Why are giants investing heavily in drone companies when there is no innovative breakthrough in technology?

At the 2016 CES, drones, VR/AR, electric vehicles, etc., became a hot topic in the field of smart hardware that attracted a lot of attention. In addition to launching new models of "Phantom" and "Inspiration", DJI also released Mobile SDK 3.0 and launched the 2016 DJI Developer Competition. Ford Motor also sponsored this event. Ford and DJI hope to develop drone and car networking technology through this event to achieve search and rescue and other industry applications.

In May 2016, DOBBY and Xiaomi drones were launched successively by Zero Degree Intelligent Control. The publicity and crowdfunding activities for the Hover safe selfie drone, which was popular online, were also vigorously launched. Each of these products targeted different consumer hotspots such as portability, low price, and safe selfie.

In fact, as early as 2013 or even earlier, the wave of entrepreneurship and investment and financing in the field of drones at home and abroad had already begun vigorously. In April 2015, with the disclosure of DJI's $75 million financing plan, the company's valuation exceeded $10 billion; at the same time, XAG and EHang successively obtained financing, and the drone industry entered a period of vigorous development.

It is almost certain that there will be a huge "dream-making space" in the future for drones. According to the "2015 Civilian Drone Market Research Report" released by the research organization EVTank, the global sales of civilian drones in 2014 reached 378,000 units, accounting for 96%, with a rapid growth momentum. Among them, professional-grade drone sales accounted for 33% and consumer-grade drone sales accounted for 67%. It is expected that the global civilian drone sales will maintain a year-on-year growth of 50% in 2015. By 2020, the annual sales of global drones are expected to reach 4.33 million units, and the market size will reach US$25.9 billion.

The following table provides a brief summary of the financing situation and technical features of several well-known drone manufacturers on the market.

Looking at the above financing and product release status, combined with the Gartner technology maturity curve from 2014 to 2015 below, it can be basically concluded that drone technology has passed the early stages of the "Innovation Trigger" and "Peak of Inflated Expectations" and entered a period of steady development. It can even be predicted that in the next 5 to 10 years, a number of startups will not be able to continue, the market will begin to reshuffle and reorganize, and then enter a period of steady growth.

Hype Cycle for Emerging Technologies, 2015

Hype Cycle for Emerging Technologies, 2014

From an investment perspective, drones have now passed the early technology incubator stage and will enter a later stable development period in a few years, which is a window for steady investment.

On the other hand, the structure of consumer-grade drones for ordinary consumers, from functions to major players, has basically been determined and will soon enter the stage of product competition. Although there is no shortage of new technologies emerging, the investment window has generally passed. The concept of industrial-grade drones has only gradually taken shape in the past one to six months. Unlike consumer-grade drones, which are positioned to add fun and experience, industrial drones are based on direct industry needs and have almost stringent requirements for precise positioning of functions, high environmental adaptability and high reliability. They are directly related to user experience and market promotion, and are an area worthy of attention.

Below we will first conduct some basic technical analysis of drone technology, and then provide a basic introduction to consumer-grade and industrial-grade drones respectively.

1. Simple technical analysis of drones

At present, among the more popular consumer-grade multi-rotor drones on the market, whether it is DJI, which has advantages in flight control algorithms and gimbal control, or 3D Robotics and Parrot, which have leading technology in automatic control and sensor applications, their operating system architecture is basically composed of central processing units (MCU, early ARM models, ARM Cortex series), peripheral sensors (GPS, ultrasound, cameras, etc.), motors and motor driver chips, data transmission modules, and image transmission modules. The summary is as follows

Looking back at DJI's development history and counting the various drone manufacturers that have successfully raised funds in recent years, we can see that:

First of all, DJI's success lies in the breakthrough from 0 to 1, achieving a good balance between full manual control of drones and self-stabilizing posture + manual control, and bringing drones down from the field of professional model aircraft to the circle of ordinary enthusiasts. Playing with drones is no longer the privilege of a few professional enthusiasts.

On this basis, DJI targeted the market for aerial photography applications, and based on the characteristics of aerial photography, it continuously adjusted its flight control algorithms, developed a unique gimbal system, and gradually occupied the aerial photography market.

