Drones Are Doing More In U.S. Than You May Know, As These 3 Companies Show

Five years ago, the pundits predicted that by now we would be seeing tens of thousands of drones buzzing over our heads delivering everything from pizzas and burritos to the latest “must-have” item from Amazon. So what happened? Where are they? In a nutshell, they are here, but the general public doesn’t see them—at least not daily—and they aren’t necessarily delivering what was predicted.

The fact is that commercial drones fly in remote areas or over private property every day by the thousands. They’re performing work on farms, powerlines, construction sites, cell towers, and oil pads, especially in the U.S. where there are more than 118,000 FAA-certified remote pilots. Compare that to the U.K., where there are just under 5,000.

Delivering pizzas and burritos will likely be a very small part of what drones will be doing in the future. According to the largest benchmark study on commercial drones, the bulk of all current industrial use outside of film, photo and video falls into two categories: surveying and mapping land areas and inspecting and monitoring physical structures. And it’s these two uses that will continue to drive the growth of drones for industrial use for many years to come.

Three companies represent this growth and are worth getting to know: PrecisionHawk, DroneDeploy and SkySkopes. In many way,s they are emblematic of the current state of the growing commercial drone industry and provide insight into its future.

PrecisionHawk

Founded in 2010 and headquartered in Raleigh, N.C., PrecisionHawk was one of the first vendors to offer a full end-to-end enterprise drone solution stack. That stack included a drone aircraft with advanced sensors, software, analytics, and contracted services for inspecting things like oil well pads and utility lines and more. (“Advanced sensors” refers to specialized cameras on the drone that detect things like crop growth patterns.) With over $107 million in investment and more than 180 employees, PrecisionHawk has some large customers, including ExxonMobil, John Deere, Monsanto, and Verizon. They offer services in more than 150 countries and have a network of 15,000 pilots.

Two things illustrate how PrecisionHawk leads the industry. First is their regulatory experience and FAA partnership. Second is their focus on operating drones beyond the pilot’s ability to see them, or “beyond visual line of sight” (BVLOS). PrecisionHawk was one of a few companies to partner with the FAA on its Pathfinder Program, and the company’s work is informing current FAA regulations and BVLOS policy. PrecisionHawk also understands that as the commercial drone industry evolves, widespread BVLOS drone inspection has the potential to significantly change business models for many industries. With their programs and papers like “The Economics of Using Drones for BVLOS Inspections,” they educate businesses and help them evaluate when it’s best to use traditional ground and manned aviation, line-of-sight drones, or BVLOS drone inspection approaches. PrecisionHawk is unique in evaluating the costs and benefits of BVLOS operations compared with traditional operations, which allows businesses to plan an aerial intelligence strategy that delivers the most value for the money.

DroneDeploy

San Francisco-based DroneDeploy provides software that controls drone flight plans and workflows as well as processes the images they collect. They have more than 4,000 global customers mapping and assessing everything from construction progress, to disaster recovery, to agricultural crop vigor.  Founded in 2013, the company partnered with leading drone manufacturers to provide its software to operators in a variety of industries, including agriculture, real estate, mining, construction and many other commercial and consumer arenas. Having raised $56M in funding, DroneDeploy started by selling software directly to pilots and later added selling through the channel that supplies mid-size companies and then added direct sales to enterprises and resellers.

By every measure, DroneDeploy has the most popular non-OEM mapping flight application on the market. They boast that their software processes over 100 million images per year and measures more than 10 million distances a year (for instance, between objects). But they are not resting on their laurels. Drone use by surveyors and mappers is rapidly becoming more sophisticated, and as that’s happened, DroneDeploy has been pushing boundaries more than any vendor. Their app market is the largest set of industry-specific integrated applications available.

Part of what has made DroneDeploy (and the drone industry itself) so successful has been the consumerization of drone technology. What others missed but DroneDeploy didn’t was the foresight to see that the prosumer drone category would be the only place where sales volumes and margins would be strong enough for aircraft manufacturers to recoup R&D investment. That’s why, early on, they pivoted from open source-based aircraft to DJI drones since DJI is and has been for four years the dominant player in the space. Last year, DJI’s market share for drone aircraft was 74%. As a result, all the major mission planning and mapping applications like DroneDeploy and dozens more now integrate with or run on DJI’s products. Most of them started off with applications dedicated to their own drone, but soon found that most professionals want to use the simpler and more reliable DJI prosumer drones. DroneDeploy made that bet early, and it has paid off.

