The Business of Drones: A Tale of Two Cities

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The Business of Drones: A Tale of Two Cities

The year was 1775.

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way.. “

Ah, the famous opening lines of A Tale of Two Cities. The Charles Dickens passage seems to create a sense of sweeping possibility: the age is everything and nothing at all.

Examined closely, the passage also suggests that this is an age of radical opposites with almost no in-betweens. And that is how I would characterize the current state of the small drones business – radical opposites. 

On the one hand you have the large public defense-related drone contractors like AeroVironment , maker of the Raven, Puma, and Shrike, looking now to capture commercial opportunities in the civilian market.  For our purposes they represent the London royal establishment. On the other hand, you have the small private startups like MarcusUAV and Vorobetz looking for a chance for liberty from restrictive air space regulations. They represent the Paris freedom fighters.

Just as in the novel, each city had its own drama and naiveté, so, too, do our players. While everything’s coming up roses in London, everything’s coming up dead in Paris. In fact, in Paris they are so unhappy that they’re beginning to band together as ‘citizens’ of a new republic. They are at their core a revolutionary group.  But we can’t tell that they’re revolutionaries, because they’re super-secret. For the most part, they operate their businesses in an underground – as you will see.

The Loyal Royals – As Patrick Egan points out in the article Skyjacked – The DoD Mega Billion Dollar Drone Payout, being a Department of Defense (DoD) contractor has its perks. Perks like private demonstrations of new drones, research and development at taxpayer expense – not to mention the benefits that come from large campaign contributions to key members of Senate and House oversight committees. Those benefits keep them feeding at the public trough.

But there’s trouble in that city. As the U.S. wars in Iraq and Afghanistan wind down, the demand for small drones from the DoD is declining. The declining demand shows up in the backlog of companies like AeroVironment. Three months ago they had a backlog of about $134 million, and in the latest earnings report, it dropped to about $96 million. The operating cash flow in the latest report has declined more than 30% year over year. 

So, what do you think companies like AeroVironment are going to do to offset their losses? And how do you think they will go about it?

Well, for one, they’ve already started to look toward other government agencies for revenue. Take for example what’s happening at the U.S. Geological Survey’s (USGS) National Unmanned Aircraft Systems (UAS) Project Office.  Under this program, the Department of the Interior has acquired Raven and T-Hawk small UAS systems valued at nearly $15M from the DoD to conduct proof-of-concept (POC) projects. But even if a POC works, someone would need to pony up about a half a million dollars of their scarce budget to secure a contract for just one Raven or Shrike VTOL and all the systems, training, travel and staff required. Why do that when there are proven civilian service providers that will come to your door and do the same work covering flight, post-processing, and analysis for only $3-$4 per acre?

As you can see, there is trouble ahead for this city.

The Freedom Fighters –  The way they see it, for decades the FAA has functioned as essentially a lawless agency making up arbitrary rules for small drones and enforcing them all without following fair rule-making procedures. Despite their six-year ban on civilian drone use, start-ups like Bosh Precision Agriculture and CineDrones perform commercial services every day in an underground economy.  Companies like these have been doing so – not with military-spec aircraft – but with sophisticated model aircraft. As I wrote in Drones Revolution Means Big Data Cloud Services, hardware is commoditized, and the barriers for entry are low. Their numbers are growing every day. At last count, the Remote Control Aerial Photography Association (RCAPA) has over 2,000 U.S. members. Keep in mind aerial photography is a very small segment of the civilian market. The big money appears to be in precision agriculture.

While it’s true the path of FAA regulations was supposed to have all players both large and small in a holding pattern until all the rules are settled, the scales recently tipped in favor of the small ones. The Pirker Decision finds that the FAA’s 2007 policy statement banning the commercial use of model aircraft is not enforceable. Just by looking at it through the eyes of Twitter #UAS and #drones it appears this will have a very significant impact. Even though the FAA has decided to appeal to the full National Transportation Safety Board (NTSB), those closest to the case doubt it will be overturned.

Over the next few months, you can expect small drone service providers to be more public about their ventures. Still, the Pirker Decision reinforces the gravity of the FAA Modernization and Reform Act of 2012, which requires the FAA, through the Secretary of Transportation, to develop a plan for integrating civil UAS into the national airspace. It also specifies that the plan recommend rules for acceptable operating standards and certification of civil UAS.

So enforceable rules for drones of all sizes will come. The FAA is mandated to do so. But it’s pretty clear the rule making process will not account for community based standards written by and for small business. As Egan points out, “The DoD lobby and the jockeying for a spot at the

[public feeding] trough has added years to the National Airspace System (NAS) integration for small unmanned aircraft. The byproduct of the chicanery has been the suppression and undermining of the small businessperson and academic end-users.”

The Naiveté of the Two Cities  – For the most part, start-ups are clueless about the advantage the Loyal Royals have from feeding off the public gravy train. These issues never come up in on-line forums. But the Loyal Royals’ influence is far reaching. Look no further than the list of corporate sponsors on the AUVSI website , a civilian drone advocacy group, to see what I mean. See any of the ‘Big 6’ defense contractor names there?

But take heart. Because equally clueless are the DoD contractors and their paid analysts about the power of what a model aircraft drone can do commercially or how overpriced military-spec drones are for the civilian market.  

Case in point: Here’s a simple price comparison of fixed wing drones capable of carrying multiple sensors. On the one hand, you have the AeroVironment Raven RQ-11 with a total systems cost in excess of $250,000. On the other hand, you have a MarcusUAV Zephyr2 system that goes for $17,995. Both are capable of doing mission planning and photogrammetry. Which one would you buy? Which city do you think holds the future of the civilian commercial market?

