Land Remote Sensing Policy Act of 1992’, Space Policy, Vol 9, No 4, November 1993, pp 319-328; Ray Harris and Roman Krawec, ‘Some Current International and National Earth Observation Data Policies’, Space Policy, Vol 9, No 4, November 1993, pp 273-285; Scott Pace, Remote Sensing and Global Competitiveness, RAND Paper P-7836 (Santa Monica, RAND); US Congress, Office of Technology Assessment, The Future of Remote Sensing from Space: Civilian Satellite Systems and Applications, OTA-ISC-558 (Washington DC, US Government Printing Office), July 1993; and Molly K Macauley and Michael A Toman, ‘Providing Earth Observation Data from Space: Economics and Institutions’, American Economic Review, Vol 81, No 1, pp 38-41. 4Foreign entities may participate in EOCAP subject to guidelines outlined in the solicitation. ‘EOCAP I actually involved twenty projects, of which eleven focused on technology development and were managed by science offices of NASA. This paper addresses the nine projects which focused on commercial projects and were managed by commercial offices of NASA. EOCAP II focuses exclusively on commercial projects. For additional details of EOCAP I commercial management and the commercial projects themselves, see EOCAP I: Final Program Report, Stennis Space Center, 1992.

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more important with the advent of new federal technology commercialization programs such as the US Department of Commerce’s Advanced Technology Program (ATP) and the US Department of Defense’s Technology Reinvestment Program (TRP), in which investment by government is approaching one billion dollars.2 This paper describes a joint government-industry program that operates quite differently from SBIR, CCDS and other approaches to technology commercialization. The program, NASA’s Earth Observations Commercialization Applications Program (EOCAP), began in 1988 and continues to operate today. EOCAP is unique in that project selection and leadership are carried out by the private sector, not government; projects must operate subject to detailed business plans; and projects are periodically reviewed in a highly detailed, quantitative evaluation process in which poor performance results in termination of the project, thus filling the critical accountability gap between the use of and return to taxpayers’ investment. As commonsense as these principles may seem, they are not routinely used to guide federally supported commercialization projects. The next sections describe EOCAP, its operating principles and performance, and the program’s successes and failures. The concluding section suggests several lessons for government-private sector relationships in commercializing technology, particularly remote sensing, and public policy affecting these relationships.’

The Earth Observations Program (EOCAP)

Commercialization

Applications

First implemented in 1988, EOCAP is a joint US government-industry program intended to promote commercial remote sensing.4 NASA established EOCAP upon recommendation from a 1986 report, Linking Remote-Sensing Technology and Global Needs: A Strategic Vision, by NASA’s Space Applications Advisory Committee. The recommendations sought ways to encourage US businesses to join with NASA in funding research that had commercial potential and would ultimately lead to commercial success. A key assumption of the program was that the technology from NASA would be well beyond the proof-of-concept stage and, with the small push provided by a modest amount of government funding, could readily become commercially profitable. EOCAP was thus to focus not on technology development but business development. EOCAP I, involving nine projects, totaled about five million dollars in federally funded, competitive awards each ranging from about $100 000 to $220 000 a year for the three-year duration of the program (funding extended from 1988 to 1990). Awards for EOCAP II, involving twelve projects and federal funds totaling about seven million dollars, were made in a second round of funding (1991-94).5 In 1994, twelve awards involving about seven million in federal funding were made for EOCAP ‘93 (for 19941997); (also in 1993, the name of the program was changed to incorporate the fiscal year). A Cooperative Agreement Notice announcing the competition for EOCAP ‘94 was issued in July, 1994, for awards in October, 1994. The types of remote sensing markets addressed by the projects funded in EOCAP is wide ranging; to illustrate, Table 1 lists the markets involved in EOCAP I, II, and EOCAP ‘93.

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NASA’s Table 1. Markets

Commercial

addressed

1. 2. 3. 4. 5. 6. 7.

0.

