Research Policy 53 (2024) 104932

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Research Policy
journal homepage: www.elsevier.com/locate/respol

This article forms part of the Special Issue on Innovation Ecosystem

From early curiosity to space wide web: The emergence of the small
satellite innovation ecosystem
Yue Song a, *, Devi Gnyawali b, Lihong Qian c
a
Department of Management, Fowler College of Business, San Diego State University, United States of America
b
Department of Management, Pamplin College of Business, Virginia Polytechnic Institute and State University, United States of America
c
The School of Business, Portland State University, United States of America

A R T I C L E I N F O A B S T R A C T

Keywords: Innovation ecosystems have gained significant scholarly and managerial attention. Much of the literature focuses
Ecosystem emergence on established ecosystems, and the limited research that examines ecosystem emergence does not dig deeper into
Multilateral interdependence the dynamics and challenges during the process of emergence. With a focus on the transition from birth to growth
Nongeneric complementarity
of an ecosystem, this paper fills this important gap by systematically examining how a nascent ecosystem de­
Collective value creation
velops into a thriving one. Employing a conceptualized composition approach, we conduct an in-depth quali­
Ecosystem value proposition
Modern small satellites tative study on the emergence of the modern small satellite ecosystem from 1981 to 2017. Our case analysis
demonstrates a dynamic process through which a seed innovation gradually grows into a thriving ecosystem
without a centralized sponsor. We explicate how tensions arise within an evolving ecosystem and how forces
hindering specialization delay the emergence process. We then develop a process model of ecosystem emergence
to conceptualize how actors gradually become specialized, how their specialization decisions coevolve with the
ecosystem value proposition, and how tensions get resolved through a complex and iterative process. We
contribute to the literature by advancing an evolutionary view of ecosystem emergence with an in-depth analysis
of the transition from birth to growth of an ecosystem.

1. Introduction
Research on ecosystems has grown substantially in recent years
(Adner and Kapoor, 2016; Baldwin, 2020; Bogers et al., 2019; Jacobides
et al., 2018; Thomas and Autio, 2014) as ecosystems represent a new
analytical lens to explain value creation through innovation (Adner and
Kapoor, 2010, 2016; Ansari et al., 2016; Beltagui et al., 2020). However,
relatively little is known about how a newly formed ecosystem grows
into a thriving one. This is particularly important as a seed innovation
may fail to develop into a successful ecosystem (Moore, 1993; Pidun
et al., 2021). The early stages of ecosystem emergence can be chal­
lenging (Beltagui et al., 2020; Dattee et al., 2018; West and Wood, 2013)
as self-interested actors may not want to join an ecosystem due to
various uncertainties and risks (Adner, 2006; Dattee et al., 2018), actors
may hesitate to make specialized investments with the fear of being
“locked into” an emerging ecosystem (Pierce, 2008; Jacobides et al.,
2018), and the ecosystem value proposition may be unclear or unap­
pealing (Adner, 2017; Stonig et al., 2022). For an ecosystem to gain a
momentum of growth, these challenges need to be addressed. Answers
from extant literature are rather scattered and limited. This paper fills
this important gap by answering the question: “How does an innovation
ecosystem emerge and develop into a thriving ecosystem?
We address our research question by conducting a longitudinal case
study of the modern small satellites (MSS) from their inception in 1981
to 2017. We follow the “conceptualized composition” approach1
(Berends and Deken, 2021) in examining the emergence of the MSS
ecosystem. By distilling the extant literature, we identify four key ele­
ments for a thriving ecosystem—multilateral interdependence (Adner
and Kapoor, 2010), nongeneric complementarity or specialized in­
vestments (Jacobides et al., 2018; Baldwin, 2020), collective value
creation (Bogers et al., 2019), and value proposition (Adner, 2017)—
and use these as theoretical guideposts for our case analysis. Our

* Corresponding author.
E-mail addresses: ysong4@sdsu.edu (Y. Song), devi@vt.edu (D. Gnyawali), qian3@pdx.edu (L. Qian).
1
This qualitative research method exemplified in Berends and Deken (2021) starts with identifying some key concepts from the literature, and then diving deeper
into the context through an exploratory process and identifying key narratives relevant to the research questions. The goal of this approach is to integrate the insights
from the narratives and theoretical concepts to develop a theoretical framework.