Since DJI, the major drone manufacturers that have emerged have not made any revolutionary breakthroughs on this basis. The flight control algorithms are all debugged based on open source systems such as APM. The main development directions include:

1) Targeting the consumer market, add smart terminal APP control to further capture ordinary consumers;

2) For ordinary players, further add drone self-control, such as no-operation hovering, automatic return, active obstacle avoidance, etc.;

3) Targeting the aerial photography market, add cruise shooting, fixed-point circling shooting and other detailed functions;

4) Specific functions for vertical application areas such as plant protection, safety inspection, and security.

In general, none of the above development directions have innovative breakthroughs in terms of technology. However, the drone industry has been favored by venture capital in recent years. In particular, industry giants such as Qualcomm, GE, and Intel have invested heavily in drone companies. On August 26, 2015, Intel invested US$60 million in Shanghai drone company Yuneec, and Intel's stock price surged by 5.5%. Prior to this, Intel also invested in two drone companies, Airware and PrecisionHawk.

In today's fiercely homogeneous competition in the drone market, why have major industry giants not given up on this market? It should be said that the fundamental reason is that in the future, drones will no longer be simple aircraft, but will become an extension of the Internet of Things and a carrier of various technologies such as Sensor, AI, CV, AR\VR, etc. Their ability to fly will provide a highly maneuverable carrier for the above technologies.

2. Highlights of consumer drones

In May 2016, DOBBY and Xiaomi drones were launched successively by Zero Degree Intelligent Control, and the promotion and crowdfunding activities of the popular Hover safe selfie drone were also launched vigorously. Each of these products cuts into different consumer hot spots such as portability, low price, and safe selfie. I believe that their selling points have touched the hearts of some consumers, which can be seen from the popularity of their crowdfunding. However, the average price of 2,000-3,000 is not a rigid demand. How many people are willing to pay for it?

DOBBY by Zero Degree Intelligent Control

Kong Xiangyu, the marketing director of Zero Degree Intelligent Control, once said that in October 2015, Zero Degree Intelligent Control launched a complete set of drone solutions based on the Qualcomm Snapdragon 801 platform. The overall drone solution based on mobile phone chips can make drones smaller, smarter, and easier to expand. Through rich expansion interfaces and onboard computing capabilities, it can provide a broader application space for many developers.

Coincidentally, in addition to Qualcomm, local IC chip design companies have also begun to get involved in the drone field. Rockchip introduced the RK3288 chip, which was previously used in Internet TV boxes, Android tablets and Chrome notebooks, into the drone field. A Rockchip official said that through this chip, Rockchip's primary goal in the drone field is currently image processing, with the main focus on anti-shake high-definition aerial photography.

Xiaomi Drone

In general, consumer drones are basically focused on the development of software and hardware platforms and market occupation, and on this basis, various functions that are close to life and increase entertainment experience are introduced. In addition, the body design is also an issue that cannot be ignored. Cases of blindness and injury caused by propellers have occurred frequently abroad.

3. Highlights of Industrial UAVs

The so-called industrial-grade drones refer to drones that serve specific vertical industries with the goal of focusing on solving industry problems and improving work efficiency.

Typical industrial drone applications include power line inspection, security inspection and protection, agricultural plant protection, forest fire prevention, aerial surveying and mapping, police and firefighting. The biggest difference from consumer-grade drones is that the demand for industrial drones comes directly from specific industries, and the operating environment is special, with high requirements for environmental adaptability and reliability.

Unlike the consumer market, the industrial drone market is still in a relatively primitive stage, with overall backward technology and market chaos. The main reasons for this situation are:

1) Lack of sales channels. Although some companies have leading technologies, a wide range of products, and high cost-effective aircraft, they lack sales channels and relationship networks, and cannot enter the government or certain large-scale enterprises' procurement catalogs, and cannot conduct large-scale sales. At present, the main revenue comes from the sales and services of drones brought by the project system, as well as ODM drones for scientific research institutes, universities, etc.