9. 10. 11. 12.

content

requir+

Transmittal letter and partner endorsements Title page Executive summary Table of contents Introduction Objectives Business plan 7.1 Overview 7.2 Product/service definition 7.3 Spreadsheet analysis 7.4 Market opportunities 7.5 Competition 7.6 Risk management 7.7 Business team 7.8 Advantage in EOCAP ‘94 Technical plan 8.1 Overview 8.2 Description of technology 8.3 Description of other relevant technology 8.4 Technical team 8.5 Advantage in EOCAP ‘94 Budget and co-funding plan Management plan Evaluation plan Letters of commitment

Source: National Aeronautics and Space Administration, Commercial Remote Sensing Program, EOCAP ‘94 Cooperative Agreement Notice CAN SSC-01-94.

M K Macauley

by EOCAP projects.

markets

Commercial forest management Commercial fishing management Real-time ocean data delivery services for commercial shipping Crop production forecasting services Urban infrastructure mapping for market forecasting Pipeline engineering, monitoring and management

Table 2. EOCAP ‘94 proposal men&

EOCAP:

Commercial and public sector markets Integrating remote sensing and geographic information software Ice monitoring Hazardous waste detection and auditing Real-time disaster assessment Oil seep surveying Wetlands management Groundwater management

Public sector markets Archaeological mapping

An important operating principle of EOCAP is that it requires the business partner to fund a significant percentage of the project through either cash or the contribution of in-kind resources (personnel, equipment). In the EOCAP projects undertaken to date, co-funding by company partners has equaled 40-60% of federal funding. A total of about $30 million has been invested in EOCAP by the government and private sectors between 1988 and 1994. How EOCAP

works

A unique aspect of EOCAP is that its managers require that program results be quantitatively measured and reported. This measurement practice begins with information required in proposals made to EOCAP - they must incorporate a substantial amount of quantitative data about expected profitability, the size of markets and other financial information. Measurement continues in the form of quantitatively-evaluated selection criteria for choosing which proposals to fund and in the use of these criteria during implementation of funded proposals. Proposal selection Although EOCAP awards are made through conventional grant and contracting procedures, much of the information required in the proposal and during the proposal review process distinguishes EOCAP from other government programs. The requirements include not only the usual detailed documentation of technical merit (typical for most space projects) but also a detailed business plan (Table 2 lists the required information). The business plan must define the product or service to be developed, identify the nature and size of the expected market and document how this market description was verified; outline a pricing policy; identify sources of competition; and indicate the nature of and solutions to any sources of business risk (emergence of competitive products in the USA or internationally, sources of technical uncertainty in gaining access to remote sensing data, and so forth). Proposal review The next step of the process, proposal review, operates much like usual scientific or technical peer review, except that in addition to technical experts the reviewers include business experts who have had successful experience in running a space-, remote-sensing, or information-related business. All of the reviewers (both technical and business) are from the private sector. The reviewers use evaluation forms that ask for detailed written comments on and quantitative ratings of the quality of about twenty dimensions of the technical and business plans, ranging from

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overall soundness of the plans and the reasonableness of their proposed budgets to how well they acknowledge and mitigate technical and business risk. Each proposal is reviewed by two technical experts and two business experts. Project administrators then tally the numerical scores, rank proposals based on these scores, and forward the rankings and reviewers’ written comments to government officials. The officials have the prerogative of accepting the rankings or reviewing the proposals and re-ranking them. In EOCAP projects funded to date, the rankings of these officials and of the reviewers have generally, although not always, been in agreement. Like other government programs, funding agencies frequently attempt to balance the geographic distribution of funds, for example, and occasionally the funding officials have selected some lower-rated EOCAP proposals for this and other reasons. The key features of the review process are that reviewers are individuals from outside government, and include business experts who generally are aware of the challenges of business plans for space activities in general and remote sensing in particular. For example, these challenges include the uncertainty about the availability of data, as the US civil remote sensing program, Landsat, is subject to uncertain annual funding; the uncertainties associated with launch dates of new sensors (for instance, an ocean-monitoring instrument, SeaWIFs, the launch of which has been postponed several times); and other public policy decisions such as access to military remote sensing data. The reviewers selected for EOCAP have been individuals who have been able to take these circumstances into account in rating proposals. Project review Once a proposal is funded, project leaders must make detailed quarterly reports documenting technical and business accomplishments. In addition, reviewers expert in remote sensing technology, business and finance (as in proposal review, project reviewers include NASA management but are largely comprised of private sector experts) visit the home locations of the projects annually to evaluate progress; and the results of all reports are quantified and then analyzed to track progress of individual projects and EOCAP as a whole.6 Are the projects accomplishing their technical and business goals? Is the project earning a positive return on taxpayers’ investment? If not, then why not? These quantitative ratings are stored in on-line databases, shared with project leaders, and used by NASA management as a source of up-to-date information on the status and progress of the projects throughout their execution. It is also important to note that poor reviews have led NASA managers to terminate some projects; these actions substantiate for all participants in the program the seriousness with which the review process is taken by NASA managers. Project completion and post-EOCAP