https://doi.org/10.1016/j.respol.2023.104932
Received 16 October 2020; Received in revised form 4 July 2023; Accepted 1 December 2023
Available online 11 December 2023
0048-7333/Published by Elsevier B.V. This is an open access article under the CC BY-NC license (http://creativecommons.org/licenses/by-nc/4.0/).
Y. Song et al.
findings show that the MSS ecosystem emerged very slowly over a
period of 30+ years. The process of emergence was filled with chal­
lenges and tensions experienced by different actors over time. Building
upon the narratives, we develop a conceptual framework that system­
atically identifies tensions that arise during ecosystem emergence. We
provide theoretical insights on how actors gradually become specialized,
how their specialization decisions shape the evolution of the ecosystem
value proposition, and how the interplay between the two helps to
resolve tensions and lead to a thriving ecosystem. We explain how and
why forces for or against specialization shape collective value creation
and the progression of the ecosystem value proposition from the
establishment of initial technology viability to the creation of significant
economic benefits for customers.
Our study of the process of ecosystem emergence builds on the
existing literature (e.g., Beltagui et al., 2020; Moore, 1993; Ritala et al.,
2020; West and Wood, 2013) and advances the literature with an
evolutionary view of ecosystem emergence. Our conceptual framework
explains why the emergence process can be long, complex, and chal­
lenging. Unpacking the process from the birth of an ecosystem to its
growth, our study complements extant studies on ecosystem evolution
with a granular understanding of the tensions and challenges during the
emergence process. Further, our process model explicates the mecha­
nisms of how an ecosystem emerges despite challenges. We demonstrate
that the ecosystem emerged through the complex interplay among the
ecosystem value proposition, actors' specialization decisions, and the
underlying driving or hindering forces that shape specialization and
value proposition.
2. Conceptual overview: key elements of a thriving innovation
ecosystem
We start off by briefly describing an innovation ecosystem,
ecosystem emergence, and key features of a thriving ecosystem. Moore
(1993, 1996) suggests that an innovation ecosystem is a firm-centric
business community where the focal innovator works “with customers
and suppliers to define the new value proposition around a seed inno­
vation” (p.77). Similarly, for Autio and Thomas (2014: p.3), it is “a
network of interconnected organizations, organized around a focal firm
or a platform, incorporating both production and use side participants,
and focusing on the development of new value through innovation.”
Adner and colleagues explain how a set of actors interact to “combine
their individual offerings into a coherent, customer-facing, innovative
solution” (Adner, 2006: p.98; Adner and Kapoor, 2010, 2016; Kapoor,
2018). Thus, an innovation ecosystem is about a particular (focal)
innovation, its value proposition, and the constellation of autonomous
and self-interested actors that shape the ecosystem (Shipilov and Gawer,
2020; Kapoor, 2018).
Emergence is “a process that involves (a) the creation of novelty, (b)
its growth to a salient size, and (c) its formation into a recognizable
social object, process, or structure” (Seidel and Greve, 2017: p.2).
Ecosystem emergence starts with the “creation of novelty” or the “birth
stage” of a seed innovation (Moore, 1993). The “growth stage” occurs
with sales taking off (Moore, 1993), participation of many actors
(Thomas and Autio, 2014), and broader market acceptance and scal­
ability (Beltagui et al., 2020; Pidun et al., 2021). A thriving ecosystem is
formed when a recognizable structure arises with multiple actors and
their relationships (Adner, 2017). Accordingly, we define ecosystem
emergence as a process that starts with a seed innovation (birth) to the
establishment of a thriving ecosystem (growth), and we focus on the
transition from birth to growth.
Literature suggests four elements as being critical for a thriving
ecosystem: multilateral interdependence, nongeneric complementarity
(or specialized investments by actors), collective value creation, and
value proposition. Multilateral interdependence is crystallized in the
concept of “ecosystem as a structure,” which views an innovation
ecosystem as “the alignment structure of the multilateral set of partners
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Research Policy 53 (2024) 104932
that need to interact in order for a focal value proposition to materialize”
(Adner, 2017, p.40). Interdependence arises when a focal actor depends
on others to create value (Adner and Feiler, 2019; Kapoor, 2018).
Interdependency suggests that an ecosystem is decomposable into
different actors and activities (Baldwin and Clark, 2000; Jacobides et al.,
2018) that richly interact with one another (Simon, 1962; Lee and
Alnahedh, 2016).
Ecosystem scholars have developed Teece's (1986) concept of
specialized assets to explain the complementary nature of ecosystem
relationships. Complementarity occurs when the marginal value of a
variable increases with another variable (Edgeworth, 1897; Lenox et al.,
2010; Milgrom and Roberts, 1990). It suggests that the nature of inter­
action among actors is value-enhancing and provides economic motives
for actors to become multilaterally interdependent. Complementarity
varies by the level of nongeneric investments required (Teece, 1986).
Generic complementarity exists when a good or service, although
needed for the materialization of the value proposition, is standard and
does not require any specific coordination across actors (Jacobides et al.,
2018). Nongeneric complementarity, on the other hand, requires a
certain level of relationship-specific coordination and non-fungible in­
vestment among actors (Shipilov and Gawer, 2020). Without nongeneric
investments, actors have a limited economic basis for creating specific
alignment structures (Adner, 2017). While many actors contribute in
some ways, it is the core actors, i.e., those who make nongeneric in­
vestments and are committed to the ecosystem, that fundamentally
drive the ecosystem emergence. Nongeneric complementarity sets the
foundation for sustainable value creation within an ecosystem.
Complementarity can be unilateral or bilateral. In unilateral, A helps B
to create value, but not vice versa. In bilateral, both A and B mutually
contribute to each other's value creation, and this reciprocal process
expands to multiple parties to make it multilateral.
Collective value creation is a central goal of an ecosystem and pro­
vides the motivation for various self-interested actors to become
ecosystem participants (Bogers et al., 2019). Value creation can occur in
production and in consumption. Upstream components, when bundled
with the core technology, help the focal technology producers to
advance the core technology, contributing to value creation in produc­
tion; Downstream complements, when bundled with the focal technol­
ogy, help customers to better utilize the focal technology, contributing
to value creation in consumption (Adner and Kapoor, 2010, 2016).
Value creation in production often precedes value creation in con­
sumption (Adner and Kapoor, 2010, 2016).
Value proposition refers to “the promised benefit that the target of
the effort is to receive” (Adner, 2017: 43). It represents the unique and
compelling benefits that the ecosystem offers to its customers (Lanning
and Michaels, 1988). Innovation ecosystems are essentially value de­
livery systems (Lanning, 1998); hence, a strong value proposition is
important for an innovation ecosystem to emerge, to succeed, and to
sustain (Adner, 2017; Moore, 1993; Shipilov and Gawer, 2020). A strong
ecosystem value proposition goes beyond what an ecosystem can pro­
duce to what economic gains it offers to customers (Moore, 1993; Lan­
ning, 1998). It encompasses the collective value created by the
interconnected participants and their offerings, and provides holistic
solutions that no single participant can achieve alone.
Using these key elements as theoretical guideposts, we next dig
deeper into the dynamics of the emergence of the modern small satellite
ecosystem.
3. Research setting and methods
3.1. Research setting: modern small satellites
We situate our research question in the context of modern small
satellites (MSS). Small satellites are satellites below 500 kg (Euro­
consult, 2017) and can perform sophisticated functions with only a
fraction of the mass, time, development and launch costs of large
Y. Song et al.
satellites (Helvajian and Janson, 2008). The dominant design of MSS,
the CubeSat, is made up of multiple 10 * 10 * 10 cm cubic units and
weighs around 1.33 kg per CubeSat. The small size and light weight of
small satellites significantly reduce the launch cost to around $40,000,
while the average launch cost for a typical large satellite is around $100
to $400 million. The design and manufacture of small satellites consist of
the spacecraft bus (i.e., the platform that allows the spacecraft to sup­
port a particular mission in space) and the payload (i.e., the hardware to
carry out the mission, such as imaging cameras for earth observation)
(Jakhu and Pelton, 2013). Small satellite manufacturers integrate pay­
loads with the spacecraft bus subsystems and sell the satellites to sat­
ellite operators, who then arrange launch services with launch vehicle
(rocket) providers. Actors occupying these key positions constitute the
core actors of the MSS innovation ecosystem: satellite manufacturers
(focal technology producers), satellite bus and payload suppliers
(component providers), launch vehicle providers (complementors), and
satellite operators (customers).2
We chose the MSS as our research context for several reasons. It of­
fers a revelatory case (Eisenhardt and Graebner, 2007) to illustrate the
tensions, differential perceptions, and heterogeneous decisions among
actors over a long period of time. Long-term historical data are impor­
tant for process research that investigates these dynamics (Beltagui
et al., 2020). The historical development of the MSS ecosystem provides
rich data on how and when the four aforementioned key elements of a
thriving ecosystem develop over time. Since 1981, the MSS evolved from
a university science experiment using commercial-off-the-shelf (COTS)
components to a complicated system of interrelated and specialized
satellite buses, manufacturers, and launch vehicles. As shown in Fig. 1,
the average number of small satellites launched per year more than
quadrupled from the 1980s to the 2010s. In the 1980s, only five bus
designs were available for small satellites. It took more than a decade for
this number to reach 52. On the complementors side, new entries of
dedicated small launch vehicles peaked even later – for the first 30 years
of small satellite history, very few companies developed a dedicated
small satellite launcher. More complementors started to join after 2010.
Challenges also occurred in commercial applications of small satellites.
As shown in Fig. 2, before the mid-1990s, only 6 % of small satellites
launched were used for commercial applications such as communica­
tion, traffic monitoring, and earth observation. Since the early 2010s,
more than 60 % of small satellites launched are used for commercial
purposes. This extended period for MSS to develop from a seed inno­
vation into a thriving ecosystem provides us with a rich context for an in-
depth qualitative study.
3.2. Data sources
Following the conceptualized composition approach (Berends and
Deken, 2021), we inductively develop our theoretical framework from
the empirical narratives and connect the narratives with the key con­
cepts from the literature as our guideposts (Locke, 2001). This approach
is particularly useful when concepts can be derived from the existing
literature, while the empirical context is complicated (Berends and
Deken, 2021). To compose our narratives, we collected qualitative and
quantitative data from various sources.
3.2.1. Qualitative data
We collected qualitative data from interviews and supplemented it
with publications from secondary sources. We attended two Small Sat­
ellite Annual Conferences (one of the most well attended and
2
The current innovation ecosystem of MSS includes other actors such as
ground equipment providers, geospatial analytical companies, and insurance
companies etc. For the depth of analysis, we focus on four core set of actors our
interviews have confirmed as being most important in enabling or limiting the
emergence of the ecosystem.
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Research Policy 53 (2024) 104932
internationally recognized conferences in the MSS industry) and two
Satellite Innovation Conferences from 2016 to 2019 to better understand
the industry. At these conferences, we conducted 36 semi-structured
interviews with founders, top management team members, and in­
dustry consultants. During the interviews, we first asked the in­
terviewees to provide their perspectives on the history of the MSS, using
questions like “What are key turning points in the history of the MSS?”
and “What are some of the key events that have shaped the evolution of
the MSS?”. We showed them a figure with the number of small satellites
launched per year (Fig. 1 in this paper) and asked them to explain any
major changes in the figure. After identifying the key events, we asked
follow-up questions regarding what led to these events, the key orga­
nizations involved in these events, the specific actions taken by these
organizations, and the roles they played. At the end of the interviews, we
asked for any additional sources to understand the history of the MSS or
to collect quantitative data. Each interview lasted about 1 h on average.
All interviews were recorded and transcribed verbatim.
To complement the interviews, we cross-referenced the information
provided by our interviewees with the proceedings of the Small Satellite
Annual Conference, books, and other publications. The Small Satellite
Annual Conference proceedings provide comprehensive documentation
of key topics presented at the conference since 1987. Multiple in­
terviewees confirmed that this is a valid source for us to gather addi­
tional qualitative information. We also cross-referenced two
books—Small Satellites: Past, Present and Future by Helvajian and Janson
(2008) and Small Satellites and Their Regulation by Jakhu and Pelton
(2013)—for detailed historical accounts of small satellites. In addition,
we examined an article by Sir Martin Sweeting (2018) that provides an
overview of the history of MSS. This article is a particularly useful source
as Sweeting and his team are the inventors of the first MSS. Lastly, we
collected press releases by key actors involved in the innovation
ecosystem from the websites of the companies/organizations.
3.2.2. Quantitative data
To further triangulate the data (Jick, 1979), we collected quantita­
tive data on all 5583 satellites launched between 1981 (the year when
the first MSS was launched) and 2017 from Gunter's Space Page Chro­
nology, a database that tracks all satellites that have been launched.
Multiple industry experts confirmed with us that this database is widely
used as a space analysis source and the information it provides is ac­
curate and reliable. We removed satellites with a mass over 500 kg
(large satellites) using satellite mass information provided in the same
database. For satellites with missing mass information, we supple­
mented the database with data from NASA's Spacecraft Query (https
://nssdc.gsfc.nasa.gov/nmc/SpacecraftQuery.jsp), Encyclopedia Astro­
nautica (http://www.astronautix.com/), a database that catalogs
launch vehicles and satellites, and Spacecraft Encyclopedia (http://cla
udelafleur.qc.ca/Spacecrafts-index.html), another database that tracks
all spacecrafts launched. Removal of large satellites and small satellites
with missing information yielded a total of 2098 small satellites used for
our analysis. For each satellite, we collected its name, configuration (bus
design), key application purpose of the payload, launch vehicle used,
and launch date.
3.3. Data analysis
We followed other process research papers that adopted the
“conceptualized composition” approach (Berends and Deken, 2021;
Deken et al., 2018; Mantere et al., 2012) and conducted our analysis in
three steps. First, we identified key events (Poole et al., 2000) related to
small satellites innovation, and this step was guided by the interview
responses and the key concepts of multilateral interdependence, non­
generic complementarity, collective value creation, and value proposi­
tion. We coded the interview transcripts to identify the events and
satellites that multiple interviewees repeatedly mentioned, and then
focused on events that marked significant changes in the level of
Y. Song et al. Research Policy 53 (2024) 104932

Fig. 1. Number of small satellites launched by year and key events in the modern small satellite history.

