What next in the drone industry?
For those who are familiar with the canvas business model, it would be unthinkable to not regularly look at how your company operates and where you stand in regards to your competitors.
One the greatest example of this is Amazon that realized their key resources were servers and, as they became very good at it, started Amazon web services to offer IaaS.
An easy way to see where innovation can occur, is to actually observe the Canvas of an existing company or industry which allows to see where new opportunities are but also analyze which direction innovations will go next. The Drone industry is a great use case to better master canvas business models as it is evolving rapidly yet it is still simple enough to be thoroughly represented. In this article I simply want to share my analysis of the drone industry’s evolution and point out, with the help of canvas, how we can explain its past changes and maybe predict its future evolutions (links to canvas are at the end of this post).
I was given the opportunity to work with Redbird as part of an acceleration program we hold at Business France. Since their acquisition by Airware on September 22nd, it has become increasingly interesting to look at why that move happened and how we can expect the rest of the drone industry to consolidate in upcoming months. Currently , people are talking about using drones for deliveries, mapping or even search and rescue missions, yet the only applications that truly work today are based on 2D-3D mapping and taking pictures of remote infrastructures.
Back in 2011, investments in the drone industry kicked-off on a strong note with large rounds from corporates like Qualcomm, Google and Autodesk (source: CBInsights) but also VCs like A16Z. The latters have invested in startups such as 3DR, Skycatch and Airware in order to start building drones thinking B2C would pick-up quickly and drive B2B applications. Yet it didn’t and neither did B2B offerings. The reason behind that is that the B2B applications’ value propositions were extremely weak.
To provide any value out of a drone you first need a drone (very trivial to say, I know), and getting such a complex piece of hardware off the ground (literally) is not easy. Even then, once you’ve built it, you still have to come up with a strong value proposition, meaning some kind of software or service that offers enough value that your prospects are willing to pay for it.
Both 3DR and Skycatch stopped trying to manufacture their own drones and are now focusing entirely on developing software after having laid off many employees in the process of pivoting (more on 3DR’s fall here and here, No article on Skycatch but the glassdoor employee reviews speak for themselves). Investment almost stopped (to say the least)
This trend is also confirmed if you look at drones’ corporate quarterly financing (source: CB Insights):
3# What’s next
Fast forward a few-years, the market is now consolidating very quickly. Hardware has finally taken off and is getting increasingly cheaper to make (thanks DJI). Companies now understand they need to provide their clients with strong software solutions which explains why the pace of M&A has picked up lately (source:Drone Industry Insight):
The best examples of this trend are Parrot acquiring Pix4D and MicaSense, and Airware acquiring Redbird (Kespry had simply developed a software with a clear value proposition from the start) (See the Airware+Redbird Canvas).
It’s hard to tell which way the industry will go at this point and time but we can definitely make a few wild guesses.
What we are probably going to witness are full -stackcompanies who will handle everything from making drones, to flying them (whether with a pilot or autonomously), to providing the data analysis software (basically the Apple of Drones).
This model might still be disrupted as I personally don’t believe the ultimate drone exists just yet (depending on the application you either need fixed wings or rotaries ) and making a drone agnostic software for specific application (or specific verticale) doesn’t require too much funding – especially when built outside of the U.S where developers are relatively cheap.
In short: we’re seeing large full service drone companies appear but they are still going to be under all sorts of pressure in upcoming years.
Companies developing their own drone will also continue to grow but will have to provide solid B2B services/software in the near future as, over time, it will be increasingly hard to catch up with companies like DJI (btw, I wonder when they’ll start developing or acquire drone image analysis software) and Parrot (margins on hardware sales are shrinking very rapidly).
Another possible evolution of the industry potentially leads to the formation of an “ecosystem”. With the recent funding of Hangar, we could see hardware companies monetize thanks to 3rd party drone data analysis software companies available through a “uber of drones”. This would take away the whole purpose of consolidating into one big full-service company and would also put a lot more pressure on all the existing actors ( could also imply that whoever is the middlemen could have a monopoly).
Regardless if the industry evolves into Outcome 1, 2 or some completely different type of organization here’s what I would bet money on (if I had any )’: ):
On the service end, drone pilots will disappear in favor of either autonomous drones, drones that you can be flown by a novice (they almost all allow automated flight planning now anyway) or other different solutions such as HiveUAV.
Where we will see companies get funding and actually make money will most likely be around “anti-Drone” solutions and back-end drone management / regulation enforcing applications.
So far, software companies are focusing on specific verticals so we can expect more players on new verticals to appear and either scale or be acquired.