‘Copies of proposal selection and project review evaluation forms are available from NASA’s Stennis Space Center.

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follow up

EOCAP I and II provided funding for up to three years, with the expectation that at the end of this period, projects should have realized commercial profitability. This time period is rather arbitrary; some commercial activity can be successful sooner, while other plans may take several more years to realize profitability. A few EOCAP projects have succeeded by their third year, but several more have done so by their fourth or fifth years. By the beginning of EOCAP ‘93, EOCAP managers realized that provision needed to be made to track how well

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projects continued to perform beyond three years. For this reason, EOCAP ‘93 now requires project leaders to agree to report project performance for an additional two years and to budget a modest amount (about $10,000 each year) to do so. This innovation will take effect in 1996 and 1997 (the fourth and fifth years of EOCAP ‘93). Even this two-year extension is arbitrary as it restricts the time period for commercial development, but it is probably reasonable given that some type of time boundaries must be imposed on the program to make it administratively manageable and fundable.

EOCAP’s operating principles EOCAP is perhaps best viewed as a series of projects which, taken together, constitute a portfolio of business opportunities - some high risk, some low risk. EOCAP managers acknowledged at the outset of the program the difficulty of picking winners and sought, instead, to maximize the net return to the program as a whole. In addition, and in contrast to the philosophy underlying SBIR, CCDS, and other technology commercialization programs, EOCAP projects are not required to ‘tailor’ their commercial opportunity to match the scientific or other noncommercial interests of a government program. Rather, EOCAP operates as, in the words of one observer, a ‘living laboratory’ in and out of which experts in the private sector, in particular, but together with government and in some cases, universities, test practical technical and scientific understanding against benchmarks of commercial profitability or in the case of public resource management, net public benefit. The intended result is for projects to respond to market demand rather than be driven by science or technology per se. Limits on government’s role

7For discussion of government’s role in commercial space activity, see Rose, 1986. See also Thomason; 1994, for discussion of aovernment’s role in EOCAP. 8The publicgoods aspect of remote sensing technology, and hence part of the rationale behind the appropriateness of government intervention in the market for it, is twofold: first, the technology produces an information good, which, because of the difficulty of appropriating the benefits of the information and the difficulty in excluding others from using the information, can tend to cause private suppliers to under supply the most socially beneficial amount of the information; and second, the information is about natural resources and environmental processes, both in part (although not exclusively) public goods. For additional discussion of these attributes of the technology, together with their implications for government’s role in the market, see Macauley and Toman, 1991, 1992.

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EOCAP is intended to limit government’s role in a commercial activity to those aspects of the activity where the private market, operating on its own, might fail.7 In other words, whereas a healthy and justifiable skepticism is typically accorded government intervention in private markets, key aspects of EOCAP serve to strictly define and limit government’s role. For example, EOCAP serves to provide financial and technical support for a limited time only and in areas of remote sensing activities where markets might be unsuccessful due to gaps between science or technology and commercial demand. In addition, given the focus of remote sensing technology on the measurement and monitoring of natural resources and global environmental processes and the fact that remote sensing is fundamentally an information technology, EOCAP also serves to mitigate market failure in the supply and use of natural resources information to maximize the public and private benefit of this information.* The advent of EOCAP also coincided with a period during which growth in commercial remote sensing was stagnant, in part due to the continuing uncertainty associated with funding for the US government’s Landsat remote sensing spacecraft. EOCAP has filled a gap between the commercial application of data that are limited by the spatial, temporal and spectral resolution available from Landsat and the European SPOT remote sensing satellite system, and data of much finer resolution that are expected to be available by the late 1990s and supplied by commercial firms operating new remote sensing systems.

