Analyzing The Starlink Business Model

SpaceX plans to use profits generated from its satellite internet service to fund the development of rockets capable of reaching Mars and thus making humans a multi-planetary species.

As such, nailing Starlink’s business model strategy is of critical importance. Starlink, 2+ years into being launched, is already a money-making machine raking in ten figures in revenue. But exactly how does Starlink achieve this feat?

In this article, I’ll examine how Starlink makes money, what business model strategy it pursues, how much revenue it generates, and whether the service is actually profitable.

How Does Starlink Make Money?

Starlink makes money from monthly subscription fees, one-time hardware and shipment fees, top-ups, as well as account management fees.

The income it generates from those revenue streams is dependent on where the customer is located and what is being sold (B2C versus B2B plans).

Starlink also charges different fees depending on the country the customer is based in. Feel free to refer to our global price list to check out the pricing f

For example, consumers in the United States pay $599 for the hardware as well as $90 to $120 per month for their subscription.

In European countries like France or Greece, monthly subscription fees hover around the €50-a-month mark, with hardware also costing less.

The simple reason why customers are charged different prices is grounded in local purchasing power as well as demand.

After all, the average Hungarian or Mexican will simply not be able to pay $120 per month for internet.

Additionally, demand for its services is simply not as high in well-connected markets like Japan or France. As a result, Starlink has to reduce prices even further.

Another income source is the add-on fees Starlink imposes on mobile users. Those subscribed to either RV (now called Roam) or Portability pay an additional fee per month, on top of the $120 they are already charged.

Consumers aren’t the only ones subscribed to Starlink, though. The firm also offers various plans for businesses, which can cost substantially more.

Starlink’s Maritime plan, largely aimed at cruise and vessel operators, begins at $1,000 per month while the hardware will set them back by another $5,000 (there’s also a consumer-focused Maritime plan costing $250/month).

Meanwhile, Starlink Business costs a minimum of $140 per month, on top of one-time hardware fees that equal $2,500. Starlink is expected to introduce additional plans, such as a mobile service or for buses, in the future.

Furthermore, users of Business and Maritime can top up Priority Data access at $0.50 and $2.00 per GB, respectively.

Starlink also imposes account management fees on enterprise customers ordering large quantities.

And lastly, subscribers can also purchase accessories within Starlink’s shop, including the Ethernet Adapter or various mounts.

This grants customers access to dedicated support for placing orders, activating the service, managing subscription features, and so forth.

Starlink may get cheaper in the future, though. As competition levels are increasing, SpaceX may be forced to decrease prices to keep up with new entrants and thus minimize customer churn (especially considering that its contracts can be cancelled at any time).

The Starlink Business Model Explained

The business model of Starlink is largely centered around subscriptions, meaning it derives recurring revenue from ongoing customer payments for its various satellite internet services.   

Right now, Starlink is more or less the only game in town when it comes to low-earth orbit (LEO) internet. As a result, Starlink is able to (mostly) offer high-speed and low-latency internet in areas that have previously been deprived of it.

Competitors like HughesNet or Viasat, which rely on a few geostationary satellites (further distance and fewer satellites mean higher latency and slower speeds), can simply not compete when it comes to performance.

And potential competitive threats like Amazon’s Kuiper Systems are still months or even years away from launching their own offerings.

The only other satellite-based ISP relying on a LEO constellation that’s currently operational is OneWeb, which competes with Starlink in the B2B space.

Rising competition, given the limited size of the satellite internet market, is one of the major reasons why Starlink and thus SpaceX may ultimately end up failing.

Starlink’s strategy is, therefore, centered around maximizing adoption in both its existing markets and the ones it plans to enter going forward.

Once customers are tied to the ecosystem, they are less likely to churn (i.e., cancel their subscription). After all, there are some opportunity costs involved, namely regarding the purchase price of the hardware.

Interestingly, Starlink has also implemented tactics that enabled subscription pioneers like Netflix to become global powerhouses. More precisely, Starlink subscriptions can be canceled at any time and without any penalty fees.

On the other side, more established competitors like HughesNet abused their previously existing market power by charging hefty cancellation fees if you wanted to get out of your plan.

Consequently, the no-risk-attached policy (Starlink’s plan can be canceled at no cost within 30 days) motivates users to give the new service a try.

And they’ll likely stick around, simply because Starlink’s performance is that much better than what geostationary satellite operators offer.

Another aspect to consider with Starlink’s rapid adoption strategy is regulatory approval and potential scrutiny. Astronomers are already starting to point out that Starlink’s and other LEO satellites are negatively affecting the vision of telescopes.

Starlink, just like any other satellite internet provider, relies on regulatory approval by the Federal Communications Commission (FCC) to be able to deploy satellites.

If public sentiment continues to shift against large-scale satellite constellations, there may not be enough political leeway for Starlink to be able to receive the necessary approvals.

However, it could also prevent the entrance of other competitors, which is certainly a net positive given the limited size of the satellite internet market.

Starlink, in an effort to sell even more subscriptions and hardware, is also partnering with the likes of Best Buy, Home Depot, or Costco.

On the B2B side, SpaceX also works with satellite operators like SES that resell its hardware and internet services to various maritime-related companies.

