By Joshua Hampson

Last night, SpaceX made history by successfully launching a satellite on a used rocket booster. It marks a first for reusable rockets, a first for a commercial company demonstrating reusability in getting a payload to orbit, and a first in reusable orbital launch since the retirement of the Space Shuttle program.

Reusability has long been a goal of U.S. space launch development—specifically to reduce costs. The Space Shuttle was developed in an attempt to lower costs through reusability. The goal of SpaceX is the same: a “fundamental” shift in the cost of access to space that will drive a new era of space use and exploration. The Space Shuttle, by contrast, largely failed to achieve these goals, as prices never came down enough to spark an uptick in demand for more launches. This time, however, it could be different.

There are differences between the Shuttle program and SpaceX’s Falcon rocket. The Shuttle was a government program developed with the expectation that everything would be launched on it—civil, commercial, and national security capabilities. After the Challenger accident, national security space capabilities were shifted off the Shuttle. Even before that, though, the program was struggling to achieve its expected cost-effectiveness with lower-than-anticipated demand.

On the other hand, the Falcon was designed to operate in a competitive environment. Even before last night’s launch demonstrated the technical viability of reusable rockets, the Falcon was winning launch bid competitions. While the rocket’s future cost assessment is still up in the air, it will certainly be lower than existing costs, which can run in excess of $200 million per launch. What remains uncertain is how responsive demands for launch will be to plummeting costs.

Because reusable systems have to carry extra fuel for landing, they have a penalty in performance that expendable rockets don’t have. This means they have to hit a certain number of launches a year to close the business case. SpaceX has not released the annual launch number it expects is needed to make reusability viable, but the question is important. International competitors, for example, have argued that they will compete simply on efficiency—that better expendable rockets will outperform their reusable brethren.

Currently, the prices of launch are still high enough that demand remains relatively inelastic. At a recent Mitchell Institute for Aerospace Studies panel event, part of the conversation centered around that discussion of inelasticity. One of the panelists, Dr. Scott Pace, the director of the Space Policy Institute at George Washington University, argued that thus far SpaceX has been successful at winning market share, but that its lower prices have not yet generated a spike in increased demand. He also pointed out that, on the demand side, technological progress is creating competition between plans for smaller satellites in larger numbers and larger satellites with improved capabilities. How that competition plays out will help determine the nature of the demand for space launch, which will also change elasticity to price.

These are, as-of-yet, hypotheticals. It may well be that SpaceX’s reusable rockets move prices below a point that opens up more demand for launch. Increasing demand for space-based data, mixed with lower access costs, could be the right mix to spark a long-awaited renaissance in space use.

The possibility for even lower launch costs sparks secondary questions. What can the government do to improve the marketplace, and are there ways of increasing demand, apart from launch prices?

In regards to government involvement in the space economy—its need for launch or on-orbit capabilities—the United States could continue its shift towards purchasing capabilities as a service. This is what happened for the GPS III contract that SpaceX recently won. This keeps the contract agnostic to how the launch occurs, other than some qualifications on certification. Deepening this approach across the U.S. government would help keep both the launch and satellite markets as flexible as possible. While the government does need heavy launch capabilities that may not be developed in a purely commercial market, it could take pains to avoid skewing the market with those launch vehicles. How the government uses its planned Space Launch System, for example, could greatly affect the launch market.

This also works for satellites capabilities. If the U.S. government purchases more of its needed space capability—communications and imaging, for example—from the commercial market, it could help make the business case for large constellations. Large constellations could help spark a virtuous cycle between commercial demand and launch. As companies work to provide more launch capability for these constellations, prices of launch could fall.

However, the United States could also take action to improve the market for commercial demand. Archaic restrictions on remote imaging, for example, restrain a U.S. market poised for growth. Reforming those restrictions and removing export control restrictions on imaging capabilities already produced internationally could unleash pent-up demand.

New uses of constellations for communications could be a big driver of space economic development. In 2013, 83 percent of satellite revenue was from direct-to-home broadcast satellite television. Satellite Internet could be a major opportunity, as shown by investments in OneWeb and other providers. How the United States handles spectrum allocation or regulations over space-based Internet could either permit or prevent this market to develop.

Launch demand for new missions, such as space resource extraction or private tourism trips to the moon, are farther away than satellite launch demand. There are ongoing discussions over whether, and how, the United States should regulate these missions, but ensuring that they are not overly-burdened by regulations will help drive innovation in the launch market. While Blue Origin focused its launch ambitions on the human spaceflight market, for example, it’s still using its future systems to launch satellites. How an increased tempo in planned launches factors into considerations of the use of national airspace could also shape prices and access to launch services. Better knowledge about flight paths and risk could shrink the amount of airspace that needs to be closed for a launch, reducing the burdens on airlines and allowing more launches to occur.

SpaceX’s actions yesterday reveal how innovative the U.S. commercial space sector can be when given the opportunity and necessary breathing room to experiment. The goal now will be to transform that historic launch and landing into a frequent occurrence. As SpaceX’s CEO Elon Musk has said, the company will be “successful, ironically, when it becomes boring.” For rocket landings to become that commonplace, though, we need to work to allow the demand for them.