How Elon Musk Is Like a 19th Century Railroad Baron

First comes cheap rockets, then comes world domination.

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Jan 29 2015, 9:00pm

​Musk with President Obama at the Falcon 9 launch site in 2010. Source: ​WikiMedia Commons

​ At the end of last year, I suggested, as a joke, that it was probably only a matter of days before ​Elon Musk got on a podium somewhere and said that, soon enough, we'd drive our Teslas to the Hyperloop Station that would shoot us to a SpaceX airport and then we'd take a rocket to our thorium powered Martian colony where we'd eat 3D-printed food. And, to repeat, I was joking.

But then, Musk went and said he's  ​going to put an array of low-orbiting satellites into space and start offering low-cost internet to everyone, with a $1 billion cash influx from Google. Which kind of begs the question: What, exactly, is Elon Musk's long-term plan for SpaceX?

To merely call Musk "forward-looking" would be laughable; we're all here playing checkers, he's playing some as-yet unnamed game because he's still busy inventing it. So I did a bit of a spit take when I heard the satellite news. Shuttle supplies to the International Space Station, sure, put other people's commercial satellites in space, sure. Shuttle astronauts there, even better. Set up a Martian colony? Dream big, man. But expanding SpaceX into a consumer service space—becoming an internet service provider—that's another thing altogether.

Here's why: Musk, through SpaceX,  ​is hellbent on creating reusable rockets, a feat that has never been matched before in spaceflight history. It's something that no one else is seriously trying, except for Virgin Galactic. The difference here is that Virgin's spaceplane can't take a satellite, or much of anything besides two humans, to space. Musk's rockets can take satellites and heavier cargo loads to space. And when he can do it for 100 times cheaper than anyone else, that makes him an incredibly powerful person. 

Rather than laugh, he finishes my sentence for me—we'll fly to the SpaceX colony, and eat SpaceX food.

It makes him just as powerful as the railroad magnates and other robber barons of the 19th century, who, for a time there, controlled most of American industry.

"If he can successfully develop the reusable launch vehicles, that gives him a tremendous dominance over the mode of getting to space. Once you can do it relatively cheaply and in high volume, instead of launching five or six times a year, you're launching [and] putting stuff into orbit once a week," Marco Caceres, a space industry analyst at the Teal Group Corporation told me. "That's the hard part. All the other stuff is really dessert, in a way. It's the satellites, the services that'll make you the real money."

In other words, making the satellites isn't expensive; getting them to space is. And SpaceX appears well on its way to monopolizing cheap spaceflight. What can it monopolize after it does that?

And many existing satellite companies can be pushed aside once you add volume. Space internet has been tried before, but cost and coverage has always been a limiting factor—DirecTV's and Dish's services are relatively slow and relatively unreliable. Toss 4,000 of them up there, as Musk plans to, and you've all of a sudden got worldwide coverage and fast internet, at what Musk has promised would be "at very low cost" to consumers.

Musk's satellite internet won't be without competition, in theory: Greg Wyler, a friend of Musk's, has formed a company to put hundreds of internet-providing satellites in space as well. But how's he going to get them there? A Businessweek article from last week explores Wyler's model, but his company, OneWeb, hasn't figured out the getting-to-space cheaply part. And that's the point. Musk isn't taking him there.

You could easily imagine Musk offering things like SpaceX maps and other satellite imaging tools. With more satellites, the company could offer more detailed and more constant imaging than current companies.

Getting into more speculative territory, with Tesla, Musk also happens to be building the most advanced batteries in the world. He also owns a solar power company, called SolarCity. One of the remaining questions with solar power is how to best store it. One of the other questions with solar power is "Can it be beamed to Earth from space?"

You see where this is going. Not since the dawn of railroads has there been an opportunity for a very small number of firms to dominate a new transportation industry. And what happened then?

"Take a company like the  ​​Pennsylvania Railroad​, which grew out of the Pennsylvania canal system and ultimately became the largest company in the world," Tomas Nonnenmacher, an economic historian at Allegheny College told me. "It had its own ships, its own pipelines, it owned Penn Station in New York City. The larger their network was, the more they could lock in people's lives, the more they could create these big, self-sustaining systems to give themselves a tremendous advantage over their competitors."

We've been down this road before. "First movers," as SpaceX is, have what's known as a "lock in" advantage. We see it with all of Google's services and we see it in social networking with Facebook.

We saw it with telegraphs in the 19th century and again with telephones in the 20th. Western Union was one of the most widely used telegraph companies, became well known, and eventually controlled the entire industry. It enjoyed that monopoly until a new technology, the telephone, forced the telegraph into a slow death.

That, of course, spawned its own monopolies, almost immediately: Alexander Graham Bell founded the Bell Telephone Company, which became the American Telephone & Telegraph Company, which is AT&T now. Moving first, and moving best, gives companies a decided advantage that can last for centuries.

A Pennsylvania Railroad train pulling out of a Pennsylvania Railroad station. Image: ​Wikicommons

What Musk is trying to accomplish with reusable rockets is one of the most insane marvels of human engineering ever seen. By all means, commend and laud him: He's accomplishing things no one has ever even dared contemplate before. But realize that, if he is successful, SpaceX and Musk will have accomplished something that no one else—not NASA, not ESA, not Virgin or Orbital Sciences or Boeing—has even come close to doing before.

Musk has his hands in so many industries, has shown interest in so many technologies, that it's impossible to rule much of anything out. He founded SpaceX, remember, because he wanted to grow plants on Mars. Now, seemingly on a whim, he's talking about creating internet service that Nonnenmacher and Caceres say could quite possibly give Big Telecom a run for its money.

Should we take the endeavor seriously?

"Oh, definitely. The disadvantage with satellite internet has always been cost and interference. But it's not particularly cheap to lay cable, either. The key here is the number of satellites he's talking about, and how low they'll orbit, because that makes the connection faster," Caceres said.

"I would think his target market would be rural areas, but once it's up there, why not offer it to everyone?" he added. "If the price is going to be extremely low, I don't know why cable companies wouldn't be worried, and the backing of Google makes them a serious player in this space."

I tell Nonnenmacher about my earlier joke. I tell him it's highly speculative and very hypothetical. I ask if we're one day going to be driving our Teslas and talking on our SpaceX cell phones and driving to the SpaceX Spaceport. Rather than laugh, he finishes my sentence for me—and fly to the SpaceX colony, and eat SpaceX food.

"I have my iPhone and my Apple laptop and they're beautifully integrated with one another. Having one makes the other more valuable to me. It's what Windows tried to do with Windows operating systems and the office package," he said. "You could potentially see why he's doing this. This is what many, many companies try to do."

The railroads and telegraph companies were trying to build the largest companies on Earth. So were Microsoft and Apple. Musk, meanwhile, appears to be angling for the whole solar system.

Update: The headline on this story has been updated to reflect the analogy between Musk and the railroad barons who amassed great power because they owned infrastructure early; a previous version of the headline had a negative connotation that was unintended.