Colin Snow 2016 Trifecta

Colin Snow has been tracking the UAV market since 2012. This article combines an article and two interviews in which he reviews 2016 and looks out to 2017… as well as a little handicapping of my own.

sUAS News | Commercial Drone Markets: 2016 Year in Review

In January 2016, I wrote a piece titled Six Trends Driving the Commercial Drone Market in 2016 and Beyond, which articulated that, while making predictions is not an exacting science, six trends would provide key opportunities and challenge for the industry:

  1. Competition
  2. Fidelity
  3. Sensors
  4. Mobility
  5. China Incorporated
  6. Virtual and Augmented Reality

In this post, I’ll review those trends as well as other significant news for drone manufacturers, service providers, and investors in 2016

Competition The biggest news all year was that the FAA Part 107 regulations are now in place. And they’re not as onerous as they could have been. Hurray! There has been some grousing about what’s not in the rule. But there is plenty of work that can be done under this rule.

Many think it’s a race to the bottom on prices for drone-based business services–and that’s true in part–but the other side of the coin is there is healthy competition, which delivers customer benefits. Because everyone is working harder to produce a better product.

Fidelity The desire for better fidelity – that is, better image and video resolution – is still one of the major drivers in the commercial drone industry.  This is not just true for professional drones but also consumer drones.

The trend for better and smaller, more lightweight sensors for drones—such as stereoscopic, ultrasonic, LiDAR, infrared, and spectral sensors – was hot. All of these will help drones perform tasks like collision avoidance, 3D imaging infrared thermography, or improved crop vigor analysis.

Mobility In the consumer world, the scales have tipped from PCs and TV to mobile devices.  What this means for drone manufacturers and service providers is that their application development has shifted from desktop to mobile apps.

China Inc Throughout 2016, Chinese companies both large and small entered the world market with consumer drones to establish market share or increase it. Do I really need to explain this?

VR and AR  Virtual and augmented reality for drones was a bust this year. Seriously. I expected to see a significant announcement from someone about the use of augmented reality using the data from commercial drones, but all I got was this lousy t-shirt.

What about next year?

There were some hard lessons learned this past year and they point to trends I believe we’ll see next year.  For example, take Jonathan Downey’s “8 Lessons Learned Turning Aerial Data into Enterprise Outcomes” [Jonathan presented this at CUAV Expo]. If you read between the lines, you’ll see a brutally honest confession of their hard times. Wisdom comes from experience and kudo’s to Jonathan for giving the commercial drone industry some good advice–especially #3: To drive business outcomes, provide an end-to-end solution.

But there is a scary insight from last year and it’s buried in this post by Measure: How is the drone industry moving forward? It says: “..on October 26, the FAA and the Transportation Research Board convened a workshop to aggregate stakeholder perspectives on the expected growth of the drone market in the coming years. Key issues addressed included the drivers of and obstacles to growth in the drone industry, and how best to predict market trends. The insights provided by the representatives from the commercial drone industry, defense-oriented UAV industry, government, and aviation advocacy groups will aid the FAA as it creates its next UAV market forecast.”

So, what did the stakeholders say to FAA? At the Commercial UAV Expo I heard one say they told the FAA that their forecast was too low. Most said we’re going to see tens of millions–maybe hundreds of millions–of drones flying in national airspace in the near future.”

What else would they say?  That’s what they told their investors. Insane.

Drone Radio Show | 2016 Drone Industry in Review: Colin Snow, Drone Analyst

[As you might expect, this is a podcast. Randy and his team include a transcript complete with time stamps.]

  • [12:33] Market Drivers. Videography continues to be the largest market driver for commercial drone use. Agriculture continues to be touted as a driver, but it still lags behind expectations.
  • [20:16] Market Hype. Colin follows 50+ analyst projections of the drone industry and many positively overestimate the magnitude of the opportunities. Business operators need to dig deeper into the forecasts before making major business decisions or investments.
  • [22:40] New Technologies. Autonomous systems, deep learning, greater mobility and drone racing are some of the advances from 2016 that are leading the market. Colin talks about these developments and the market impact.
  • [33:17] Eye On 2017. Colin mentions Aerotenna and Intel as two companies to watch in 2017 for their innovative products. He also sees investor sentiment becoming more focused on results, recognizing the competitive nature of the market. Companies will be scaling operations and creating their own drone services based on economic realities. In 2017, we could see the FAA allowing flights over people, progress on software defined airspace systems and more drone connectivity on the 4/5G networks. We can also look forward to more drone journalism, increase demand for drone as a service companies and more public safety and first responder users. At the same time, the commercial drone industry will have to deal with more state and local laws that restrict drone operation.

