Early Bets Are On The Table
The drone industry start-up and emergent technology bets will shake out into three areas. In the analogy of a good old-fashioned game of poker, here are the hands currently in play:
Bet #1: Package and cargo delivery: Royal Flush—for the house.
Bet #2: Aerial observation and imaging: Pair of eights
Bet #3: Enabling technologies: Possible inside straight—interesting to Artiman.
Bet #1: Drone Package Delivery
The freight delivery majors (Amazon Google, UPS, and FedEx) are developing package delivery services using drones. Amazon’s quadcopters are inexpensive to purchase, simple to operate, and can land on rooftops. These physical efficiencies bring limitations: package payload weights and delivery ranges are limited. The technology-sophisticated Predator drones are based upon fixed-wing designs. These styles of drones can fly across long distances, remain aloft for extended periods of time, and carry heavy payloads. These flight efficiencies create issues of cost and complexity. Predators are expensive to build/maintain and require runways from which to take off and land. Not very practical for landing on a rooftop.
Google is investing in the development of drones that can fly in both helicopter and fixed-wing modes. Will they make it work? Of course. Will it matter they made it work for package delivery? That is a bet.
The scary words currently buzzing around the freight-delivery majors: “airspace regulation”. There is, however, an interesting way to bypass the inconvenience of U.S. airspace regulations, avoid the FAA.
Matternet—a start-up in quadcopter-based package delivery—is building their competitive advantages through the choices of airspace in which their drones fly. They are also developing a distributed to extend the distance and payload capacity of their quadcopters. In this site, Matternet lists their drone flight trial locations (two of which are in Papua New Guinea and Bhutan). These locations bring the market benefits of under-developed transportation infrastructure and unrestricted airspace regulation.
Core issue: airspace regulation. So, how will the package delivery hand play out? In the U.S., the answer mainly depends on the decisions made by the FAA. For long-distance package delivery, the current thought is to propose the designation of “safe landing zones”. An interesting question then emerges: will FedEx, et.al, find themselves negotiating rooftop landing rights above their stores (so employees can retrieve packages flown in by quadcopter/fixed-wing hybrid drones)?
Artiman’s call: Royal Flush—for the house. Amazon, Google, FedEx, and UPS will find a way to get airspace for drone-enabled package movement. Drones, however, are just one element of a broader logistics business. The odds on this hand are stacked in the house’s favor and against startups succeeding.
Bet #2: Aerial Observation and Imaging
The FAA currently bans the commercial operation of drones in U.S. airspace. This ban has had about the same effect as requiring a NYC cab driver to have a “medallion” so as to operate a commercial taxi service legally. Given the unstoppable proliferation of drones, I project line-of-sight flight regulations will be the first hand the FAA folds on. When this occurs, the imaging market can develop without legally inconvenient restrictions. Now, how to make money in aerial observation and imaging?
Start-ups can provide imaging services, but given the low cost of line-of-sight drones such as those manufactured in China—so can everyone else. The orbital micro-satellites are also packing aerial observation capabilities. Within three to four years, satellites from Skybox, Planet Labs, and a myriad of other firms will have the technical capabilities to take pictures of anywhere on Earth virtually every day. Given the low economic barriers to entry and the competition from above, I question the operating margins of companies that use drones for imaging services. Yet, market niches will develop for drones specifically designed to take “selfies”, private aerial images of properties, and personal events (weddings, for example).
Artiman’s call: Pair of eights. An un-impressive hand is developing in the general line-of-site imaging market. There is a start-up venture working to improve the odds already flying: PrecisionHawk. This Raleigh, North Carolina-based start-up manufactures fixed-wing drones that collect and analyze ground image data. They have specifically targeted the agriculture and emergency response industries. PrecisionHawk has raised approximately $10 million in Series B funding. Millennium Technology Value Partners led the round and was joined by two return backers (the Innovate Indiana Fund and RedHat co-founder Bob Young).
Bet #3: Drone enabling technologies
Artiman’s call: Possible inside straight. The innovators in enablement technologies may have a straight line to start-up success. Let’s play this hand out in our next article: Drone Industry Investment: Bet On The Picks and Shovels.
Read the original story of Tim Wilson, here.