Fig. 2. Number of small satellites launched by application purpose1 by year.

1
This figure shows top ten small satellite application purposes, covering around 82 % of all small satellites launched from 1981 to 2017.

nongeneric investments from different actors, interdependent relation­
ships, and value propositions. We further used secondary sources to
substantiate and triangulate the accuracy and timing of these events.
Fig. 1 summarizes key results from this round of coding. The timing and
occurrence of these key events also explain the major shifts in the
number of small satellites launched by year (Fig. 1) and the changes in
the primary application purposes of small satellites (Fig. 2). We used
these events, the moments of major shifts in the number of small satel­
lites launched, and the primary applications, to roughly divide the
timeline of the emergence process of the MSS. We further confirmed the
validity of how we divided the timeline with conference participants at
the 2022 Small Satellite Symposium.
In the second step, we started to build our data structure by following
the “Gioia method” (Corley and Gioia, 2004; Gioia et al., 2013). We
identified and organized our first-order themes based on the ecosystem
structure (Adner, 2017). Specifically, for the key events and their cor­
responding satellites, we inductively coded the actors involved, activ­
ities undertaken, actor location, links among actors, and overall value
proposition to provide narratives from an ecosystem perspective. The
results of this round of inductive coding are presented as first-order
categories in Figs. A1 and A2 in Appendix A.
In the third step, we created higher-order theoretical categories
based on the key concepts and organized the first-order categories of
ecosystem structure into aggregated theoretical themes of multilateral
interdependence, nongeneric complementarity, collective value crea­
tion, and value proposition. We then integrated the second-order themes

4
Y. Song et al.
into aggregated dimensions.
To demonstrate our coding and how we have linked the narratives to
our theoretical concepts, in Tables 1 and 2, for each theoretical concept
(second-order themes), we show its corresponding empirical evidence
using: 1) quotes from interviews, 2) quotes from published sources
whenever possible, and 3) illustrative quantitative data. For example,
we used the number of specialized small satellite bus designs to indicate
the level of nongeneric investments from component providers, and the
percentage of launch vehicles that launched small satellites and the
number of small launchers in development to indicate the level of
nongeneric investments from complementors. We followed other qual­
itative studies (see Bogers et al., 2019 for a summary) and used market
share, number of players, and number of small satellites launched per
year as indicators of collective value creation. Lastly, we used the pri­
mary application purposes of small satellites (e.g., commercial
communication, earth observation, and military communication) as
proxies for value proposition.
4. Findings: emergence of the modern small satellite innovation
ecosystem
How did small satellites, once considered “useless”, “unwelcomed”,
and “parasites” by most space actors, grow into a vibrant innovation
ecosystem attracting “enormous investments from a large number of
companies” (Sweeting, 2018: p.360)? In this section, we outline our
findings, illuminate the process through which diverse actors gradually
came together to develop a thriving ecosystem, and explain how and
why the process was slow, iterative, tension-filled, yet perseverant.
4.1. Early 1980s: focal technology demonstration
The successful launch of UoSat-1 marked the beginning of the MSS.
Frustrated by the lack of infrastructure and resources to build a so­
phisticated large satellite, the University of Surrey (under the leadership
of Sir Martin Sweeting) experimented with commercial-off-the-shelf
components to build a low mass (54 kg) and low cost (£250,000)
spacecraft. In our interviews, a small satellite manufacturer noted:
“It was the very beginning of the explosion of microelectronics… if
you were to take these microelectronics, you could, for the first time
make a physically small, relatively low cost spacecraft in a university
lab with a relatively small team of people.”
To demonstrate the UoSat-1 technology, the University of Surrey
purchased components (e.g., microprocessors and 2D-CCD imaging
cameras) from companies like Radio Corporation of America (RCA),
Ferranti Computer Systems (FCS), and EEV, and integrated these com­
ponents. NASA launched the satellite using the Delta-2310 rocket
(Fig. 3.1 illustrates the key players involved).
Although the focal technology producer combined offerings from
multiple actors, their relationship was not multilaterally interdepen­
dent, and other key elements of a thriving innovation ecosystem were
still lacking. Not all actors involved were core actors who were fully
committed to the ecosystem. Despite initial excitement about this
technology among radio amateurs, schools, and universities during the
1980s, small satellites were largely considered to be “of interest but little
real use, except perhaps for education and training” and “an unwelcome
distraction” (Sweeting, 2018: 347) from large satellites that could deliver
more impressive capabilities. Actors other than the University of Surrey
had little incentive to make nongeneric investments in small satellites.
NASA's Delta-2310 rocket was primarily designed for large satellites,
and the “piggyback” launch service of a small satellite was only avail­
able when there was leftover capacity. As Sweeting notes, “Early
microsatellites were launched virtually for free on a ‘favor’ basis…but these
launch opportunities were infrequent and unpredictable” (1999: 404). On
the component side, The University of Surrey made nongeneric in­
vestments to adjust each component to ensure functionality, but the
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Research Policy 53 (2024) 104932
component providers (e.g., RCA, FCS, and EEV) provided products with
little customization (Davies et al., 2007). For example, the RCA 1802
microprocessors used in the UoSat-1 had other uses in home computers,
vehicles, and pinball machines. A small satellite manufacturer noted
that the development of component technologies at that time “had
nothing to do with satellites” (see the full quote and other empirical ex­
amples in Table 1).
Still, in this early phase, the cost-effectiveness and short develop­
ment time of small satellites attracted attention from budgeted cus­
tomers such as developing space nations, educational institutions, and
nonprofit organizations. Sweeting and his team started to train other
countries with developing space programs to build their own satellites.
Ph.D. students led the effort in building the first version and countries
built their own satellites in the second version. Early usage of the
technology also included low-cost, “last mile” communication links
between medical institutions and healthcare workers in rural areas for
nonprofit organizations. This initial usage of small satellites in non-
commercial markets enabled continuous development of the MSS
ecosystem.
4.2. Mid-1980s-early 1990s: specialized component providers
Potential for commercial applications motivated specialized
component providers to join the focal technology producers. Several
factors contributed to the MSS ecosystem emergence at this stage. First,
following the UoSat-1 and 2 missions in the early 1980s, the Surrey
Satellite Technology Ltd. (SSTL) was founded in 1985 as a spin-off
company of the University of Surrey. One of the key missions of SSTL
was to develop “a flexible spacecraft bus (specialized component) based
on the experience gained from the UoSat-1 and 2 missions” (Bean, 1988:
p.1). Second, initial orders from non-commercial customers created a
need to produce multiple small satellites. Repeated production created
both the engineering capabilities and the economic incentives to
develop a reusable satellite structure (a key component of satellites):
“After years of building satellites one by one, doing a full engineering
development, prototype, and flight model on each one, it was real­
ized that satellite systems had many components in common and that
a defined, modular approach could save considerable effort. The
result of this refinement in approach is the MicroSat”
The MicroSat 70 configuration, with an adaptable, modular design
capable of supporting a wide range of missions, started to become a
standard satellite bus design (Davies et al., 2007) and was repeatedly
used in six small satellites (e.g., HealthSat-2 as illustrated in Fig. 3.2)
between 1990 and 1995. In addition to MicroSat 70, 25 specialized small
satellite bus designs became available from the late 1980s to the mid-
1990s. Third, because the production value of an assembled small sat­
ellite stemmed from its compactness, low cost, low power, and adequate
performance, each of its components had to be designed using novel
approaches that were different from the “tedious, costly, and timing
consuming” (Spencer, 1988: p.1) traditional space engineering
approach. All these factors motivated specialized component providers
to make specialized investments by adjusting their engineering
approach to develop compact and low-cost imaging systems (Backman
and Tate, 1989), power systems (Salim and Dakermanji, 1988), and
altitude sensing systems (Abdou and Tantiphanwadi, 1988). With the
development of specialized small satellite components, “the pace of
development of small satellite complexity and capabilities accelerated in the
late 1990s” (Sweeting, 2018: p.347). In this stage, small satellites
demonstrated their technological reliability and usefulness, mainly in
the non-commercial markets (Helvajian and Janson, 2008; Sweeting,
2018).
Despite the engagement of component providers, many actors were
unwilling to make specialized investments or be “locked in” to small
satellites for several reasons. First, the limited overall market demand
for small satellites did not provide enough incentives for self-interested
Y. Song et al. Research Policy 53 (2024) 104932

Table 1
Empirical examples of the key elements of an ecosystem: multilateral interdependence and nongeneric complementarity.
Quotes from interviews Quotes from published sources Other data