Those retailers resell Starlink’s hardware in their shop for which they’ll likely get a cut from both the hardware sale and ongoing subscription revenue.

Licensing its constellation may also become a significant revenue driver for Starlink. A partnership with T-Mobile is currently in the works, allowing customers to access the internet in areas with no cell coverage.

Similar agreements have already been implemented with One (New Zealand) and Telstra (Australia).

Those carriers will likely pay Starlink a licensing fee every time a customer connects to one of its satellites.

Lastly, Starlink can also leverage its existing constellation into more lucrative government contracts vis-a-vis its Starshield offering.

For example, the US Space Force awarded a $70 million contract to SpaceX on September 1st alongside 18 other companies.

How Much Revenue Does Starlink Generate?

Since Starlink parent SpaceX remains in private ownership, neither company is obligated to disclose how much revenue it generates.

However, the kind folks at The Wall Street Journal were able to retrieve confidential documents, which indicate how much Starlink is currently bringing in.

According to the publication, Starlink generated $222 million in revenue for 2021 and a whopping $1.4 billion across 2022.

Back in 2015, when Starlink was still in its ideation stage, SpaceX CEO Musk predicted that Starlink would generate $12 billion in revenue for the fiscal year 2022.

While those projections haven’t materialized, Starlink’s growth is very impressive nonetheless. From 2021 to 2022, it grew by almost 7x, which is particularly mind-blowing when considering that Starlink is a hardware company first.

Most of that revenue growth can be explained by its vastly increasing subscriber count. Here’s a breakdown of how much Starlink has grown since it was first launched in November 2020:

Date	Number of subscribers
2023/09	2,000,000
2023/05	1,500,000
2022/12	1,000,000
2022/05	400,000
2022/03	250,000
2022/01	145,000
2021/11	140,000
2021/08	90,000
2021/06	69,420

In 2022 alone, Starlink’s subscriber count rose from 145,000 to over one million. One aspect is the fact that Starlink was launched in 20+ markets that year.

Another reason is its vastly expanding satellite constellation and ground station network, thus enabling Starlink to service even more users in its key markets (e.g., US, Canada, or Australia).

Additionally, business lines such as Maritime have allowed Starlink to tap into the more lucrative B2B market where its subscriptions fees (and thus margins) are even higher.

Going forward (towards the end of 2023 / beginning of 2024), a new product aimed at airlines and private jet operators, called Aviation, will be rolled out, thus furthering Starlink’s total addressable market.

That said, revenue growth will likely not remain that steep (7x YoY) as competition is increasing (e.g., OneWeb or Kuiper) and most markets are reaching their natural limits.

Is Starlink Profitable?

Yes, Starlink is profitable – at least according to Musk who recently tweeted that the company reached breakeven cash flows.

Breakeven cash flow is a point at which a company’s incoming cash flow equals its outgoing cash flow, meaning the business is not making a profit, but it’s also not losing money.

At breakeven, the company covers all its costs, including operating expenses and capital costs, but it does not have any leftover cash flow that could be considered a profit.

That said, Starlink is most likely not profitable on an annual basis. Again, we do not know for certain given that SpaceX and thus Starlink remain in private ownership.

Breadcrumbs about Starlink’s eventual profitability were already dropped in the past.

SpaceX COO Gwynne Shotwell, for example, stated that Starlink had a “cash flow positive quarter” in 2022. For the full year, the company still lost money, though.

First and foremost, Starlink is still a fairly nascent service after being launched in the US back in November 2020.

As such, the firm continues to invest heavily in launching satellites, setting up ground stations, hiring staff, acquiring the necessary licenses, and closing partnerships to be able to operate in new markets.

This also means that the firm is continuing to invest in manufacturing to get to profitable scale economies. Nowhere is it more evident than in the firm’s production of dishes.

When Starlink first launched, it allegedly cost the firm $3,000 to manufacture one piece of hardware (i.e., dishy, router, cables). And in 2021, a terminal would cost around $1,300 to produce.

Starlink has since been able to substantially reduce production costs to the point of selling them at no loss – at least according to Jonathan Hofeller, SpaceX vice president of Starlink and commercial sales.

Another important aspect to keep in mind are the costs of maintaining its constellation. Starlink’s satellites will need to be replaced every 5 to 6 years, with existing ones burning up almost completely when reentering earth’s atmosphere.

Data indicates that each Starlink satellite costs around $300,000 to produce, on top of $15 million for each Falcon 9 launch. A Falcon 9 normally transports 50 satellites, thus costing SpaceX around $30 million ($15 million + ($300k * 50 satellites)).

Additionally, Starlink has also donated a few thousand dishes to help Ukraine, which supposedly led to monthly losses of more than $20 million.

In the past, SpaceX founder Elon Musk stated that the deployment of Starlink’s constellation would cost between $20 billion and $30 billion.

But he also expects that positive cash flows could be reached after investments of $5 billion to $10 billion.

Starlink’s path to profitability thus hinges on subscriber growth as well as minimizing customer churn.

However, considering that the extensive development cost of Starship are allotted to SpaceX (from an accounting perspective), we can assume that Starlink isn’t too far off when it comes to being profitable.