SkySkopes

Whereas PrecisionHawk offers a full drone stack and DroneDeploy offers software, this last company doesn’t manufacture anything. They provide drone services. And in a field of more than 30,000 service companies, very few stand out as full-time ventures—let alone as profitable and growing—but SkySkopes does. They succeeded because they specialized. Based in Grand Forks, N.D., SkySkopes started in 2014 and has grown from a small startup with four part-time employees to over 18 full-time employees and four offices across the upper Midwest. Over the years, SkySkopes has refined its focus to strictly providing aerial services for the energy industry and now has operations in California, Texas, Minnesota, Florida, and Europe.

What makes SkySkopes successful is they are not afraid to push the limits of drone technology. Their specialization in acquiring aerial data with advanced aircraft has landed them projects with CenterPoint Energy, Duke Energy, Xcel Energy and a host of others. SkySkopes and NASA have also teamed up over the past few years to demonstrate and test BVLOS use cases for the UTM project to integrate civilian low-altitude airspace and unmanned aircraft system operation. All this landed CEO Matt Dunlevy a seat on the advisory board of the Energy Drone & Robotics Coalition, the only event exclusively focused on the business and technology of aerial, ground/surface and subsea robotics in energy operations.

Together these three companies encapsulate the present state of the growing industrial use of drones. Clearly, that’s not what the media prefers to focus on since it’s not sexy drone pizza delivery. But it’s important work with great business benefits to specific industries.

This article first appeared on FORBES.com

Image credit: Photographer: Patrick T. Fallon/Bloomberg, © 2019 BLOOMBERG FINANCE LP

The War is Not Over: Why Agriculture Drones Deserve a Closer Look

As many of you know I’ve been researching and writing about agriculture drone solutions since early 2012. I recently came across this OpEd in PrecisionAg titled “Opinion: The Agricultural Drone War Is Over, And They Lost” and read it with great interest. Two and half years ago, our research indicated the same thing—that small drones might not be able to deliver more usable data to a farmer or provide a cost benefit over the existing image solutions available to them.

Even last year I had my doubts. In our June 2016 report, The Truth about Drones in Precision Agriculture, we looked at how drones have been used as remote sensing devices in agriculture thus far, reviewed competitive and traditional approaches using incumbent technology (like satellites and manned aircraft), and discussed the opportunities and challenges posed by the technology itself.

But a lot has changed since then.  Agriculture drones have matured, and so have the sensors and analytical solutions that support them.  A rising number of software vendors are targeting the agriculture space with increasingly useful solutions. And a new generation of drones is delivering much-needed functionality.

Not all agriculture drone solutions are created equal, so it pays to do a bit of research before committing. There are many factors to consider, from software compatibility to price to technical capabilities such as:

  • Can you get all the components—drone, sensor, software, and analytics—from one company?
  • Is an internet connection required in order to process data?
  • Will it integrate well with your existing tools?

The research process to find the best solution can be overwhelming and time-consuming, but there is some good news. We’ve done a fair amount of this work already which you can access in our latest report, Using Drones to Ensure ROI in Precision Agriculture.  You’ll also find a checklist there to help you determine which solution is the best fit.  Here is an excerpt:

Nearly all agriculture drone solutions process RGB color, near infrared (NIR), and normalized difference vegetation index (NDVI) data.  But not all solutions provide additional analytics and tools better matched to the needs of growers and agronomists. For example, only one solution we know of in the market allows users to view live NDVI data via streaming video while the drone is flying without an internet connection. This means you can more easily fly missions and see critical information at the field’s edge without requiring a trip back to the office. This eliminates a huge bottleneck. Most solutions require that you upload images from the UAV to a mobile device, a laptop or cloud service where they are stitched together to create a base map and the underlying spectrum data is processed into a usable NDVI layer.  In most solutions, you have to wait for that information—sometimes for hours. But with this solution you don’t have to do that, and the added benefit is you can use the time savings to gather additional inputs from the areas the real-time map shows as suspect.