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Projects in EOCAP have filled this gap by simulating finer resolution data, using aircraft data, or forging new territory in data handling, integration, standardization, software development or analysis such that the commercial market will be better able to use the data supplied by these future commercial systems. The implication, of course, is that the ultimate success of EOCAP will be attained when it goes out of business because commercial markets have developed so well that the program is redundant. At that point, the appropriate role for government in remote sensing may be to provide research infrastructure - such as spacecraft and remote sensing instrument testing facilities akin to the wind tunnel infrastructure supplied to the commercial aviation industry _ rather than push commercialization by way of EOCAP-type programs. It is also illustrative to note what EOCAP explicitly does not do: the program does not seek to do the job of business, such as marketing, and, because the program requires significant cost sharing with private partners, the program does not fully fund or insure the financial viability of the commercial activity. Rather, EOCAP requires, and takes steps to ensure, that incentives are in place for business partners to share risk (as noted above, by placing their own financial or other resources at stake during the conduct of the project). And, as noted earlier, EOCAP managers terminate projects that are not performing well - in the past, government managers have not generally been willing to halt projects. Innovations in government’s traditional role EOCAP has represented the first time that proposers to NASA commercial activities have had to submit business plans and other business-related information such as documenting the expected size of the commercial market (through surveys or other means); projecting expected gross and net revenue; and describing the possible competition from other products or processes. Interestingly, other government commercialization programs do not request business plans even though business profitability is identified as an expected measure of success in these programs. At the same time, however, obtaining high quality business plans from proposers has been challenging, as the individuals who are expert in remote sensing technology have frequently had little business experience. For this reason, the solicitation guidelines for I to require that the ‘principal EOCAP have evolved since EOCAP investigator’ be a commercial entity, rather than, say, a university researcher, and recommend that all proposers at a minimum avail themselves of one of the numerous guides to writing business plans now available in local libraries and bookstores.’

Measures of EOCAP success As discussed above, EOCAP is unique among government programs in that from the outset of the program, explicit provision has been made for detailed measurement of the program’s success. Three criteria measure success: ‘That the project leader is still referred to as ‘principal investigator’, which seems inappropriate for a business venture, is indicative of the lasting legacy of emphasizing science rather than business in NASA contracting procedures.

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Commercial profitability. The measure EOCAP is net profitability of projects.

of success

most emphasized

by

Generic innovations that improve the remote sensing industry. Another

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NASA’s Table 3. EOCAP Annual 1993 dollars). Notes: El = EOCAP I; Eli = EOCAP II; E93 = EOCAP ‘93 *industry estimate **extrapolated from previous year estimate “‘projected; 1996 government data include EOCAP ‘94 Source: NASA EOCAP funding and budget data, available from Commercial Remote Sensing Program Office, Stennis Space Center.

Government

Investment

El Eli E93 El Eli E93

Industry

by Government

1990

1991

1992

1993

0.9

1 .o 0.8

2.3

2.2

1.6

1.9 1.8

2.0 2.6

3.6

3.4

6.0

6.8

Table 4. EOCAP Annual Revenue, 1990-1996

El Eli E93 Notes: Data for 1994-96

are industry estimates.

Sources: NASA EOCAP Business Review data and project investigator interviews, Resources for the Future, Washington, DC.

Total

and Industry,

2.7

Total

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M K Macauley

1990-1996

1994 1.7 1.9 2.0* 3.0’ 3.2’ 11.8

1995

4.5*** 2.0” 3.0’* 3.0’ 12.5

(millions of

1996

5.0”’ 2.0*’ 3.0** 3.0’ 13.0

(millions of 1993 dollars).