Commercial UAV News | Exploring the Present and Future of the Drone Industry – Commercial Drones FM Podcast Insights

[In a clever twist, Jeremiah Karpowicz interviewed Ian Smith, the podcast host, about his interview with Colin.]

Q Colin mentioned that he’s never seen an industry with so much aggressive speculation around growth. What do you think are some of the factors that have contributed to so such a major hype cycle?

A To quote Mugatu, “That drone industry’s so hot right now.” I believe one reason for the hype is that flying robots are intrinsically cool—if they can be used for business, even better. But really, it’s seriously odd on how wild the speculation is, the rate at which it’s coming, and the variation of the projections. Colin laid down some excellent points on how these industry reports work so if you want to understand why major investment firms and analysts are quoting a $120+ billion market potential, you should definitely give the episode a listen. I have been contacted a few times to participate in some industry reports and the actual methods in which they get their data was a bit alarming. On contributing to one report, I was asked to guess how much the thermal imaging market would be worth in 5, 10, and 15 years… how could I possibly come up with a
reliable metric?

Q When it comes to the future, Colin talked about how we might need to reconsider when that future is going to arrive, since the creation of something like a UTM is going to require major business and regulatory questions get sorted out. What sort of people/organizations/companies do you think will emerge or take charge to help find those answers?

A NASA’s UTM effort seems to get a lot of attention. They’re trying to create the answer to a very difficult challenge—a future in which there are thousands of drones and hundreds of manned aircraft operating together in a given area. The FAA has made powerful strides to bring us closer to that reality, which I applaud them for. As far as the companies that are involved, there are quite a few which are trying to play a major role. You’ve got business lobbying organizations like the Small UAV Coalition, regulatory-focused companies like Skyward, and other small/medium businesses which all play a role in making their voices heard to help find these answers. Part 107 so far has been a resounding success but as drone operations grow and regulatory concerns like beyond visual line of sight operations become more and more requested by operators, a scalable system needs to emerge. Whether it comes from the private or public sector shouldn’t matter much. I’m hoping that UTM succeeds and comes sooner than later.