The report goes on to detail the following:

  • The importance of timely inputs
  • New analytics and tools
  • The importance of an integrated solution—sensor, drone, and analytic data platform
  • The challenges of understanding ROI
  • The benefits of end-to-end solutions

You can get the report, plus an End-to-End UAV Solution Checklist for Precision Agriculture, here. 

Look for another report from us on this topic soon. If you have questions about information in the report or would like to comment on it after reading, write me at colin@droneanalyst.com.

 

Image credit: Sentera

 

Can AeroVironment Compete in the Commercial Drone Market?

AeroVironment’s new drone and cloud-based analytics platform squarely targets the commercial sector, but are they targeting the wrong vertical, too late in the game?

THE FACTS:

Earlier this month, the military and tactical unmanned aircraft systems manufacturer AeroVironment (NASDAQ:AVAV) proudly unveiled its new QuantixTM drone and a cloud-based analytics platform called the AeroVironment Decision Support System (AV DSS™).  The combo is designed with the civil/commercial markets in mind. The drone is a hybrid design that enables the aircraft to launch vertically like a quadcopter and then transition itself for horizontal flight, taking advantage of a fixed-wing drone’s aerodynamic efficiency and range.  According to the company, the drone can map 400 acres in about 45 minutes, and its overall flight time is supposed to be an hour per battery.

The Quantix is a key piece to a larger end-to-end solution AeroVironment hopes will meet the needs of the agriculture, energy, and transportation industries, among others. Key to AeroVironment’s solution is a proprietary mobile interface that works with their secure cloud-based data storage.

WHAT’S COOL AND WHAT’S NOT

It’s great to finally see AeroVironment come out with an offering dedicated the commercial drones market.  While their Puma AE was used for aerial surveys in Alaska—and was the first time the FAA has authorized a commercial UAS operation over land, this product will be the first non-military product in their lineup. So, welcome. Or should I say—I’ll welcome you when you get here. Quantix won’t be available until Spring of 2017. And the price has yet to be announced.  However, in my conversations with the company at last month’s Drone World Expo, it’s clear some among their ranks understand it will need to be priced below $20K, or it’s simply not going to sell well.

It’s interesting that AeroVironment chose to target agricultural needs with its first commercial drone. At first glance, the drone looks well equipped for that, with RBG and multispectral cameras.  But, boy howdy, are they in for some heartburn when they discover they’ve targeted the most difficult sector to penetrate. We have written again and again about the challenges drone service providers have in providing clear ROI in agriculture (and how bad the forecasts are), but I guess that won’t stop manufactures like AeroVironment from thinking they will somehow buck the trend.

The other problem I see is that their new drone is a tail sitter. Tail-sitter drones are notoriously difficult to land in any wind.  I am not alone in this assessment; see another review here. We’ll see if their system is clever enough to compensate for wind gusts, but one thing is clear: there is nothing on the drone to assure a precision landing – no vision positioning system or sense-and-avoid technology in the tail other than a two antenna GPS system. That is so “2013,” and it puts their drone in the same category as a GoPro Karma, which drifts and lands “loud and drunk.

THE COMPETITION:

Most of the companies that serve the precision agriculture market are small businesses. It was clear back in 2014 these companies were working hard to learn firsthand what farmers want from small drones. In doing so, they established networks of distributors and service providers that for the most part have locked other players out of the market.

Manufacturers of small drones for precision agriculture have long since consolidated around DJI and SenseFly because of their (or a third party’s) flight control, mission planning, data services software, and mainly their functional maturity and low cost.

The large aerospace companies and Department of Defense (DoD) contract vendors like AeroVironment do not have a presence in this sector. Even though some have participated in agricultural academic studies, those companies’ products as a whole are unknown in the farming community. They simply have not established the necessary relationships with growers, dealers, coops, agronomists, and local service providers.  As a result, it’s probably too late for them to capture any significant U.S. agriculture market share.