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8 Comments

  1. hotel zulu lima March 8, 2014 at 6:56 AM

    think of this period in history as the few decades that preceded the final swell and then the info tsunami of the 1980s,1990s for computer tech etc parts of that swell were artificially constrained by coldwar interests like the NSA vs Security/Crypto now we find ourselves at a similar disruptive time with our main protagonists have been set back by exposure(NSA/Snowden) and or rogue federal agency(FAA) regulatory bound to the old guard. Now those shackles have been released and we have a very brief period where we can freely establish new operating practices limited only by ethics/safety and the insurance industry of course.
    What will we wrought?

    Excellent article by the way, thank you for sharing it.
    hotel zulu lima
    ps. (my IRIS and adafruit shipments to prototype software and mapping(public labs NDVI cam shipped etc )) My own interest is in using remote sensing for agricultural safety(citrus greening and other plagues) as well as radiological monitoring for pubic safety.(treasure island here I come!literally)

    hotel zulu lima

  2. Marcus UAV March 10, 2014 at 8:05 PM

    A creative and shockingly true story of the commercial UAV market as a whole. True, restrictions in the marketplace have greatly stifled development in the commercial UAV market, but commercial demand is far from quelched.

    When big name UAV companies tout high priced UAV’s that seem good on paper, our company has shaken our heads in disgust. One common thorn in our side is camera stabilization…. why are uav companies offering uav’s which are multiple times more expensive that our own doing so with unstabilized, non-swappable payloads? Answer: Because those hungry for the technology haven’t a clue yet due to the aforementioned phenomena.

  3. Teslanedison March 12, 2014 at 9:40 PM

    The configurations by General Atomic in the global hawk glass are when scaled down a decent representation of the modular structure that a good UAS platform will have, but anyone who knows how to build a PC can see the benefits of modular technology, swappable system components, drives, cards and so on and build that themselves. As it is all the parts available off hobby king force you to build modularity. The FAA was told by congress not to get involved in RCMA (model aircraft) yet they continue to work with the AMA and even congress outlined in the 2012 modernization act that participation in a group should be necessary, yet not mandatory. With the false statements and testimony from the FAA we can expect more subterfuge in that RCMA will be forced to register with the AMA, or be under threat of fines for reckless operation. It’s an endless game played by a capricious and inept group of politicians and administrators, functionally it puts our national security at greater and greater risk by not allowing the public to invent the deterrents to criminal activities, something that governments constantly fail at in a rapidly evolving technology industry. The installment in office are of the age and background that think a Manhattan project solution is possible for everything, and that in a bind we will have time to fix the situation, that thought is ancient history, that’s like a knight in medieval times saying he’ll build a forge and a mine to build and test some armor once the enemy is at the door. Open architecture and open certification, no more complicated than a MCSE or CISCO, if anything simple as a DMV test. The FAA wants us to believe that the same tool used by a 10 year old, must require a commercial pilots license of the type that a jumbo jet pilot would have if operated by an adult for a few dollars? This issue is a modern day right to bear arms issue, and it saddens me that few can see how or why. If the civilians don’t have UAS to launch when the invasion comes there won’t be enough of us left to conduct a Manhattan project, it won’t be nuclear, likely biological, and we will have less than 24 hours to respond to networking the private UAS and automate a defense from an attack.
    The founders of this nation knew that they could never have enough guns in Armories to defend the nation, they knew that if a swift enemy arose invading this nation by night, it would take every able bodied person to defend the onslaught there would not be time to ship guns out of storage. The same is true of UAS, there will be no way to take out a fleet of foreign drones entering US airspace, the only answer is millions of civilian UAS launch able from anywhere at any time, I hope that the security establishment understand this and assist in making fully certain that civilians are secured the right and responsibility to operate a sUAS. The FAA’s tinkering in regulatory structures on this issue is directly responsible for any calamity that may fall upon us, on 911 it took citizens to bring down fight 93 while the government was thinking, and the FAA’s rules and regs didn’t stop the planes from hitting the towers, this is something I don’t care to see ever repeated, and it’s the civilian’s job not the government to defend from it. I would gladly see Huerta publicly executed for treason if this country is left defenseless for many more years by threat of his FAA, for 6 years he has terrorized small business of America it must end.

  4. […] As you know, current FAA regulations govern *all* airspace, even the 400 feet above ground in which you fly everything from a paper airplane to a kite to a remote-controlled kit-built airplane and, yes, your multirotor drone. But FAA regulations are being challenged, as I discussed here. […]

  5. Craig Newhouse April 4, 2014 at 7:17 AM

    Excellent article, and very true to the real – almost silent – war between who will “win” during this, our era: THE RISE OF THE DRONES.

    My money’s on the little guys BTW : )

  6. Chad Swan April 7, 2014 at 8:09 AM

    I would say the smaller guys (non-public DoD) are going to make out well. As the companies that have been realizing the benefits of government contracts for years, are in for a rude awakening when it will come to price points in the commercial market. “The golden screwdriver” will no longer exist …. and, unfortunately, the government agencies are going to see how much “Delta” was involved in their pricing!!

  7. […] background, I suggest taking a look at a piece I wrote back in March 2014; The Business of Drones: A Tale of Two Cities lays out the issues and the advantages of each camp. Since that time, I have attended the Precision […]

  8. […] background, I suggest taking a look at a piece I wrote back in March 2014; The Business of Drones: A Tale of Two Cities lays out the issues and the advantages of each camp. Since that time, I have attended the Precision […]

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