2) Single product and weak technical accumulation. For example, some companies only have one type of drone, quad-rotor drones. Since the quad-rotor drones have no power redundancy, if any propeller fails, the drone will fall. There are certain risks in industrial applications, so the scope of application is limited.

3) Products are priced too high and have poor cost-effectiveness. Although some companies have leading technical indicators in the industry, their products are priced too high and have poor cost-effectiveness. Although they have a certain sales volume due to a certain corporate and government relationship network, it is difficult to promote them on a large scale. For example, the same drone with a flight time of about 30 minutes is priced at 600,000 to 800,000 yuan by this company, while the product with the same parameters by another company is only priced at 45,000 to 60,000 yuan.

4) Team instability. For example, the founding team of a certain industrial drone company split several times. Although they had certain technologies, it affected the overall development of the company.

As mentioned above, the current domestic and international industrial drone market is still in a state of chaos.

Overseas, Silicon Valley startup Skycath focuses on engineering surveying and data collection. A typical example is its cooperation with Japan's Komatsu Group to launch the Smart Construction project. According to reports, Komatsu's Smart Construction project can enable a team of drones to survey three-dimensional maps and then guide robots to control large industrial vehicles.

Using Skycatch drones to draw maps not only saves time, but also reduces the chance of making mistakes. The drones will be equipped with stereo cameras, and the system will be able to obtain the work results (terrain changes) of construction workers and other construction machinery in the form of three-dimensional data. Then the current data will be automatically compared with the terrain data measured by drones before construction and the data of the three-dimensional completion map, thereby improving construction efficiency and managing construction progress. Previously, it took Komatsu's surveying team about two weeks on average to draw a map of an area using traditional methods. Now, using drones, all mapping work will be completed within one day.

After a field visit, we found that 3DR, a once-sensational drone startup based in San Francisco, USA, has also officially withdrawn from the consumer drone market and entered the field of engineering surveying and mapping.

In China, companies engaged in the development of industrial-grade drones include Ewatt, Zhendi, which have been listed on the New Third Board, and XAG, which focuses on agriculture. However, there are still certain problems in the manufacturing and reliability of the drones, as well as the efficient solution of industry problems.

In addition, in the recently popular field of agricultural plant protection, whether it is XAG, which has a fast market share, or ZERO and DJI, which have entered the market one after another, there are still many problems in the manufacturing of drones and application solutions, and the actual application results are not satisfactory.

As for special fields such as power line inspection, due to its all-weather requirements, there are high requirements for the UAV's wind resistance and electromagnetic interference resistance. This is a systematic engineering problem. Currently, few domestic UAV manufacturers can meet the requirements.

Borui Space, a recently emerging domestic industrial-grade UAV R&D and manufacturing company, not only has technical accumulation in artificial intelligence, machine vision and 3D mapping, but also has certain technical accumulation in multi-rotor fuselage dynamics, power redundancy design, resistance to harsh environments such as strong winds/electromagnetic interference, and is suitable for industrial-grade environment applications.

4. Future UAV investment and development forecast

So, how do we view the future development of drones? It can be said that the early concept hype of drones has passed, and technologies in various aspects such as artificial intelligence, visual assistance, and voice assistance have basically matured, and the consumer-level application level has entered a regular innovation period.

It is worth noting that the main functions of drones need to be strengthened, whether it is for consumer-grade safety design or for industrial-grade main body, control, battery, reliability, from model aircraft to industrial products, there is still a long way to go. After all, any function and industry application cannot be separated from the drone itself, which is a solid and reliable carrier.

As for investment, you can focus on companies that have a solid foundation in drone manufacturing. When drone manufacturing reaches industrial level, various vertical industries will truly enter the stage of large-scale practical application.

The content of this article comes from the "Xiangtoujiutou" micro-sharing activity. The author is Wang Guan, investment director of Share Investment, responsible for investment in integrated circuits, sensors, new devices, etc. He has ten years of engineering research and development experience in the field of electronic information and communications, and has worked in the 9th Academy of China Aerospace Science and Technology Corporation and Infinera Technologies (Beijing) Co., Ltd.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.