1990

1991

1992

1993

1994

1995

1996

Gross Net Gross Net Gross Net

3.1 0.4

1.9 0.3

2.3 0.4

3.0 1 .o 3.1 0.5

5.0 3.0 5.0 2.0 5.0 1 .a

6.0 4.0 7.0 4.0 8.0 5.0

7.0 5.0 8.0 5.0 12.0 9.0

Gross Net

3.1 0.4

1.9 0.3

2.3 0.4

6.1 1.5

15.0 6.8

21 .o 13.0

27.0 19.0

measure is the development of new techniques that contribute to the efficiency with which the remote sensing industry operates. These innovations include new products or processes whose value is unappropriable by any one company, but which improve the health of the industry in general. A typical example is the development of a new data format which becomes adopted as an industry standard. EOCAP managers view such innovations that redound to public benefit as appropriate success measures because the program is partly funded by government. Policy lessons. Lessons from EOCAP for improving public policy also represent benefits flowing from the program. To the extent that these benefits are deemed to be uniquely provided by EOCAP (that is, it would be difficult to validate these lessons in the absence of EOCAP), they are recognized as contributing to the public good.

EOCAP’s performance EOCAP’s performance has generally been successful based on these metrics. As a ‘bottom line’ measure of success, Tables 3, 4 and 5 taken together illustrate EOCAP’s commercial profitability.The tables give investment, revenue and return on investment information for EOCAP I, II and ‘93 and totals for the entire program. Based on actual data to

Table 5. EOCAP Actual and projected investment and revenue cumulative,

199Ck93 1994-96 1994-96 assuming revenues

(Actual’) (Projected*) (Projected*) 10% net realized

Notes: Percentages

1990-1993

Investment

and 1994-1996

(in millions of 1993 dollars).

Gross revenue

Govt

Industry

Gross revenue minus Govt invt

Net revenue + total invt”

13.4 63.0

7.2 (36%) 13.1 (35%)

12.6 (64%) 24.2 (65%)

6.2 49.9

2.6U9.8 = 13% 38.8137.3 = 104%

_

-

_

in parentheses

3.9137.3 = 10%

in ‘investment’ columns represent percentage of total investment for the relevant time period

‘See information concerning actual and projected figures in Tables 3 and 4. “Net revenue is from Table 2. Sources: As listed in Tables 3 and 4.

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(for 199&93), net revenue received by industry (that is, gross date revenue minus industry’s costs) represents about a 13% return on the total amount invested by industry as well as government. This return is at least as good as - and generally higher than - that obtainable during this period through conventional investments such as certificates of deposit or other financial instruments. Projected net revenue and investment (for 1994-96) show a very large expected future return, over 100%. Experience with EOCAP has shown that project leaders tend to overstate expected revenue; EOCAP managers request project leaders to review annually their expected revenue projections, and typically these have been revised downwards.“’ For this reason, Table 5 also shows the return that might be expected if realized future net revenues are only 10% as large as projections. In this case, the return would be around lo%, comparable to the return that has been obtained as of 1993. The tables reflect aggregate data compiled from information collected from each of the EOCAP projects and thus do not reveal that not all of the projects have been individually profitable. The most frequent reason for unprofitability has been data unavailability, generally because sensors that were expected to be flown were not launched during the period of EOCAP funding (such as ocean color scanners to support commercial fishing and civil radar programs to support forecasting). The dependence of the projects on the flight of these sensors had led these projects to be considered higher risk in the EOCAP portfolio than other projects serviced by a more assured data source. While the flight-dependent projects are listed as EOCAP ‘failures’, the feasibility of otherwise promising services may be demonstrated in the future when the sensors are flown. For this reason, reviewers of proposals for these higher risk projects had favored their funding. Despite these problems, about one out of three EOCAP projects has earned positive net revenue. Their earnings were sufficient to offset the losses from unsuccessful projects, allowing the program as a whole to obtain the return shown in the tables. Is a success rate of one out of three a very good winning average? In general, yes. For instance, roughly three out of ten pharmaceutical companies recoup their average cost of research and development within three years on the market. Like EOCAP, pharmaceuticals represent a research-intensive industry subject to government regulation. As another example, even fewer new businesses earn positive net revenue in their initial years of operation. It is important to emphasize that the actual revenues listed in the tables are conservative estimates. The benefits of projects with large, essentially public goods components, such as environmental monitoring of public lands, satellite-derived photos that increase environmental awareness, or remote sensing for archaeological investigations, are not included. Estimation of these public benefits remains for future research. Generic innovations “These downward revisions reflect a host of difficulties with individual EOCAP projects, difficulties in accessing data, the failure of government to fund some sensors which had been projected in government planning documents, and no doubt, a tendency to bias upward the projections made at the start of the program.

