The report this past week (January 17, 2003) that the National Imagery and Mapping Agency (NIMA) had awarded a five-year contract for the acquisition of high-resolution satellite imagery to Space Imaging and DigitalGlobe was welcomed news.Last year proved difficult for these companies that have large investments in technology and a heavy reliance on government contracts.In an exclusive and timely interview with the top executives from these satellites data providers as well as from Pixxures Inc., Direction's Magazine editor Joe Francica (JF) explores the reasons for a shaky 2002 and where the demand for products will be for the year ahead.
- JF: 2002 was a difficult year for the satellite data providers.What were the major factors influencing these market conditions?
Chuck Herring, Director Marketing Communications, DigitalGlobe: As for the industry, the largest factor was the economy. From a commercial standpoint, all of our business customers and city and county customers are experiencing the downturn and have cut back on the purchase of imagery. There is not a business or local government around that has not had to tighten their budget.From DigitalGlobe's standpoint, we are thrilled at the customer's feedback about the quality of our products and our customer service, but again, this was probably the toughest year to have a company go operational in many years. That said, we are encouraged by our steadily increasing revenues and think we have considerable growth in the short and long term.
Brian Webster, President & CEO, Pixxures, Inc.: Probably the most significant issue impacting the imagery markets in 2002 was the federal budgeting process.The events of 9/11 and the subsequent creation of The Office for Homeland Security seemed to turn federal spending upside down.
The trickle-down effect on the mapping industry was substantial.Money earmarked for mapping projects never materialized. States that depended on this money for their projects, and the counties that depended on their states, all found themselves in a squeeze.The last I heard, 36 states were operating in deficit spending mode.One of the most common laments we heard from colleagues in our industry is: "I have three huge projects in my pipeline and my clients have told me the POs will be in my hands next week.And they've been telling me this for the last six months..."
For better or worse, the government is the biggest single customer of mapping services.When things go awry with the government, it's only a matter of time before the effects are felt throughout the industry.For mapping providers, 2002 was a dismal year - competition for mapping projects grew insanely competitive, prices have fallen to the lowest level in years, and there is still too little work for all the firms that need the business.It has become commonplace to go to a pre-bid conference for a small project and see bidders from all over the country, where a couple of years ago one might have seen half a dozen regional competitors attend.One state recently solicited letters from companies interested in receiving an RFP for a large project.More than 400 RFPs were sent in response! The only one who wins in this scenario is the customer.
This industry has always been cyclical, but I don't know when it's seen a year quite like last year.There is some natural selection taking place in the industry right now.Only the fittest, most competitive companies will survive.By the time the cycle does turn around, there will probably be plenty of work to do, but fewer companies to compete for it.
John R.Grizz Deal, Chief Marketing Officer, Space Imaging, Inc.(SI): Space Imaging saw great growth in 2002.Some markets such as the U.S.commercial market are not growing as fast as expected, but the growth is still healthy. We especially saw good growth this year in the international marketplace and with the National Imaging and Mapping Agency (NIMA).
- JF: What is on the horizon for 2003? What expectations from the government or business sector do you have for sales in 2003?
Space Imaging: The U.S.Government has made a major move to invest in commercial satellite imaging in 2003 and in the future.In June of last year, CIA Director George Tenet directed the National Imagery and Mapping Agency (NIMA) to use commercial imagery for all of its mapping products. 
Congress also approved legislation to allow NIMA to enter into multi-year contracts with imagery providers.Congress even added money, some $15 million, to the NIMA budget specifically for commercial imagery.From the commercial sector, we're expecting to see continued growth, but much of it will come from educating the many different markets on the advantages of using high-resolution, high-accuracy satellite imagery.Our Solutions division has a very aggressive growth goal for 2003 and they continue to develop both custom and packaged geospatial solutions for customers across the country.
Pixxures: I think we are in the early stages of spring after a very cold winter.We are starting to see early signs of companies starting to part with their money and government agencies starting to see some funding.2003 could turn out to be a banner year for the mapping industry, barring a war with Iraq that could throw everything into limbo again.
In 2002, mapping companies were practically tripping over themselves trying to find the elusive Homeland money that was always on the verge of being released, but never was released.Now that the Department of Homeland Security has become a reality, I believe money and projects will start materializing in 2003.I am aware of several federal initiatives that have critical importance to Homeland's charter and are getting funded now - almost a year after they were originally proposed. If this is the beginning of a trend, 2003 could turn out to be a robust year.
Commercial spending in 2002 was also down.Many companies were reluctant to let go of their cash for fear of being caught flat-footed if the economy remained anemic for a prolonged period.We are starting to see some of these funds get released now, also. There are signs that the "thaw" is beginning.
As I already said, the floodgates could open in the new year, and there will be fewer companies to handle the work.The companies that are strong enough to endure the squeeze could be well positioned to capitalize on the back side of this cycle.
- JF: What possible legislative or other government initiatives (e.g.homeland security) will affect your business in 2003?
DigitalGlobe: Obviously, Homeland security but there are others in the works that increase demand for high resolution data in all levels of government that help us grow our revenues.
Pixxures: Homeland Security is probably the biggest initiative for the mapping industry as a whole. For Pixxures, we also benefit from The National Map program that is being undertaken by the USGS and other agencies, as well as the overall trend for government agencies to Web-enable their services.
Pixxures recently signed a Cooperative Research and Development Agreement (CRADA) with the USGS to develop a prototype Internet portal for delivery of imagery for The National Map.This could be the tip of the iceberg for imagery on a national scale, and eventually a global scale, to be made available to the mainstream public.These initiatives will keep Pixxures plenty busy over the next few years.
