Con­sumer drone busi­ness stum­bles, but com­mer­cial mar­kets beckon

Kuwait Times - - TECHNOLOGY -

The fledg­ling drone in­dus­try is in the throes of change as weak con­sumer de­mand and fall­ing prices drive star­tups to shift their fo­cus to spe­cial­ized busi­ness ap­pli­ca­tions. 3D Ro­bot­ics - an early drone startup that raised more than$125 mil­lion from in­vestors - has seen its con­sumer busi­ness all but crash. This week, it un­veiled a new com­mer­cial strat­egy, an­nounc­ing a cam­era-equipped drone with imag­ing soft­ware de­signed for con­struc­tion com­pa­nies.

GoPro Inc this week an­nounced a re­call of about 2,500 drones for a re­fund af­ter just a cou­ple of weeks on the mar­ket - some units had sud­den power out­ages - and didn’t say when it would of­fer a re­place­ment prod­uct. Europe’s Zano, which made mini-drones for con­sumers, shut down last year.

While many drone-mak­ers over­es­ti­mated de­mand from hob­by­ists, they now see big op­por­tu­ni­ties selling to busi­nesses un­der newly re­laxed U.S. reg­u­la­tions. Be­yond fly­ing ro­bots, in­vestors and en­trepreneurs see espe­cially strong prospects in soft­ware and ser­vices that can make aerial imag­ing use­ful for in­dus­tries in­clud­ing in­sur­ance, con­struc­tion, agri­cul­ture and en­ter­tain­ment. Com­pa­nies in­clud­ing Ama­ Inc and Zi­pline, a drone startup, are also ag­gres­sively de­vel­op­ing drones for de­liv­ery.

Most star­tups vy­ing to sell con­sumer drones, of­ten used for rac­ing or pho­tog­ra­phy, have been stung by China-based DJI. The com­pany has dom­i­nated by slash­ing prices. DJI dis­counted its pop­u­lar Phan­tom 3 drone, for in­stance, to about $300 from nearly $1,000 at the be­gin­ning of the year.

3D Ro­bot­ics took a beat­ing af­ter re­leas­ing its Solo con­sumer drone last year for about $1,500, said co­founder and CEO Chris An­der­son. “It’s no fun watch­ing prices fall by 70 per­cent in 9 months,” An­der­son said, re­fer­ring to DJI’s price-cut­ting.

Af­ter shut­ter­ing ware­houses and fac­to­ries and lay­ing off scores of em­ploy­ees, Berke­ley-based 3D Ro­bot­ics has all but scrapped its con­sumer busi­ness, An­der­son said, de­spite hav­ing a back­log of drones sit­ting on Best Buy stores shelves. They now sell for onethird of their orig­i­nal price.

The chill is be­ing felt widely. Ven­ture cap­i­tal fi­nanc­ing for drone com­pa­nies fell 59 per­cent in the third quar­ter, to $55 mil­lion from $134 mil­lion in the pre­vi­ous year, ac­cord­ing to data re­search firm CB In­sights. The drop re­flects a wide­spread fund­ing slump across the tech sec­tor but also height­ened cau­tion about drone com­pa­nies.

Any new com­pany try­ing to com­pete with DJI on con­sumer drones would have “an ex­traor­di­nar­ily dif­fi­cult ar­gu­ment to make” to ven­ture cap­i­tal­ists, said Rory O’Driscoll, a part­ner at Scale Ven­ture Part­ners. “Con­sumers buy drones, and it’s a dis­pos­able item,” he said. “They play with it, and then they are done.”

DJI, which eclipses many Sil­i­con Val­ley star­tups with a work­force of 6,000, be­gan mak­ing com­mer­cial drones and pur­su­ing soft­ware de­vel­op­ment more than a year ago. “Four years ago, it was enough to take some­thing out of a box, you push a but­ton and it flies,” said Adam Lis­berg, DJI spokesman for North Amer­ica. “The smart money is now in drone ser­vices.”

New rules raise hopes

The in­dus­try’s ex­cite­ment about busi­ness ap­pli­ca­tions stems in part from new Fed­eral Avi­a­tion Ad­min­is­tra­tion rules, which took ef­fect in Au­gust and of­fer a clearer path­way for com­mer­cial drone uses, though many re­stric­tions re­main. The new rules sim­pli­fied li­cens­ing re­quire­ments, mak­ing it pos­si­ble for small com­pa­nies to cer­tify them­selves to op­er­ate com­mer­cial drones.

3D Ro­bot­ics’ new plan is to out­fit the Solo with new tech­nol­ogy to cap­ture 3D images that show the shape, size and vol­ume of items at a con­struc­tion site. The com­pany joins star­tups such as DroneDe­ploy and Air­ware that are fo­cus­ing on soft­ware to make sense of images, whether it’s the an­gle of a pipe laid at a new con­struc­tion site or dam­age to a roof from a hur­ri­cane. The drone it­self is al­most an af­ter­thought. A re­port in May from con­sult­ing firm Price­wa­ter­house­Coop­ers es­ti­mated that, by 2020, about $127 bil­lion worth of labor and busi­ness ser­vices could be re­placed by drones. A sep­a­rate re­port re­leased the same month from Grand View Re­search pro­jected annual sales of con­sumer drones glob­ally at just $4.19 bil­lion by 2024. That doesn’t mean launch­ing com­mer­cial drone busi­nesses will be sim­ple. Trim­ble Inc., which makes global po­si­tion­ing de­vices, last month spun off its line of Gatew­ing drones. Al­pha­bet Inc has also pushed our man­agers and cut fund­ing for com­mer­cial drone project, ac­cord­ing to a Bloomberg re­port this week. — Reuters

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