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EOCAP has also fostered development of: .

several

industry-wide

innovations,

including

‘commercial practice standards’ (as opposed to scientific standards). For example, one project successfully demonstrated that 90% accuracy is adequate as a commercial standard for remote sensing data used to identify types of trees for inventorying forests;

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.

.

.

.

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‘aesthetics’ responsiveness so that ‘water looks like water’ in packaging and displaying remote sensing data products; standard commercial data formats, such as standards for the stripping away of extraneous information inherent in data to provide straightforward information for customers; highly specific tailoring of data products to small niches, such as information about specific tree species for forest inventory in the Pacific Northwest or the Northeast or the ocean color that gives clues to specific fish species for commercial fishing in the Gulf of Mexico or along the Pacific coast; the development of user-friendly, visually satisfying icons, displays, hot keys and other software devices to improve the ease with which remote sensing information is manipulated; and an improved understanding of the commercial value of real-time versus archived data (in other words, the extent to which ‘yesterday’s’ data, combined with extrapolations that predict short-run changes, are close substitutes for real-time data in the case of fisheries management, ice forecasting, oil spill responses and other timedependent applications).

Policy lessons

EOCAP has also served to document experiences which might permit decision makers to improve public policy. For example, EOCAP has demonstrated to NASA managers the regulatory, legal and institutional barriers to the development of privately owned and operated small satellites as well as the development of sensors located on publicly owned, privately owned or joint publicly-privately owned spacecraft; illustrated the desirability of amending the 1984 Land Remote Sensing Commercialization Act (repealed in 1992; witnesses offering Congressional testimony on the replacement legislation, the 1992 Land Remote Sensing Policy Act, included representatives of several EOCAPassociated businesses); indicated the desirability of establishing industry-wide standards for data format, access or content; and suggested improving data management techniques that may be useful during operation of government programs such as the Earth Observing System. EOCAP experiences have helped to substantiate, refute and otherwise elevate the quality of debate about these issues by providing real-world examples of policy problems and opportunities.

Lessons suggested about government sponsorship Experience with EOCAP suggests at least two sets of lessons in addition to the above policy implications. One set demonstrates several general strategies for effective interaction between government and the private sector in space business development. The other set offers specific lessons for the remote sensing industry. Lessons for commercialprogram

management

Require project leaders to be from the private sector and to operate with real business plans. Of critical importance in EOCAP is the organiza-

tional structure of projects, specifically, the nature of project leadership and the use of business plans. Leadership in EOCAP I varied markedly, including (1) projects that were university-centered with industry serv-

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ing as consultants; (2) projects that were university-centered with industry serving as marketer; (3) projects that had non-profit organizations other than universities as the lead investigator; and (4) projects that were commercially centered. Not surprisingly, given EOCAP’s commercial orientation, the most successful projects were commercially centered, with the private firm playing an active business role. While the result is not surprising, the substantiation of the importance of this role during EOCAP I led subsequent EOCAPs to be structured differently from the traditional science- or university-centered approach to NASA projects. EOCAP II and ‘93 required commercial leadership. The lesson here then is that such commercial leadership, rather than managers drawn from the ranks of academe or government, is desirable as a requirement for other commercialization programs. In addition, EOCAP projects with detailed business plans were better able to remain focused on commercial goals and less frequently sidetracked by exclusively science- or technology-related issues. This focus often meant that projects were able to find pragmatic ‘fixes’ for technical or other glitches; the fixes might not be acceptable in a science laboratory, but are adequate for commercial use. Detailed business plans also generally incorporate contingency options to accommodate technical problems (say, difficulties in algorithm development or data access) and to respond flexibly to changes in market demand. For instance, some projects were able to redirect their plans in response to environmental events such as the Exxon Valdez oil spill and dispute over preservation of habitat of the spotted owl in the Pacific northwestern region of the USA. Both of these events had been unanticipated at the start of EOCAP. Projects such as these, which were managed with a view to taking risks and seizing unexpected opportunities from the outset proved to be the most resilient and suffer the fewest setbacks in reaching projected revenue goals. This experience underscores the desirability of requiring business plans, including risk analyses, in proposals for other commercialization programs. EOCAP has also demonstrated that as an integral part of a good business plan, projects which involve direct participation (for instance, through surveys, demonstrations) of a range of clients during all phases of the project, but in particular, early in project development, are better able to redefine products and redirect business strategies during the course of the project. Ultimately, these projects were able to enlarge potential markets. Extrapolating from EOCAP, then, another inference for commercialization efforts is to look for strong evidence of customer interaction in the business plans submitted by project proposers. Require

