PayPal co-founder tries his midas touch in space
By Josh Friedman
Los Angeles Times
In his native South Africa, science whiz Elon Musk struck his first business deal when he made $500 selling the code for a Space Invaders-style video game he invented.
He was 12. It took only another decade or so for him to make some real money: Musk banked $22 million in 1999 when Compaq Computer bought his first significant company, Web software maker Zip2. And in 2002, he pocketed about $150 million in eBay Inc. shares when the Internet auction giant acquired PayPal, the online payment company he had co-founded three years earlier in Silicon Valley.
Now, the tall, soft-spoken Musk is onto his third major venture, risking much of his fortune — along with his reputation as an entrepreneur with a golden touch — by setting his sights once again on space. But this time it's no game.
Musk, who last year left Northern California for the aerospace hub of the Southern California, is bankrolling an upstart rocket maker in El Segundo called Space Exploration Technologies Corp., or SpaceX for short, with a commitment of $50 million.
The boyish-looking 31-year-old vows to revolutionize the space industry with a low-cost, reliable satellite launcher that charges $6 million a flight — less than half the going rate for small payloads.
SpaceX's Falcon rocket could take off as early as December if the customer, a government agency he won't identify, has its satellite ready and SpaceX clears regulatory hurdles, said Musk, the company's chairman and chief executive. He wants the maiden launch to coincide with the 100th anniversary of the Wright brothers' flight at Kitty Hawk on Dec. 17.
Ultimately, Musk said, he hopes to help make human space travel more affordable through new launchers and exploration vehicles.
"I like to be involved in things that change the world," he said. "The Internet did, and space will probably be more responsible for changing the world than anything else. If humanity can expand beyond the Earth, obviously that's where the future is."
Besides, he added: "Rockets are cool. There's no getting around that."
Whether Musk becomes a space industry visionary — or the latest in a string of delusional Don Quixotes — remains to be seen.
Doubters call Musk's vision pie in the sky, a gross underestimation of the technological and commercial challenges SpaceX will face.
"He's a young, smart guy who has made a ton of money, but we have a saying in the launch business: The way to become a millionaire is to start with $1 billion," said Marshall Kaplan, a former rocket engineer who is director of space programs for consulting company Strategic Insight Ltd. in Arlington, Va.
What's more, with the collapse of the telecommunications industry, few contracts are available even for small commercial satellites, noted Charles Vick, senior fellow at GlobalSecurity.org, a defense and aerospace think tank in Alexandria, Va. For the moment, the market is primarily driven by government contracts, particularly for military and National Aeronautics and Space Administration payloads.
Musk is undeterred by the odds. He figures he has beaten them before.
"Elon thinks bigger than just about anyone else I've ever met," said David Sacks, former chief operating officer at PayPal and now head of an independent film company in Los Angeles. "He sets lofty goals and sets out to achieve them with great speed."
In 1999, after Compaq bought Zip2, Musk formed X.com, which morphed into PayPal after acquiring the competitor that originated the brand name.
The original business plan focused on allowing people to transfer money electronically via the Palm hand-held computer. But Musk quickly saw that the "killer" application would be a system that allowed the secure e-mailing of payments using any type of PC, according to Sacks, the former PayPal COO.
As soon as PayPal saw that so-called early adopters were using the system by the thousands to pay for purchases on eBay, Musk developed a "viral marketing campaign," Sacks said: The company paid $10 to every new PayPal customer as well as anyone who referred a new user to the system. The campaign fueled exponential growth.
Despite the tech-sector implosion, PayPal went public in February 2002 with a market capitalization of $1.2 billion. Just five months later, eBay snapped it up for $1.5 billion. Musk's eBay shares now are worth about $200 million, thanks to the growth of the stock, which hit a three-year high on Monday.
But can success on the Internet translate into success in outer space?
One early PayPal investor who enjoyed a windfall from that venture says Musk's SpaceX faces huge challenges.
"It's going to be a highly risky and capital-intensive business at the same time. That's not a combination venture capitalists like to see," said John Malloy, managing partner at Nokia Venture Partners in Menlo Park, Calif.
Still, he said, big investors with deep pockets and an interest in aerospace might be attracted to SpaceX, given Musk's reputation as "a prototypical Silicon Valley entrepreneur with a knack for being in the right place at the right time."
As he pondered his next project while the eBay deal came together, Musk said he wondered why space exploration hasn't moved faster.
"Its peak of success came with the Apollo program in the late 1960s, and for the last 30 years it has moved sideways at best," he said. "One of the major reasons is the launch cost."
Musk said he and his team are holding down costs on the Falcon project by sweating every expense line — which starts with keeping the design and technology basic.
"I had several other opportunities, but when Elon approached me I could see he was different," said Tom Mueller, who joined SpaceX at its founding last June after 14 years at TRW and its new parent, Northrop Grumman Corp.
"The others always had a gimmick, like a helicopter blade or some miracle technology," said Mueller, SpaceX's vice president of propulsion. "Elon just wanted to take the best technology already out there, build a simple vehicle and use the right propellants."
The 68-foot-long, 28-ton Falcon, designed to carry a payload of up to a half-ton into low orbit, will have no wings, will fire in two stages instead of the usual three and will use fewer moving parts than rockets of established competitors such as Pegasus from Orbital Sciences Corp.
In addition to its supposed cost edge, the Falcon's streamlined design will mean less risk of malfunction, according to Musk.
A spokesman for Dulles, Va.-based Orbital Sciences declined to discuss his company's pricing structure or SpaceX's plans.
"We don't comment on competitors directly, but Orbital Sciences has a long and distinguished history of launching satellites successfully for blue-chip customers like NASA and the Department of Defense," said spokesman Barron Beneski, "and we believe there will continue to be demand for high-quality launch vehicles such as ours."
SpaceX's headquarters, a converted 25,000-square-foot warehouse, feels like a throwback to the Internet heyday with its open cubicles, breezy camaraderie and a lounge offering free cappuccino and soft drinks. The building echoes with the sounds of welding, drilling and riveting. A half-built rocket sits in the middle of the factory floor.
Some industry experts say Musk has the vision and fortitude to make the venture work, if anyone does.
"At some point the rocket industry needs a Henry Ford, and maybe Elon will be that guy," said Mike Griffin, an aerospace veteran who consulted for SpaceX early last year and now is president of In-Q-Tel, the Arlington, Va.-based investment company funded by the CIA.