Focal unidirectional dependency

Limited nongeneric investments from
actors other than focal technology
producers
Unidirectional dependency from the
focal technology producer to other
actors
Component providers: “Electronics and
computing is just totally different … and that
had nothing to do with satellite. That happened
to be telecommunications and computers”
Complementors: “Small satellites have long
been treated like second class citizens and can
only get a launch when there's leftover capacity
on the rocket, after accommodating the big
satellite”
Dependency on component providers: “One
of the key drivers of this [modern small sat
technology] is consumer electronics technology
[components of smallsats]. Flying commercial
consumer technology and showing that it could
work, and basically cut the cost of satellites by a
lot.”
Dependency on complementors: “I think
there needs to be a stronger word for
complementors [launch vehicle providers],
because it doesn't just complement it, it's a
necessity.”
Component providers: “The … Component providers: In 1981, only 1 new
microelectronics production techniques… bus design was uniquely available to small
developed for the consumer mass market of satellites
millions or billions of devices” (Sweeting,
2018: 344) “There were no ‘small satellite’
components on the market” (Davies et al.,
2007: 3)
Complementors: “Early microsatellites were Complementors: In 1981, only 12 % of the
launched virtually for free on a ‘favor’ basis… launch vehicles available offered service to
but these launch opportunities were small satellites. Less than 5 % of the launch
infrequent and unpredictable” (Sweeting, vehicles available offered dedicated
1999: 404) launch services for small satellites
Dependency on component providers:
“Small sat developers had to leverage the
capability of Commercial-Off -The- Shelf
(COTS) components, in order to design
systems…” (Davies et al., 2017: 2)
Dependency on complementors: “The
shape and mass of small spacecraft is
therefore determined by … a piggyback
launch opportunity. …spacecraft structures
needed to be developed to meet particular
specifications on very tight schedules. It is rare
for similar opportunities to occur again”
(Davies et al., 2017: 3);

Upstream bilateral nongeneric complementarity

Increased nongeneric investments from
component providers, but still low
nongeneric investment from
complementors
Development of complementarities
between the focal technology
producer and component providers;
but lack of complementarity with
complementors
Component providers: “We [owners of a
satellite component provider] … could supply
something that relates to that small satellite
trend… and we knew that small satellites were
going to be more and more popular… we should
shrink our electronics so we could fit it onto
smaller satellites”
Complementors: “The problem has always
been there were more ideas for the small
satellites than they could ever find a launch
for… the problem was no one could find a
launch. There were very few.”
With component providers: “Because of the
development of smallsats, there's many more
constellations being discussed…and they're all
smallsats…what we're really looking for is being
a partner on some of these constellations where
we [satellite component providers] get an order
for 50 systems [subsystems of a satellite]”
With complementors: “I'm [the
complementors are] spending $350 M to build a
rocket to launch a large satellite, why would I
risk that to launch this $100 K small sat that
could blow up my entire rocket. The risk wasn't
worth it.”
Component providers: “Surrey Satellite Component providers: From 1982 to mid
Technology Ltd. developed a novel ‘standard’ 1990s, only 25 new bus designs were
small satellite structure, which could be re- uniquely available to small satellites
used without significant re-design and
structural qualification” (Davies et al., 2017:
3)
Complementors: “The typical 1990's small Complementors: From 1982 to mid 1990s,
satellite was very…constrained driven, only 12 % of the launch vehicles available
primarily, by the available launch offered service to small satellites. 5 % of
opportunities. Most small satellites ‘hitch- the launch vehicles available offered
hiked’ a ride with a larger satellite” (Davies dedicated service for small satellites
et al., 2017: 2)
With component providers: “the Surrey
Satellite Technology Ltd Microsat (a
specialized configuration for small satellites)
used a design whereby the electronics was
loaded into stackable Aluminum ‘micro trays’
which also provided the primary structure for
the satellite. The approach reduced the
development time that was required for each
mission” (Davies et al., 2017: 3)
With complementors: “Small satellites up to
the 1990s benefited from sporadic
opportunities as secondary payloads carried
either free or at only nominal cost. Once
microsatellites and then nanosatellites
became more business-like in the 1990s, ‘free
launches’ were no longer offered” (Sweeting,
2018: 357)

Downstream bilateral nongeneric complementarity

Initial but not yet fully dedicated
nongeneric investments from
complementors
“Previously, the smallsats hitchhiked their way
to space. In the past few years, with increased
demand [for small sats], more launchers are
willing to offer a dedicated rideshare”;
“Arianespace was the first to offer a
repeatable, commercial launch service for
microsatellites on their Ariane-4 ‘ASAP’
(Ariane Structure for auxiliary Payloads)
and this proved to be a key stimulus to the
nascent smallsat industry but limited to 50-kg
maximum mass and a maximum envelope of
approximately 35 × 35 × 70 cm.” (
Sweeting, 2018: 357)
From mid 1990s-late 2000, 21 % of the
launch vehicles available offered launch
service to small satellites. 13 % of the
launch vehicles available offered
dedicated launch service for small
satellites
(continued on next page)

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Y. Song et al. Research Policy 53 (2024) 104932

Table 1 (continued )
Quotes from interviews Quotes from published sources Other data

Initial development of multilateral
interdependence and nongeneric
complementarity
“These smallsats have very limited options, so
[in order to get to space], there was one rocket
that launched over 100 smallsats at one time.
However, most people [small satellites] don't
want to go to the same place, but they have to,
because that's where the rocket is going.”
“Despite the simplicity…, there are significant
obstacles in the … commercial rideshare
concept…significant technical challenges
include: integrating a variety of mass and
volumes…accommodate a wide range of
orbital altitudes…all payloads will not
adversely impact the mission or the other
payload” (Kehrl and Steele, 2012:3)

Ecosystem multilateral interdependence and nongeneric complementarity

Increased level of nongeneric
investments from complementors
Establishment of multilateral
interdependence and nongeneric
complementarity
“Before, multiple small satellites have been
taking the same ‘bus’ (large launchers) to space,
now, we need ‘taxies’ (dedicated small
launchers).” “(In 2016) There were 28 small
launch vehicles [launch vehicles dedicated to
launch small satellites] in development … now
(in 2017) the number's 32”
“What small launch vehicles allow … is more
customization… more utility out of the satellites
that are launched, and greater diversity of
potential applications because the orbits they go
into will be better tailored. With greater
applications, more demand for smallsats, so
more business for launch” “At the time, these
were all small steps, but adding them together
become this exponential change”
“The mushrooming of nanosatellites and From the early 2010s-2017, 30 % of the
microsatellites in the last few years has launch vehicles available offered service to
encouraged a surge in small launcher small satellites. 14 % of the launch vehicles
developments, both from agencies and available offered dedicated service for
startups. Indeed some 50 new small launch small satellites, and more than 50 small
vehicles are in various stages of launch vehicles were in development in
development.” (Sweeting, 2018: 358) 2018
“CubeSats and new constellations are leading
the demand now. As small satellite capability
increases, operators are no longer satisfied
with the traditional rideshare and secondary
payload opportunities available to them….For
many of the new entrants, the drive to develop
a new vehicle is purely commercial. Driven by
visions of hundreds, if not thousands, of small
satellites launching annually” (Frick and
Niederstrasser, 2018: 1)

actors, especially complementors, to make specialized investments to
accommodate the small satellite customers. With an average of only 31
small satellites launched per year, launch vehicle providers still focused
on providing services for large satellites, and considered small satellites
merely as the “secondary payload”, a.k.a., “piggyback spacecraft”, a.k.
a., “hitch hikers” (Lim and Armstrong, 2014). Second, the small satellite
technologies were not yet established with stable technical specifica­
tions and proven performance metrics, hence compatibility with launch
vehicles was not proven. Many rocket companies refused to launch small
satellites, considering them a burden and risk:
“I'm spending $350M to build a rocket to launch a large satellite, why
would I risk that to launch this $100K small sat that could blow up my
entire rocket. The risk wasn't worth it.”
(Launch vehicle provider interview)
The lack of launch services and specialized investments from rocket
companies, in turn, aggravated the lack of demand for small satellites,
because small satellites must adhere to the large satellite's requirements
and timeline, or “they will be left by the side of the road, sic, the launch
pad.” (Lim and Armstrong, 2014). Similarly, many component providers
hesitated to specialize in small satellites because demand was neither
stable nor high enough to justify the investment. As one of the compo­
nent providers noted:
“I need to have an addressable market that is more than other shaky
small satellite startups. If my customers are just other shaky startups,
it's a risky business.”
The majority of actors were hesitant to make specialized investments
due to concerns that they would not succeed without investments from
others. Upstream component providers complained that it only made
sense to build more small satellites if the launch vehicle providers could
offer more launch services. As one of our interviewees noted: “If you
build a satellite, but you can't launch it, it is pretty pointless”. “The problem
until recently has always been there were more ideas for the small satellites
than they could ever find a launch for”. Without specialized investments to
develop more capable, low-cost, compact components, the economic
viability of small satellites remained insufficient, limiting the overall
demand (see quotes and data in Table 2 for more illustration).
Moreover, downstream launch vehicle providers argued that
although small satellites offered some useful capabilities to budgeted
customers such as universities and non-profit organizations, small sat­
ellites had not yet made it into mainstream space activities to attract
high-paying commercial customers because their capabilities were still
limited by upstream production. From the perspective of launch vehicle
providers, “there were no real examples of missions being justified on the
basis of… a commercial ‘business case’”. One small satellite manufacturer
described a rejection from a launch company during our interview:
“We went to Company X (a launch vehicle provider) to talk to the
people there about flying secondaries. They said, well, if you give us
half a million dollars, we will study about putting your satellite on.
Of course, we didn't have half a million dollars… Essentially, they
said no. If it is not a good business practice, then they will not do it.”
Because self-interested actors waited for others to make specialized
investments first so that the collective value creation would be high
enough for themselves to participate, the emergence process stuck at
this stage for nearly a decade.
4.3. Late 1990s – late 2000s: semi-specialized complementors
Amid these doubts and tensions, continuous efforts from the early set
of actors gradually increased the benefits small satellites could deliver to
customers. As a result, complementors started seeing the potential for
collective value creation, so they made semi-specialized investments.
While the investment decisions of actors have been categorized as either
generic (not specialized) or nongeneric (specialized) in previous work
(e.g., Jacobides et al., 2018), our case study supports a more recent
perspective that complementarities are not either/or but happen in a
continuum of weaker to stronger (Holgersson et al., 2022). In the mid-
1990s, launch vehicle providers began to offer more dedicated ride­
share services (i.e., launching multiple small satellites in a single ride).
We labeled these dedicated rideshare services as “semi”-specialized in­
vestments: although they were specialized enough to launch small sat­
ellites without having a large satellite to dictate the mission, these
investments were not fully non-fungible because complementors were
still building large rockets that could be easily redeployed to launch
large satellites if there was not enough demand for small satellites.
Our analysis shows that these semi-specialized investments from