that the private sector have financial resources at risk. As noted earlier, one of the philosophical underpinnings of EOCAP is to require that projects be co-funded by private sector partners. The nature of co-funding ranges from physical resources (computer facilities) and salaried time to cash contributions; the amount of joint funding is from 10-60X of total project funding. In general, the larger have been these ‘own’ resources as a percentage of total funding (government plus company funding), the closer the project has come to attaining its goals. In addition, projects that relied increasingly on the commercial company’s own resources and less on federal resources as the project progressed during the three-year period also performed better. One of the challenges of selecting EOCAP projects is validating the

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nature and value of resources which participants claim to be putting at risk. However, this risk-sharing is so important in project success as to justify extra review and exchanges of information between proposers of EOCAP projects and project selection reviewers. This is one of the reasons why project reviewers include experts in business finance. The lesson is not only to require co-funding, but also to establish a means of verifying its nature and adequacy. Permit project leaders to be flexible in taking advantage of changing technologies and markets during the course of the program. Numerous external factors significantly affected EOCAP projects. Of course, two related factors which have influenced the entire remote sensing industry, not just EOCAP, have been (1) continued reductions in the cost of personal computers and work station systems, software, other communicationsand information-related technologies (such as facsimile equipment, which permits more rapid data delivery, including shipboard in the case of one EOCAP project, and the global positioning system), and (2) the growing acceptance of geographic information systems. Another factor is the growing demand for information for regional and international resource management, particularly at a scale commensurate with satellite data (as smaller scale in the information hierachy can be largely, although not completely, served by aircraft photography). This demand specifically requires the integration of existing spatial data technologies; EOCAP has been well-suited to practical, commercially driven tests of data integration. Unanticipated events have also influenced the outcome of some projects. Three public initiatives in the state of California on timber logging and preservation of habitat for the spotted owl generated immediate demand for forest cover inventory and other spatial information and provided an unexpected market for an EOCAP project. In addition, several oil spills (in the Persian Gulf and in Prince William Sound) resulted in the need for data to monitor the extent of the spills and for mapping wildlife and other habitats. Some of these requirements were able to be served by EOCAP projects even though the original scope of the project did not specifically encompass these activities. These external factors have at least two implications for governmentfunded commercial efforts. One is that technological developments and market demand - factors external to the program - can pace the success of the commercial effort. EOCAP is likely to have been much less successful in the absence of these developments; thus timing, as in the case of any market development, is key. Traditionally, government has had a mixed record of timing technology commercialization (for example, in the USA, development of the Clinch River Breeder reactor and synthetic fuels programs were poorly timed, and support of commercial aviation was better timed). ‘i A second implication is that programs such as EOCAP must be sufficiently flexible to permit investigators to respond to unanticipated changes in the nature of markets. EOCAP investigators were able to redirect their business efforts in responding to the spotted owl and oil spill events without overly burdensome reporting requirements to government managers. “See

Linda Cohen and Roger Nell, 1991.