Christopher Korody’s Commentary

The temptation with something like this is to either agree or disagree. But there is a middle road of sorts that is consistent with my posts over the past year and that will benefit the reader with additional color and context. This is a vast topic and no one writer or set of articles can touch on all of it.
In terms of #1&5-Competition and China Inc., the UAV aircraft industry shakeout is well underway. Frank Wang and DJI have effectively eliminated their two US competitors, 3DR and GoPro. It has become clear, most notably with the recent Karma recall, that making drones that fly reliably is easier said than done. Which makes the likelihood of a brand new company bursting onto the scene increasingly unlikely.
Thinking about Jonathan Downey’s remarks, there are only so many companies that understand the need for an integrated end to end solution and can actually deliver it. Despite their inexperience in the US market, DJI has to be near the top of the list. They are assumed to have a treasure trove of IP to go along with their parts bin and manufacturing experience. The combination will make them formidable competitors as they go up-market. Their recent AirWorks developer event, which focused on enterprise development, was clearly intended to support that effort.
Parrot – or more specifically senseFly – is another company that by all accounts has built an excellent integrated solution.  Whether they can come up with a wider range of solutions and lower price points is very much TBD since the consumer side of their business is under considerable pressure.
I am very interested to see how Intel manages the launch of the Falcon 8+ and what the channel looks like. A VAR model has historically been essential to sell and deliver an integrated solution to enterprise customers. Which means that Intel has the opportunity to create a huge competitive advantage. The combination of what appears to be a superior aircraft, their resources and their experience with the Intel Developers Forum (IDF), coupled with CEO Brian Krzanich’s commitment to the space and role on the DAC, makes them an odds-on favorite to challenge DJI in the enterprise space.
But like many other Valley behemoths, Intel has struggled with adjacencies. UAVs will be especially challenging because the numbers for the next five years are going to be insignificant by the standards of a ~$60B enterprise that is wired to grow. To say nothing of their appetite for margins north of 60%.
Other players at the top end of the market include Aeryon, Aerialtronics and a couple of others. Despite their false start in ag which Colin recently reported and we witnessed at IDE, AeroVironment’s proven Raven platform could appeal to law enforcement. Of course, that would require a pivot by a company in a less than
agile sector.
As I wrote in my recent article on standards, this is one of the key battles to watch for the next few years. The commercial customer is a different kind of customer. It will take a couple of winners to really get widespread corporate adoption going. Whether DJI owns 30 or 50 or 60% of the market is a moot point, there are many reasons that it will never own all of it.
As a reliable, maintainable aircraft becomes the price of entry, more and more of this is going to be about software that can help to reduce costs by automating various aspects of inspection. Right now Aerialtronics with their partnerships with companies like NVIDIA and IBM Watson seems to be the leader.
Meanwhile, the plaintive bleating on the various Facebook “pro” groups suggests that hard business lessons are being learned by dronepreneurs trying to build DaaS businesses. One thing that will help is the implementation of the FAA airspace authorization system which should be online in 2017. A standardized approach to waivers along the lines of “here is the recipe” would also help smaller companies.
It is worth noting that Remote Airmen applications seem to be slowing – 23,000 licenses were reported as of December 5th – put that against 13,000 in September. The FAA is touting 300/day but in fact the numbers are nowhere near that good…. Also keep in mind that the majority of the 23,000 are Part 61s. While people can and do carp about the difficulty of the test (not that hard at a 85%+ pass rate), the $150 test fee and the need to drive to any one of 699 test centers, in my opinion there are two much bigger barriers to growth.
First it is not clear that an opportunity to make a “good” living as a dronepreneur exists. I have no way of proving it, but my suspicion based on early returns in the UAV Implementation Survey, is that many of the certificates went to employees,
not independents.
Second, and we raised this point months ago, the majority of the market (customers and prospective customers) are still not aware of Part 107. And we do not know if those who are, are willing to pay a premium for a Part 107 RPIC to shoot their house or their wedding. While it is almost cliched to point at these two segments, they represent a huge geographically distributed volume of non-seasonal opportunities. They require the lowest level of business and flying skill and a comparatively modest hardware investment. I believe that these markets will become the farm or feeder system for pilots entering the industry. So not good.
In terms of the other big themes that Colin mentioned – #2 Fidelity and #4 Mobility – the notion that a drone is a flying cell phone reflects the fact that the drone market is not big enough to support much development. Instead the market will continue to rely on and reflect the major trends that are shaping consumer electronics, IT and the IoT. All places enjoying considerably more investment than the drone space.
Across the industry, there are other lessons to be learned. I commented on a story that reported that there are 10 LiDAR companies in the UAV space – odds of a horse race just pulled up lame with Velodyne’s recent announcement of a $50 solid state chip. Investor sentiment as expressed by Alex Niehenke from Scale Venture on my recent panel is “Bring me something new – the winners have already been announced for the first wave.”
AT&T and Verizon are both actively working to leverage their 4G/5G investment into a UAV network. AT&T has engaged with NASA and is focusing on cybersecurity which is very much top of mind among those guiding UTM development. That said, spectrum allocation is a wild card that will be affected by the new administration since Tom Wheeler, the current FCC Commissioner is stepping down January 20th.
The FAA will be coming under considerable pressure across multiple fronts with a new Secretary of Transportation, the upcoming Reauthorization Act, the constant threat of a drone strike, increasing concerns about security and the ongoing pressure to make it all work. All of this will figure into the Micro Rule NPRM which if all goes according to plan we should see before January 20th.
One bright spot for the FAA that will definitely help to move our needle is the ASSURE program which is getting ready to deliver a number of critical reports. Longer term, developments in Europe, Canada and elsewhere suggest that the FAA is going to have to get serious about enforcement and/or a lot better at education.
Meanwhile, as Colin notes the patchwork quilt will continue to grow, greatly complicating the job of anyone implementing a drone organization. We will be looking at that in the 2017 Commercial UAV Implementation Survey which will launch Q1 2017.
One area that was largely skipped over is the antidrone segment of the market where rapid development will continue to be fueled by worldwide government spending. Beyond the prize for the winner(s) this will benefit thinking about cybersecurity which will come back around to benefit the commercial side of the house.
Finally, like Colin and Ian, I continue to be amazed by the whole inflated valuation thing. The astonishing thing is that it takes so little to blow it up. As we have been saying for some time, under Part 107 the rule is one pilot per drone. As of December 5th, there were 23,000 Remote Airmen – well below expectation. That is not enough people to fly 600,000 drones, never mind millions. Nor is there a business case for millions of drones, though there might be by the time it becomes legal and practical to do so. Never say never…