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Y. Song et al. Research Policy 53 (2024) 104932

Table 2
Empirical examples of the key elements of an ecosystem: value proposition and value creation.
Value proposition Data Collective Data Value creation in Data
value production and
creation consumption

Early 1980s: Illustrative quotes: UoSat-1 “set out
Technology to investigate and demonstrate the
viability feasibility of … a scientific small
satellite at low cost”
Other relevant data: Military
communication as the dominant
application purpose (Fig. 2)
Mid-1980s-early Illustrative quotes: “SatelLife, a U.
1990s: S. nonprofit organization, provides
Technology desperately needed low-cost ‘last mile’
reliability and communication links between medical
initial economic institutions and health programs in the
benefits developing world”
Other relevant data: Military
communication as the dominant
application purpose
Late 1990s- late Illustrative quotes: “Somewhere
2000s: around the year 2000, the modern
Technology SmallSat concept matured
superiority and sufficiently… to cross the threshold of
expanded commercial viability”
economic benefits
Other relevant data: Commercial
communication and technology
testing as the dominant application
purpose
Early 2010s: Illustrative quotes: “Small satellites
Customer centric to center stage sometime around 2010
with significant and stimulated proposals for new
economic benefits applications and business models”
Other relevant data:
Earth observation as the dominant
application purpose
Low Illustrative quotes: “When it
started, everyone thought it was
a) impossible, b) crazy, and c)
useless.”
Other relevant data: average
of 29 small satellites launched
per year; (Fig. 1);
Small satellite market share:
19.4 %;
Number of players: 19
Some but still Illustrative quotes: “Small
limited satellites had attracted attention
by offering useful capabilities, but
had not yet made it into the
mainstream of space activities.”
Other relevant data: average
of 31 small satellites launched
per year;
Small satellite market share:
23.6 %;
Number of players: 56
Increased Illustrative quotes: “Small
collective satellites demonstrated their
value ability to support a range of
creation missions contributing useful value
across institutional, commercial,
and training uses”
Other relevant data: average
of 42 small satellites launched
per year;
Small satellite market share:
33.26 %;
Number of players: 216
High Illustrative quotes: “Small
collective satellites have become
value fashionable and form a major
creation component of the so-called
‘NewSpace’ environment”
Other relevant data: average
of 167 small satellites launched
per year;
Small satellite market share:
63.08 %;
Number of players: 392
Initial value creation Illustrative quotes: “Commercial-
in production off-the-shelf (COTS) microelectronics
devices have thus effectively
established a new benchmark for high
reliability devices in space”
Limited value Illustrative quotes: “During the
creation in 1980s, microsatellites were largely
consumption considered to be ‘of interest but little
real use’, except perhaps for education
and training.”
Increased value Illustrative quotes: “The pace of
creation in production development of small satellite
complexity and capabilities accelerated
in the late 1990s.”
Limited value Illustrative quotes: “While
creation in interesting and educational, the image
consumption resolution and fidelity had no real
commercial value.”;
“There were no real examples of
missions being justified on the basis
of… a commercial ‘business case’”
Increased value Illustrative quotes: “The
creation in production combination of improved sensors,
enabled increased onboard data storage handling
value creation in capacity…greatly increasing
consumption performance (value creation in
production), and enabled the
transition from demonstration missions
to operational and commercial services
(value creation in consumption),”
High value creation in Illustrative quotes: “The
production and combination of commercial utility
consumption (value creation in consumption) and
low unit cost (value creation in
production)”

complementors would not have happened without the progressive in­
vestments from early small satellite manufacturers and component
providers. During our interviews, we learned that several key events led
to positive reinforcement among actors. First, the “piggyback” launch
opportunities offered in Stage 2 encouraged focal technology producers
to develop the CubeSat standard so that the chances of small satellites
“being embarked on a space launch as a secondary passenger were maxi­
mized” (Sweeting, 2018: 352). Developed in 1999 and later becoming
the dominant design of MSS (Helvajian and Janson, 2008), the CubeSat
standard design and interface allowed multiple small satellites to be
stacked and integrated on a launch vehicle without much complexity or
risk, subsequently decreasing coordination costs for rocket companies
and motivating them to offer rideshare.
Second, the development in component technologies continued to
increase small satellites' value creation in production, which enabled
more value creation in consumption, thus increasing the demand for
small satellites. “Microsatellites and then nanosatellite became more
business-like in the 1990s…As the demand for SmallSat launches increased, a
number of launchers became available” (Sweeting, 2018: 357). To illus­
trate, as the imaging systems used in small satellites continued to shrink
in size and improve in capabilities, the quality of the images captured by
small satellites finally crossed the threshold of commercial value. The
first fully commercial operational class small satellite constellation,
RapidEye, launched in the late 2000s, is an example. With the relatively
high processing power and resolution of their imaging system (Tyc et al.,
2003), the RapidEye satellites provided useful geospatial information to
commercial customers (e.g., pipeline and transmission corridor moni­
toring for oil and gas companies, damage assessment and risk manage­
ment for insurance companies). Because a single small satellite can only
cover a limited area, it is necessary to construct constellations of small
satellites to achieve persistent global coverage and frequent imaging of a
particular area (Sweeting, 2018). In sum, the combination of these
factors gave the launch vehicle providers strong incentives to offer
dedicated rideshare services. As one interviewee noted, all five Rap­
idEye satellites were launched together on a single Dnepr rocket, thus
small satellites were no longer treated as “second-class launch citizens.”
With these developments, we observed some momentum and an
initial sign of a virtuous cycle: specialized investments from early actors,
including focal technology producers and component providers, created
some value, attracting initial attention from budgeted non-commercial