BOTTOM LINE:

In my opinion, AeroVironment’s entry into the commercial markets is risky. For one, they are arriving late to the party. Second, the agriculture sector in particular—at least in the U.S.—is already set. I think Aerovironment is going to struggle to move customers from established vendors.

I worry that all this will take some time for them to realize. In the meantime, there is pressure for them to perform. For years, investors have hoped that the company would benefit from the rising interest in unmanned aerial vehicles. Indeed, the recent positive performance of their stock appears to have come in part from the rise in interest in drones due to a more favorable regulatory environment in the U.S.  But it remains to be seen whether this new offering will make a difference.  We’ll see.  In the meantime, join me in welcoming them to the party.

Image credit: Skylogic Research

This post first appeared on DRONELIFE.com

Market Impact of the FAA Small Drone Rule

Barriers to entry are lower, but high margin operations are still restricted.

THE FACTS:

By now you probably know that the Federal Aviation Administration (FAA) has finally released Part 107, the Small UAS Rule (June 21, 2016), which covers operational use of commercial drones in U.S. airspace. This comes after several years of missed deadlines. You can read the FAA’s own summary of the ruling here. What’s important to note is these rules won’t be implemented until late August 2016.

WHAT’S COOL AND WHAT’S NOT:

There’s not much difference between what was proposed in the Notice of Proposed Rule Making (NPRM) in February, 2015 and the final rule. In a nutshell, the new U.S. rule is a one-size-fits-all approach that allows commercial operators to fly drones that weigh 55 lbs. or less within visual line-of-sight (VLOS) only and without obtaining a pilot’s license but with the requirement that they pass a test.

Our initial February 2015 economic assessment of the NPRM FAA Proposed Drone Rules: Market Opportunity Winners and Losers looked at the business impact and market opportunities the proposed VLOS rules would have for drone manufacturers, distributors, service providers, and investors.  Having read the newly issued Part 107, we stand by our earlier assessment and summarize it here:

  • Precision Agriculture – Winner and Loser

Demand for turnkey drone systems will increase as farmers and service providers work within the rule constraints.  However, the big caveat is drone usage alone will not “transform agriculture” just yet.  For that, we would need to see a change in the adoption rate for variable rate technology (such as applicators) — which is currently down.  Read our in-depth review The Truth about Drones in Precision Agriculture.

  • Inspection / Monitoring – Big Winner

Demand for and use of drones (especially multirotors) dedicated to asset and infrastructure inspection will see a big uptick. The new rule allows you to fly higher than 400 feet above ground level (AGL) if you stay within 400 feet of a structure (such as a 1000-foot tower), so energy, utilities, and telecommunications infrastructure stand to benefit. The rub is you can’t do night operations. So, roof inspections with a thermal camera is limited to almost useless daytime operations.

  • Mapping / Surveying – Winner and Loser

The surveying industry has the most to gain here. The door is wide open for drone operations like stockpile measurement and small open pit mine mapping.  The door is also open for laser scanning, 3D imaging capture, and data processing that architectural engineering firms can consume.  As such, there are new opportunities for dedicated and differentiated cloud-based in-memory processing data services.

  • Film / Photo / Video – Big Winner

Drones have already created new sources of demand for aerial photography, and this will continue in earnest. As with land-based photography, the financial and technical barriers to entry are low, making it easy for businesses to begin offering sUAS-based film and photography services. Now that the regulatory hurdle is low, expect aircraft vendors and specialty retailers to flourish, too.

  • Public Safety / First Responders – Uncertain

Under the proposed rules, demand for turnkey drone solutions and services for police, fire, and emergency medical services is uncertain. Operations at night – perhaps when they are needed the most – are restricted. Technology adoption by fire and rescue may be good, but adoption by local and state police agencies will no doubt be fraught with continued controversy over privacy and Fourth Amendment rights. For more information I recommend you read 3 Things Public Safety Officials Should Know about Drones.

THE COMPETITION:

A lot can be said about how drone leaders and service providers underestimate the power of competitive incumbent technologies (like satellite and manned aircraft). But there is one type of competition in the commercial drone space that doesn’t get talked about a lot, and it’s this: Now that Part 107 has been released, it will lower the barrier to entry for new drone pilots and service providers.

