GeoEye and DigitalGlobe Merger Brings Reliability of the Government Customer Into Question

Two years ago the National Geospatial-Intelligence Agency (NGA) announced that it awarded the EnhancedView contract to commercial imagery providers GeoEye and DigitalGlobe. The contract totaled a whopping seven billions dollars to provide a critical component of situational awareness for our country.

This unprecedented contract was a pivotal moment in the commercial imagery industry.  Government and industry were fully aligned to help the NGA meet its mission goals with the most innovative commercial solutions.

Fast-forward to today and things have changed tremendously. DigitalGlobe and GeoEye have recently approved a definitive merger agreement that will create a single global provider of commercial satellite imagery with a constellation of five earth observation satellites.

The reason for the merger?  Anticipated federal funding reductions, including cuts to the EnhancedView contract, are clearly the catalyst.   With sequestration looming and the defense contracting industry facing very uncertain times, this merger begs the question:  are contractors who rely on government customers at risk? Is the government a reliable customer?

For the commercial SATCOM industry, we are already seeing players asking the government to changes in the relationship between itself and commercial providers.

GeoEye made significant investments to support the EnhancedView contract, which put the company’s business at risk.  In addition, for more than a decade – fueled by two major military engagements abroad – government contractors were the backbone of key innovations for the warfighter.  As a result, it was a prosperous time for many industry players.

In today’s government contracting climate, industry is faced with many uncertainties.  Whether or not sequestration happens, many believe that tougher times will lay ahead in 2013.  Many contractors are looking for opportunities in areas such as cyber security, big data, cloud computing and health IT.  But will these growth areas make up for expected lost revenue from the defense sector?

In terms of innovation, the increasing focus in government contracting on competitions that reward rock-bottom prices rather than best overall value to the customer could cause many contractors to shy away from making investments into new solutions.  This is what happened with GeoEye and the result was less than ideal.

Unfortunately, there is no crystal ball that predicts how things will be in 2013, but it’s safe to say that the risk of relying on government customers is much higher now than in recent years.