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Y. Song et al.
Fig. 3. Illustrations of actors and relationships over time.
3.1 Focal technology demonstration.
3.2 Emergence of specialized component providers.
3.3 Emergence of tangential specialized complementors.
3.4 A thriving innovation ecosystem.
customers and then interest from commercial customers; the expanding
customer base created incentives for complementors to be semi-
specialized, which further promoted the production of more small sat­
ellites. Collective efforts from multiple actors increased collective value
creation. The average number of small satellites launched per year
increased to 42 during this period (as summarized in Table 2). In
addition, the increase in the use of small satellites for commercial ap­
plications such as earth observation and communication (Fig. 2) sug­
gests that the value proposition evolved from technological reliability to
some economic benefits.
Our analysis shows that development in this period was not smooth.
Although complementors' willingness to make some initial specialized
investments created the potential for collective value creation, the po­
tential was not high enough for them to become fully specialized or to
develop launch vehicles just for small satellites:
“So where the industry was, there's not enough small sats to sustain the
other launch vehicles (dedicated small launchers)… You have to crawl,
walk, run. You wouldn't expect a toddler to ride a bike. So rideshare just
makes the most sense.”
(Launch vehicle provider interview)
Launch service providers were only willing to supply rideshare ser­
vices, while upstream actors continued to complain that not having
mission-tailored launch services limited the performance of their satel­
lites. Different small satellites were developed with different time
schedules, different masses and sizes, and different destinations of or­
bits. The rideshare approach could not accommodate these differences,
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Research Policy 53 (2024) 104932
hence the need for dedicated launch service became apparent—as one
satellite operator put it, “Before, multiple small satellites have been taking
the same ‘bus’ (large launchers) to space, now, we need ‘taxies’ (small
launchers)!”
4.4. Early 2010s: specialized complementors and a thriving innovation
ecosystem
After more than 30 years of struggle, MSS finally developed into a
thriving innovation ecosystem in the early 2010s.3 The presence of
multilateral interdependence among many actors, nongeneric in­
vestments by complementors, and a strong value proposition that is
customer-focused and generates significant economic benefits for the
ecosystem, suggests that the MSS ecosystem has developed to become a
thriving one with some prominent patterns.
First, the emergence of dedicated launchers for small satellites in the
early 2010s is a strong indicator that the launch vehicle providers
(complementors) were increasing their nongeneric investments and
finally became a core actor of the MSS ecosystem. The investments to
develop small launchers were non-fungible because the limited capacity
of these rockets made launching traditional large satellites impossible.
From the early 2010s to 2017, 30 % of the launch vehicles available
3
We searched the proceedings of the Annual Small Satellite Conferences and
found that the term “ecosystem” appeared only 9 times in the proceedings
during 1987–2010, and 52 times after 2010.
Y. Song et al.
offered launch service to small satellites. 14 % of the launch vehicles
available offered dedicated launch service for small satellites, and more
than 50 small launch vehicles were in development in 2018.
Second, the specialized complementors would not have joined
without the collective efforts of actors in the previous stages. Small
satellite manufacturers and component providers improved their tech­
nologies, demonstrated technological reliability, and showed value
creation potential, which incentivized launch vehicle providers to
dedicate resources to small satellites. All these factors led to increased
demand for small satellites in the early 2010s, with the average number
launched per year more than quadrupling from stage 3 to stage 4
(Fig. 1). Our interviewee also emphasized the “snowball” effect, and
how demand for small satellites finally convinced specialized com­
plementors to join:
“It's a snowball, because now that you have all these people launching
these (small) satellites. People start saying we want more, so we go to 6Us
(6 CubeSats) and 12U (12 CubeSats), and now the mass to orbit gets big
enough that somebody says oh I can build a rocket, you know, specifically
for those customers. That's how RocketLab, Vector (companies developing
dedicated small launchers), showed up”4
(Small satellite manufacturer interview)
Third, we observed a virtuous cycle and high levels of complemen­
tarity among actors at this stage. As more dedicated small satellite
launchers became available, small satellite manufacturers and compo­
nent providers became more motivated to increase their investment. In
this stage, the thriving ecosystem exhibited characteristics of highly
specialized investments from each actor. Take the Proxima satellite as an
example (Fig. 3.4). Pumpkin Inc., a company specializing in designing
CubeSat kits and components, delivered highly reliable, flight-tested,
and rapidly developed buses, receivers, and battery modules to Fleet
Space Technologies. Fleet Space Technologies integrated these compo­
nents into its own small satellite constellation, the Proxima, and
launched the satellites on the Electron, a rocket dedicated to providing
low-cost, frequent, and mission-tailored launch services for small sat­
ellites. The unique and cost-effective components provided by Pumpkin
improved the performance of the Proxima satellite and reduced the time
and costs of building a satellite, which enabled Fleet Space to build a
constellation of small satellites. The use of the CubeSat design enabled
the easy integration of the Proxima satellite onto the Electron rocket,
whose dedicated launch service further reduced the cost and the wait
time to launch a small satellite. Such an orchestrated effort from
component providers, focal technology producers, and complementors
improved the viability of small satellites to provide commercial
communication services to their customers. Increased value delivery to
customers in turn increased demand for satellite components, integra­
tion, and launches.
“What small launch vehicles allow you to do is allow more customization
in terms of where the satellite ends up, so you'll see more utility out of the
satellites that are launched, and greater diversity of potential applications
that they can serve, because the orbits they go into will be better tailored
for the application. With greater applications, you have more demand for
small sats, so that also brings more business for launch”
(Data analytics company interview)
Fourth, increased multilateral nongeneric complementarity grew the
number of commercial applications, which in turn led to a strong
ecosystem value proposition with a wider set of interconnected actors.
These developments generated stronger economic returns from the
satellites and therefore increased value creation. As shown in Fig. 2,
earth observation (i.e., analyzing data gathered by small satellites to
provide intelligence) became the top application of small satellites.
4
The underlined portions in all the quotes represent the authors' emphasis on
these specific portions.
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Research Policy 53 (2024) 104932
Companies like Orbital Insights used satellite images to count the
number of cars parked in parking lots to predict the stock price of re­
tailers. In addition to earth observation, OneWeb started launching a
communication constellation to deliver broadband internet services
worldwide (see Kopacz et al., 2020 for more examples). Strong eco­
nomic value creation led to a surge in the number of small satellites
launched (Fig. 1). Multiple interviewees emphasized that the formation
of this thriving ecosystem is really a result of collective contribution
from multiple actors:
“It's just a snowball, because the way I like to look at it is, there's tradi­
tional space, and we were parasites. We were just piggybacking on their on
their systems. But now we have a whole new ecosystem that has all the
pieces independent on the big satellites.”
(Small satellite manufacturer interview)
“It's the sort of confluence of technologies… The key point here is if you go
back over the last 20 years, and you look at technologies that were
available every few years, there were chances in one technology, but you
couldn't really exploit it because you needed some other ones around it…
The whole thing sort of supports each other. Unless you have all these
things around it, it doesn't really go.”
(Small satellite component provider interview)
In sum, our longitudinal analysis reveals that it took more than 30
years for the seed innovation to develop into the thriving MSS innova­
tion ecosystem. Nongeneric investments from upstream players were
critical for complementors to join, but the complementors did not make
non-fungible investments until they saw the potential for significant
economic gains. The process of emergence was long, complex, and
fraught with challenges.
In Section 5, we consolidate our findings to develop theoretical in­
sights on ecosystem emergence, and in Section 6.1, we explain how
these insights specifically contribute to the ecosystem emergence
literature.
5. A long and complex process of ecosystem emergence
Prior studies have suggested that the process of emergence of many
successful ecosystems is rather rapid (e.g., 1–5 years5 based on case
analyses from Moore, 1993 and Thomas and Autio, 2014). In contrast,
our qualitative analysis of the MSS ecosystem reveals a long and com­
plex process of ecosystem emergence (30+ years). We develop theo­
retical insights that help to understand why and how the emergence
process can be long and complex, focusing on two inquiries: (a) Why the
interplay among the key elements of an emerging ecosystem occurs,
leads to tensions, and delays the emergence process; and (b) How various
forces drive and hinder specialization and how specialization coevolves
with the ecosystem value proposition, which together, propel the
emergence process forward.
5.1. Why ecosystem elements and their interplays spur and delay the
emergence process
Fig. 4 lays out four core elements of an innovation ecosystem and
their interplays. The top two boxes illustrate the multilateral set of actors
(element 1) and their nongeneric investments (element 2), and the bot­
tom three boxes illustrate collective value creation (decomposed into
value creation in production and consumption, element 3), and value
proposition (element 4). We theorize that the interplays among the core
5
For instance, IBM entered personal computer in 1981, and its ecosystem
reached growth by 1986 (Moore, 1993). Amazon' ecosystem took a year to
reach growth, from 1994 (birth) to 1995 (Thomas and Autio, 2014), and Ebay's
ecosystem took two years, from 1995 (birth) to 1997 (growth) (Thomas and
Autio, 2014).
Y. Song et al.
Fig. 4. Illustration of ecosystem relationships and tensions.
elements help or hinder ecosystem emergence in the following manner.
First, critical investments by some actors can trigger a virtuous cycle and
fuel the emergence process, and a lack of timely investment by others
can lead to stagnation and delay. Second, nongeneric investments from
component providers increase value creation in production; and non­
generic investments from downstream complementors boost value cre­
ation in consumption. Value creation in production and consumption
are complementary, jointly contributing to collective value creation and
the evolution of the value proposition. Third, collective value creation
and progression of the value proposition generate a positive feedback
loop and further encourage both upstream and downstream actors to
make more nongeneric investments. Such interplays can spur a virtuous
emergence cycle among these ecosystem elements (the arrows). Some
nongeneric investments from one actor (the University of Surrey in our