- JF: What can you tell us about future satellites that will be launched? If .5-meter resolution is now the limit, can we expect even higher resolution from future satellites? What regions of the spectrum, besides visible or near IR, do you expect to be included with future sensors? Or will we be seeing only narrower bands introduced within the existing range?
Space Imaging: In 1999, when we launched IKONOS, Space Imaging set the standard to which all others continue to be measured against.In early 2006 Space Imaging will set a new standard by launching its next generation of the IKONOS series, thus continuing our current market leadership position.The resolution of this next series is such that we will be able to sell half-meter imagery.We are currently doing preliminary design reviews.Even though technology will allow us to analyze more of the light spectrum, the majority of the end-users will still only use the visible light spectrum and near infrared. If we hear from consumers that other spectrums are needed, we will definitely react.
- JF: The recent USGS CRADA with Pixxures allows you to create a portal for The National Map.What data layers will be first to be compiled for Internet delivery?
Pixxures: The first data layer that is being provided through The National Map is the entire USGS Digital Ortho Quad and Quarter Quad (DOQ/DOQQ) library.Pixxures has been offering this complete dataset online since early in 2002 and is now bringing this capability into The National Map program as a full Web Service - directly into user applications.Close to 90% of the U.S.has been mapped in this program, and all of it is available online.
The priority of future datasets has not been determined to date.One aspect of the CRADA we are working under is to make this determination; as well as to research all the delivery formats The National Map users need for their particular applications.
- JF: How has your business model changed, where is your focus for 2003, and what do you see as the greatest opportunity on the horizon?
DigitalGlobe: The model really has not changed that much as we are going after all levels of government, domestic and foreign as well as grow the business sector. We feel we are on the right course and just need to continue to roll out products that fit our customer's needs. We strongly believe that having the best product on the market coupled with the best customer service around will keep us in the market leadership position.
Space Imaging: Our business model hasn't changed much since the launch of IKONOS in September 1999. We still provide the most accurate, high-resolution satellite imagery to a worldwide market.In addition, we continue to sell direct access to IKONOS and imagery from other satellites, such as the Indian Remote Sensing system, through our Regional Affiliate program and develop geospatial solutions for business and government.One thing that has changed in the past few years is a more intense focus on the value-added solutions business.We have also redefined key vertical markets to focus our marketing and sales efforts on sectors with the largest growth potential, based on industry demand and feedback.
As far and what's new, we will soon restate increased accuracy levels of IKONOS products.IKONOS imagery already leads the industry in its quality of geospatial accuracy. We are the only commercial imaging company to be certified by NIMA for its quality of accuracy.We've also just started selling our IKONOS Geo products online at http://carterra.spaceimaging.com. Customers can now custom-cut out 1-meter and 4-meter IKONOS imagery and purchase it directly online.
Pixxures: Pixxures was formed in 2000 based on owning a unique and very efficient ortho update process and having the ability to resell ortho imagery over the Internet.In many ways, we succeeded in legitimizing the concept of "second-generation" orthos, and we now see this term in RFPs.We eventually had to offer "first-generation" orthos to complement this offering since many customers need a combination of both.Since many of the companies competing in this arena take advantage of less expensive labor rates overseas, we eventually turned to more of an outsourcing model ourselves.This has helped us weather some of the fluctuations of the market.
We never envisioned Pixxures as competing only in the ortho business in the long run.We are as much a technology innovator as we are a mapping company.And we are small, so we can change course quickly to respond to market opportunities as they arise.This ability has caused us to move into the vector-mapping arena in the last year or so, giving us a broader offering and some cushion from the vagaries of the ortho market.
We now offer an entire line of vector mapping and alignment services that are as innovative and efficient in the vector business as our original ortho update process is on in the ortho business.This diversification is proving to be exactly the right strategy in the current market.We now offer a range of services, from first-generation ortho production, to second-generation orthos, to value-added mapping services - to online services.It's a cradle-to-grave strategy.This has been an evolution from our original business model, but part of a calculated strategy to remain out in front where the greatest opportunities reside.
Even with the success we have seen in the mapping business, Pixxures' greatest long-term upside is probably in the Web Services arena.We have made a substantial investment developing the online platform we now have - in terms of cash investment, years of labor and intellectual property.With that investment in place and fully operational, we are now in a position to capitalize on the growing demand for online services, and demand for these is growing at a fast pace.
The sheer size of the market for Web Services - including everyone from mapping professionals to real estate professionals, utility companies, government agencies, insurance companies, as well as professionals in hundreds of other lines of work who previously had no knowledge of how to access these services - implies that there is substantial room for growth and new offerings in this market.Universal access to mapping Web Services could be the single most significant change to be introduced to the mapping industry in years.Even ESRI, the largest GIS software company in the world and a close partner of Pixxures, has embraced this trend and is moving full speed into the world of Web Services through their new product suite ArcWeb Services.
In the end, the growth of mapping Web Services may ultimately be the driver for breathing new life into the traditional mapping industry.There is no doubt that demand for these services is growing, and as the market expands by bringing new, non-traditional customers on board, so does the need for better and more current imagery. Imagine a program like the USGS DOQ program on steroids - where the entire U.S.is flown with better imagery and better elevation data every year! That demand is undoubtedly going to develop with more people using the data, and mapping Web Services is likely to be the catalyst for this revolutionary change.