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NASA’s 14The references cited in Ref 3 describe these issues in detail. Bibliography Brett. Alistair M. David V Gibson. and Ravmond W Smilor University Spin-Off Cokpanies Rowman and Littlefield; 1991 Cohen. Linda and Roaer Nell The Technology P&k Barrel WaGhington, DC, Brookings Institution, 1991 EOCAP I: Final Program Report Stennis Space Center, MS, March, 1992 Gabrynowicz, Joanne ‘The Promise and Problems of the Land Remote Sensing Policy Act of 1992’, Space Policy Vol9, No 4. November 1993. DO 319-328 Harris, Ray and Roman Krawec ‘Some Current International and National Earth Observation Data Policies’, Space Policy Vol9, No 4, November 1993, pp 273-285 Macauley, Molly K and Michael A Toman ‘Providing Earth Observation Data from Space: Economics and Institutions’, American Economic Review, Vol 81, No 2, 1991, pp 38-41 Macauley, Molly K and Michael A Toman ‘Supplying Earth Observation Data from Space’, Space Policy, Vol 8, No 1, February 1992, pp 16-22 Pace, Scott Remote Sensing and Global Competitiveness RAND Paper P-7836, Santa Monica, RAND Rose, Nancy L ‘The Government’s Role in the Commercialization of New Technologies: Lessons for Space Policy’, in Molly K Macauley, ed, Economics and Technology in U.S. Space Policy Washington, DC, Resources for the Future, pp 97-l 26 Thomason, Greg ‘Review of EOCAP ‘93 Receives Split Industry Opinion’, Earth Observation Magazine August 1994, pp 12-13 US Congress, General Accounting Office ‘Small Business: Proposed Amendments to the Small Business Innovation Research Program’ (GAO/RCED-89-173) Washington, DC, US Government Printing Office, June 1989 US Congress, General Accounting Office ‘Commercial Use of Space: Many Grantees Making Progress, But NASA Oversight Could Be Improved’ (GAO/NSIAD91-142) Washington, DC, US Government Printing Office, May 1991 US Congress, General Accounting Office ‘Federal Research: Small Business Innovation Research Program Shows Success but Can Be Strengthened’ (GAO/ RCED-92-45) Washington, DC, US Government Printina Office. March 31, 1992 US Congress, General. Accounting Office ‘Technology Transfer: Improving the Use of Cooperative R&D Agreements at DOE’s Contractor-Operated Laboratories’ GAORCED-94-91, April 1994 US Congress, Office of Technology Assessment The Future of Remote Sensino from Space: Civilian Satellite Systems aid Applidations OTA-ISC-558, Washington, DC, US Government Printing Office, July 1993

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EOCAP:

M K Macauley

EOCAP also serves as a means of prototyping and establishing pilot programs for in situ, aircraft and satellite data and ancillary systems like the global positioning system - which have significant commercial potential. An observation related to the demand for these prototypes is that, as noted earlier, one of the largest pushes to business development during EOCAP has been external forces outside the control of the project, such as renewed national and international environmental concern and the demand for environmental and natural resource management information. Practical means of calibrating and merging imagery and communications technologies to serve these markets, particularly those for monitoring compliance with environmental regulation, remain a desirable focus for future EOCAP projects. Among the obstacles that make this focus difficult, however, are legal and regulatory provisions that are perceived to restrict commercial development, such as data policy, licensing and other requirements.14 A pilot program to test interpretation of the provisions of the 1992 Land Remote Sensing Policy Act may be an appropriate next step for an EOCAP-like program. An issue related more broadly to developments in space is the challenge of developing the role of the private sector in supplying its own small satellite system or otherwise arranging for the flying of sensors (for instance, leasing space on federally owned spacecraft) that might have high commercial value. Business plans for such initiatives include the significant projected expense of perceived challenges in licensing and operating these systems and safeguarding proprietary interests in data. Provisions recently included in the Land Remote Sensing Policy Act of 1992 may alleviate some, but perhaps not all, of these concerns; they thus remain an issue for further policy discussion.

Conclusion It would be expected that the ultimate test of EOCAP’s success is when the program goes out of business - that is, when its usefulness is overtaken by market developments as the commercial remote sensing industry expands. Indeed, the appropriate role for government in remote sensing may ultimately be not the nourishing of small businesses, but the supply of research and testing infrastructure to push the state of the art in new remote sensing technologies. At the present stage in the evolution of commercial remote sensing - a stage inbetween the gross resolution data now available, and the finer resolution data expected in the late 1990s - EOCAP serves a useful role. Provided it continues to limit the role of government, both financially and administratively, and continues to demand measurable, demonstrable success from commercial partners, the program appears to serve the remote sensing industry well. Many aspects of the program’s implementation also offer lessons for other space commercialization efforts.

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