case) attract more actors to join, increase the potential for collective
value creation, and move the emergence process forward. More actors
are drawn to the ecosystem (e.g., West, 2008) as the market grows and
become core actors (those who make specialized investments). On the
flip side, as we explain below, such interplays can also cause tensions
and make the emergence process slow and iterative.
Our analysis shows three important tensions (Fig. 4, illustration of
tensions): actors' self-interest vs. collective value creation (Tension
One), value creation in production vs. consumption (Tension Two), and
specialization vs. fungibility of the investments (Tension Three). These
tensions make the emergence process slow and iterative. First, Tension
One arises because “autonomous” (Baldwin, 2022: p2) and “self-inter­
ested” (Bogers et al., 2019: p6) actors do not make specialized in­
vestments until they see the potential for collective value creation, yet
collective value creation would be hindered if many actors do not join.
This tension slows down ecosystem emergence because actors priori­
tizing their self-interests may want to “wait and see”: they wait for other
actors to invest first and see how much collective value is created before
they commit. However, the collective value would be limited unless
some actors join first. Second, Tension Two arises because incentives to
create value in production are limited without value creation in con­
sumption, while value creation in consumption would be challenging
without enough value creation in production first. For example,
component providers may defer their investments until there is suffi­
cient demand for the focal technology, but the demand depends on how
much value is created downstream by complementors. Similarly, com­
plementors would not be motivated to invest unless enough value is
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Research Policy 53 (2024) 104932
being created in production. Finally, Tension Three arises because
specialization increases complementarity (Teece, 1986) as each actor
can potentially create more value by cooperating with others (Agarwal
and Kapoor, 2023), but developing specialized offerings for new tech­
nology is often costly and uncertain (Kapoor and Furr, 2015). Actors
become concerned about being “locked in”. Overall, the conditions
noted above for a virtuous cycle spur the process, while the tensions and
the possibility of a vicious cycle explain the struggles and the prolon­
gation of the process. Thus, understanding tensions and ways of
resolving them is critical for understanding ecosystem emergence. We
discuss next why and how the forces for and against specialization spur
and hinder the process of emergence.
5.2. How various forces shape specialization decisions
Building upon the discussion above, we identify a set of forces that
drive or hinder actors' specialization decisions and portray such forces in
Fig. 5. The top part of the figure illustrates incentives, motivations, and
conditions that provide the momentum for specialization. The bottom
part illustrates hesitations, risks, pauses, and setbacks impeding
specialization. The arrows above the value proposition line represent the
reinforcing influences between specialization decisions and value
proposition and how the emergence moves forward. The arrows below
the value proposition line represent the obstacles and challenges that
lead to stagnation. Our process model (Fig. 5) is actor agnostic, so we
focus on forces that could apply to all types of actors. Although the
columns in the figure (looking vertically) roughly reflect the stages of
ecosystem emergence we observed, we refrain from labeling stages in a
strictly sequential way because the emergence of other ecosystems may
skip a stage, or two stages may occur concurrently.
The ecosystem emergence process starts with nongeneric in­
vestments, oftentimes led by new members. Forces driving specializa­
tion at this early stage include technology enthusiasm, passion, hobby,
and early experimentation with new technologies (illustrated on the left
side of Fig. 5). What we observe in this beginning state is similar to what
other scholars have described during the birth stage of their emergence
models: “a bet on a seed innovation” and “a period of experimentation”
(Moore, 1993: p.78). Some actors may hesitate to specialize due to
perceived risks or unclear value potential. However, early nongeneric
investments sharpen the early value proposition of technological
viability (far left of the value proposition flow). Enthusiasm for the
Y. Song et al.
Fig. 5. A process of ecosystem emergence.
technology often leads to “optimistic, albeit vague prediction” (Beltagui
et al., 2020: p.8) of its potential, drawing “the community towards a
grander future” (Moore, 1993: p.79).
The middle section of Fig. 5 shows how the value proposition evolves
over time. As the technology becomes more viable, the forces for
specialization become stronger: there are signs of collective value cre­
ation; and more actors begin to realize the potential for commercial
gains. Consistent with previous discussions on ecosystem emergence,
the innovation is first adopted by a small but dedicated group of cus­
tomers (Thomas and Autio, 2014; Moore, 1993); and these early
adopters encourage the expansion of production and the creation of
economies of scale, leading to more firms entering the market with
specialized investments. However, there are still challenges to overcome
and forces hindering specialization, such as low collective value creation
and uncertain demand, which make value creation in production unat­
tractive and specialized investments risky. These hindering forces could
lead to ecosystem stagnation. Despite these challenges, with the initial
market demand, the innovation/technology starts to demonstrate its
reliability and generate some initial economic benefits (an improved
value proposition).
Demonstrated technology reliability and initial economic benefits
enable the emergence process to move on to the right side of Fig. 5.
Specialization investments in this stage are driven by increased collec­
tive value creation, as more actors join and expand the “pie” (Gnyawali
and Ryan Charleton, 2018). This, in turn, motivates more value creation
in both production and consumption, resulting in increased investments
from upstream component providers and downstream complementors.
As a result, multilateral complementarity is enabled, which enhances the
value of specialized investments from each actor, leading to technology
superiority and expanded economic benefits. Progression on the value
proposition flow generates a positive feedback loop and further en­
courages upstream and downstream actors to make more nongeneric
investments. New entrants with new ways of creating value further
12
Research Policy 53 (2024) 104932
support the progression. However, not all actors may see potential gains
and some may choose not to specialize. Several forces could hinder ac­
tors' specialization decisions, and such forces could include increased
competition because the potential for high collective value creation can
entice new entrants, co-specialization which makes it difficult for others
to join, and increased interdependence among actors that can lead to
concerns of being “locked in”.
It is important to note that the forces for or against specialization
shape the ecosystem value proposition and get shaped by it. Initially,
technology viability alone is insufficient to incentivize component pro­
viders to invest. As the focal technology producers refine the technology
and make the value proposition more appealing, specialized component
providers get attracted, and the technology and products become more
appalling to customers. This, in turn, will attract specialized investment
from complementors who can help deliver economic benefits to cus­
tomers. The potential to create significant economic benefits further
attracts specialized investments.
6. Discussion and implications
How does an innovation ecosystem emerge and develop into a
thriving ecosystem? This study was motivated by this overarching
question. This motivation was reinforced by the frequent use of the word
“ecosystem” at the small satellite conferences the authors attended from
2016 to 2019, suggesting that the focal innovation of small satellite
technology has become a thriving ecosystem.
We grounded our study of ecosystem emergence (with a focus on the
transition from birth to growth) on four key elements suggested by the
literature as being critical for a thriving ecosystem: specialized in­
vestments, collective value creation, value proposition, and multilateral
interdependence. In contrast to prior studies on ecosystem emergence,
we traced these elements over a long period and illuminated their roles in
the transition process. We laid out detailed theoretical insights in Section
Y. Song et al.
5 above. We articulate next how our study affirms prior literature, offers
new insights, and therefore advances our understanding of ecosystem
emergence.
6.1. Contributions
Our paper affirms three important aspects of ecosystem emergence
discussed in the literature. First, our findings confirm prior literature in
terms of key characteristics of the birth stage, such as a bet on seed
innovation and the role of technology enthusiasts, and key character­
istics of the growth stage, such as specialized investment by multiple
actors and their efforts to create value (Beltagui et al., 2020; Moore,
1993; Thomas and Autio, 2014). Second, we affirm prior literature's
findings that ecosystem emergence has inherent uncertainties and
challenges (Dedehayir et al., 2018; Pidun et al., 2021; Thomas and
Ritala, 2022). Finally, our study joins prior papers in underscoring the
importance of the following for successful ecosystem emergence: (a)
specialized investments to create complementarity (Holgersson et al.,
2022; Jacobides et al., 2018), (b) value proposition (Adner, 2017), and
(c) collective efforts for value creation (Autio and Thomas, 2014;
Thomas and Ritala, 2022; Wang, 2021).
Our overarching unique contribution lies in the advancement of an
evolutionary view of ecosystem emergence with an in-depth analysis of the
transition from birth to growth. Our evolutionary view has two sub-
areas: a) why the dynamic interplay of the ecosystem elements can
cause tensions and delay the emergence process; and b) how the juxta­
position of forces for or against specialization shape value proposition
and get shaped by it, and how the iterative interplay between speciali­
zation and value proposition can propel forward or delay the transition
process. We explain below how our evolutionary view advances our
understanding of ecosystem emergence.
Our first unique contribution lies in explaining the prolonged and dy­
namic process of the transition from birth to growth, which is a critical but
underexamined area in ecosystem emergence literature. Prior studies on
emergence dynamics have often taken an actors-centric approach and
studied how ecosystem architects (Daymond et al., 2022), champions
(Dattee et al., 2018), pioneers (Beltagui et al., 2020), or platform
sponsors (Gawer, 2009; Murthy and Madhok, 2021) orchestrate the
emergence process with ecosystem strategies. Well-known cases of
ecosystems with strong sponsors, such as IBM, eBay, and Amazon
(Moore, 1993; Thomas and Autio, 2014), show that at the birth stage,
the sponsors create compelling ecosystem “blueprints” (Dattee et al.,
2018) that generally have a customer-centric value proposition. In such
ecosystems, the value proposition at the birth stage already starts
“defining what customers want” and “the best form for delivering it”
(Moore, 1993: 76). In contrast, our study focused on a context that
cannot be attributed to a single leader and revealed that ecosystem
emergence could be slow, complex, and lengthy. Specifically, we laid
out unique dynamics and challenges during the transition: the interplay
among ecosystem elements, such as actors' nongeneric investments and
collective value creation, value creation in production and consumption,
and the fungibility and flexibility of actors' investments can be sources of
tensions that prolong the emergence process. Prior studies suggest that
ecosystems can struggle during emergence (e.g., Pidun et al., 2021). Our
study provides two unique explanations for such struggles, and hence
the prolonged process of emergence: (a) the emergence and persistence
of tensions among the actors; and (b) actors' hesitation to make
specialized investments for various reasons, as noted earlier about forces
against specialization, which delays the development of a strong
ecosystem value proposition and collective value creation.
Our second unique contribution lies in the explication of how an
ecosystem emerges despite the challenges. Our study demonstrated that
actors' specialization occurs gradually. Recent studies (Baldwin, 2022;
Holgersson et al., 2022) call for studying specialization as a spectrum
from weak to strong, rather than a binary concept. We answered this call
and provided empirical evidence on why specialization can occur
13
Research Policy 53 (2024) 104932
gradually. For instance, the complementors in our study were semi-
specialized before they were fully specialized. We further extended
this conversation by identifying forces that drive or hinder specialization
(forces and arrows in Fig. 5). In addition, these forces interact in a dy­
namic fashion with the ecosystem value proposition: actors' decisions to
specialize during the initial period contributed to a slightly stronger
value proposition, which subsequently encouraged more actors to
specialize in the following period, which, in turn, led to another slightly
stronger value proposition (upper part of Fig. 5), and so on. Our
contribution provides a basis for future scholars to examine similar
challenges. For instance, a lack of specialized complementors is often
identified as a bottleneck during the emergence process (e.g., Adner and
Kapoor, 2016; Kapoor and Furr, 2015). Our findings indicate that having
semi-specialized complementors can serve as a stepping stone for
improving the value proposition and attracting more specialized
complementors.
6.2. Limitations, boundary conditions, and future research directions
We highlight a few limitations, which also provide opportunities for
future research. First, for analytical purposes, we focused on groups of
actors (e.g., focal technology producers, upstream component providers,
downstream complementors, and customers) and assumed away firm-
level heterogeneities that may shape a firm's strategic behaviors dur­
ing ecosystem emergence. Our focus on the group level has enabled us to
do an in-depth analysis of the intergroup dynamics, but we are by no
means claiming that firms in the same group would behave similarly.
Ecosystem actors often play different roles and exert different influences
(Dattee et al., 2018; Hannah and Eisenhardt, 2018), so they could
differently accelerate or hinder ecosystem emergence. Future research
could examine how incumbents and new entrants differ in their
specialization decisions and contributions to ecosystem emergence.
Similarly, to what extent do firms originally engaged in complement
technologies proactively seek opportunities for specialization? To what
extent do focal technology producers search for complement technolo­
gies to materialize the value proposition? How do firms originally
affiliated with independent innovation ecosystems interact with each
other to develop a new technology bundle that provides unprecedented
value propositions to end-users? Our work sets a foundation for such
future inquiries.
Second, because of our focus on the subgroup level, our discussion on
the development of nongeneric complementarities, value proposition,
and value creation largely assumes away firm-to-firm interactions. As an
ecosystem develops and becomes more attractive, firms often engage in
simultaneous competition and cooperation (or coopetition) with each
other both within (Beltagui et al., 2020; Gnyawali and Ryan Charleton,
2018; Hannah and Eisenhardt, 2018) and across ecosystems (Moore,
1993). Such inter-firm dynamics are helpful to understand further the
ways in which tensions, contradictions, and heterogeneous perceptions
among ecosystem actors get resolved. Coopetition dynamics could stall
or speed the process of ecosystem emergence as firms jockey for superior
positions and create value. It will be intriguing to study how coopetition
emerges, intensifies, and helps or hurts ecosystem emergence.
Third, our context is an innovation ecosystem that emerged without
a centralized sponsor. An important boundary condition question is
whether our theoretical framework would generalize to other ecosys­
tems such as platforms (e.g., Gawer and Cusumano, 2002; Gawer, 2009)
that typically emerge with a sponsor. Our findings show that it is the
emergence of tensions, inhibitors of specialization, and the lack of a
strong ecosystem value proposition that caused the ecosystem struggle
to emerge. Are these findings unique to our case? Do other types of
ecosystems face similar challenges? On the one hand, all ecosystems are
likely to face the inherent tensions (such as the tension between col­
lective value creation and actors' self-interest) and experience the forces
for or against specialization. On the other hand, it is likely that when an
ecosystem has a sponsor, the dynamic interplay among key elements
Y. Song et al.
may differ, resulting in a faster or slower process. Ecosystem sponsors
often have a clear vision for the ecosystem value proposition from an
early stage. The sponsors make significant specialized investments to
rapidly increase value creation in production and facilitate collective
value creation, which will minimize tension between actors' self-interest
and collective value creation and strengthen the forces for specializa­
tion, thus speeding up the emergence process. For instance, in cases of
fast-growing ecosystems such as Amazon, eBay, Facebook, and Sales­
force (Thomas and Autio, 2014), the sponsors made significant in­
vestments early on, which provided clear signals for collective value
creation and incentivized other actors to join. Similarly, ecosystem
sponsors could play powerful roles in quickly establishing standardized
interfaces, thus reducing the amount of specialized investment required
from other actors and expediting ecosystem emergence. However, not
all ecosystem sponsors are always effective at maintaining control,
exemplified by the rise and fall of the Symbian platform (West and
Wood, 2013), which might also lead to challenges during ecosystem
emergence. In sum, tensions and the forces for or against specialization
are likely to generalize to all ecosystems, but their intensity is likely to
vary. Future studies could dig deeper into conditions in which the
emergence process would be fast versus slow, how the intensity of the
identified conditions would differ, and how common would be the
struggles during the process of emergence.
Finally, while we were able to illustrate how a customer-centric and
commercially attractive value proposition developed and played a crit­
ical role in ecosystem emergence, our focus on the ecosystem level limits
our ability to address firm-level questions such as how individual firms
identify, perceive, and orchestrate the development of a strong
ecosystem value proposition. Building on our study, future research
could probe further into how ecosystem members individually and
collectively develop their perception of the potential value proposition
of the ecosystem. Ecosystem members often have diverse perspectives
on the potential value proposition due to their different experiences and
business objectives. A research question worth exploring is how
ecosystem members can engage in collaborative ideation, such as con­
ferences and forums (e.g., hackathons as a social forum for exchanging
knowledge, as discussed in Fang et al., 2021), to achieve convergence
among the diverse perceptions of the ecosystem's value proposition.
Future studies could also explore how the ecosystem value proposi­
tion gradually converges towards a more commercially attractive value
proposition that is customer centric with significant economic benefits.
In this convergence process, how do firms shift their cognitive strategies
(e.g., from technology enthusiasm to commercial application in the MSS
ecosystem)? How do entrepreneurs learn about and implement the new
commercial opportunities inherent in a commercially attractive value
proposition? The convergence process may take certain initiatives, so
future studies could further study how ecosystem sponsors (if present)
orchestrate the process so that ecosystem members collectively share
and deliver the value proposition. Such orchestration requires strong
leadership, shared vision, and a collaborative governance structure that
can create alignment of incentives, reduce tensions, and encourage
specialization.
6.3. Public policy implications
Our in-depth examination of the dynamics during the process of
14
Research Policy 53 (2024) 104932
emergence provides a helpful guide to determining how and when
public policy could help build the ecosystem. Since the private sector
lacks economic incentives to specialize during the emerging and nascent
periods, government support (such as from NASA and other space
agencies in our case) could be instrumental in addressing the risk and
incentivizing the private sector. Public policy can play a crucial role in
supporting the establishment of key elements of an emerging ecosystem.
Public policy can facilitate access to funding and financing options for
ecosystem participants, particularly those focused on customer-centric
value creation, by creating grant programs, venture capital funds, or
loan guarantees targeted specifically at ecosystem startups or innovative
projects. For instance, a small investment from the Department of De­
fense played an instrumental role in modularizing the semiconductor
ecosystem, reducing barriers to specialization, and propelling ecosystem
emergence (Kuan and West, 2023). Public policy can also foster
collaboration and partnerships between ecosystem participants by
facilitating knowledge sharing, resource pooling, and joint initiatives to
support the co-creation and realization of the ecosystem value propo­
sition. Regulatory frameworks can help stimulate market demand and
enable the delivery of customer-centric value within the ecosystem. In
all, by creating a favorable market environment, public policy can help
drive customer adoption, develop a stronger value proposition, and
expedite ecosystem emergence.
The role of government support changes as the ecosystem evolves.
Once the ecosystem becomes a thriving one, it can become self-
sustainable with reduced government support. A thriving ecosystem is
likely to have attracted private investments, established market de­
mand, and achieved profitability, thus making government support less
important. Indeed, research shows that after a long period of govern­
ment support, recent policy in NASA (Mazzucato and Robinson, 2018;
Robinson and Mazzucato, 2019) has changed to support a self-
sustainable innovation ecosystem in the space sector, leading to more
collaborative efforts from the private sector and less dependence on
government agencies. We expect the exploration of these policy changes
and implications to be fruitful, and we hope our study has paved the way
for scholars to push this research agenda forward.
CRediT authorship contribution statement
Yue Song: Conceptualization, Methodology, Investigation, Formal
analysis, Writing – original draft, Writing – review & editing, Visuali­
zation. Devi Gnyawali: Conceptualization, Methodology, Investigation,
Writing – original draft, Writing – review & editing, Visualization.
Lihong Qian: Conceptualization, Methodology, Investigation, Writing –
original draft, Writing – review & editing, Visualization.
Declaration of competing interest
The authors declare that they have no known competing financial
interests or personal relationships that could have appeared to influence
the work reported in this paper.
Data availability
The data that has been used is confidential.
Y. Song et al. Research Policy 53 (2024) 104932

Appendix A. Data analysis and final data structure

Fig. A1. Structure elements, multilateral interdependence, and nongeneric complementarity.

15
Y. Song et al. Research Policy 53 (2024) 104932

Fig. A2. Value proposition and value creation.

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