In theories of economic competition, barriers to entry are obstacles that make it difficult to enter a given market. Since the rules have come in as proposed—that is, with no pilot’s license required for the operator—then the barrier to entry for commercial drone services just got lowered.  It’s only natural that we’ll see an uptick of new entrants (they just have to take a test) and we’ll see downward price pressure for services offered.

We see this as a major disruption to the drone service provider market and those already operating under a Section 333 exemption.  These firms will suddenly face more competition, whether their business is real estate photography or infrastructure inspection. There simply will be more drone pilots and more drone service providers, and with that the law of demand and supply kicks in. The more supply you have, the lower prices go.

BOTTOM LINE:

Markets and businesses love regulation clarity – and with Part 107 we now have that.  But we are far away from an inflection point of “drones taking off” — if there is one. The inability to fly over people or beyond visual line-of-sight (BVLOS) restricts some high-margin operations. Because of this, in one sense we have reached a plateau. This rule took a total of 10 years to get. No one knows how long the next one will take.

This post first appeared on Dronelife.com

Five Skills You Need to Succeed in the Commercial Drone Market

These days it seems just about anyone can get an FAA Section 333 Exemption that allows them to legally use small unmanned aircraft systems (sUAS) for commercial purposes in the U.S.  As of October 20, 2015, almost 71% of all Section 333 grants have gone to firms claiming that their primary operation/mission is Film/Photo/Video (and most claim multiple uses).  This includes companies that are using drones for movies, as well as for art and real estate, among other things. Inspection and Monitoring has seen the second highest issuance rate, at 31%, while Mapping and Surveying for land and commercial construction, rounds out the top three at 20%.

Looking further into the data, AUVSI reports that at least 84% — and perhaps as many as 94.5%– of all approved companies are small businesses. While we don’t agree with their astronomical forecast (see our write-up here), we concur with this analysis.

But here’s the catch.  With the bar so low for starting a commercial drone service, what’s the guarantee these businesses will succeed? According to Bloomberg, eight out of 10 entrepreneurs who start businesses fail within the first 18 months. A whopping 80% crash and burn. So given the risk, it makes sense to assess which markets and use cases provide the best chance of success, the skills you’ll need, and the value-add services you should be offering those markets.

Here are five services we think you should consider offering as part of your commercial drone business:

  1. $ – Video
  2. $$ – Mapping
  3. $$$ – Photogrammetry
  4. $$$$ – LiDAR
  5. ??? – Spectral imaging

I’ve put dollar signs next to each service and listed them in progression to represent both the skill and value each has for potential customers. Notice I’ve got question marks there by spectral imaging.  That’s because the jury is still out on whether there is a solid ROI on this service vs. that provided by manned aircraft for precision agriculture.  Precision agriculture often gets touted as the #1 place where “drones will transform the world” but the hard reality is this is a specialized application and a very complex market.  (I have written about this extensively and you can find some very important details in a post I wrote more than a year ago called Film or Farm: Which is Largest Drone Market – Part 2?)

Skill 1 – Video

Now some of you may be wondering why I included video on my list.  We often see drone video footage on YouTube and think it’s cool. But the hard fact is commercial buyers of drone video services have a much higher standard.  So you will, too, if you want to make money in the Film/Photo/Video market.

By now you know shooting good drone video starts with selecting the right drone, the right camera, with the right lens, mounted on the right gimbal.  It’s not a secret any drone enthusiast can go out and buy a DJI Phantom Vision 3 for about $1,200 and shoot 4K video. But just because you can fly it and press the ‘record’ button does not make you a professional aerial videographer.  There is much more to it than that. For one, shooting good video requires you to be skilled in the basics of:

  • Shots (FOV, framing, perspective)
  • Moves (pan, tilt, truck, dolly, etc.)
  • Technique (zoom, action, follow, etc.)

For another, there is timeline editing.  What are you going to do with all that footage?  Hand it to the customer raw?  You could, but it’s better to have it edited or least know how it’s done so you can offer assistance or more services.  For that, you will need to be skilled at:

  • Storytelling / sequencing
  • Cuts
  • Transitions
  • Graphics
  • Lighting
  • Color grading

These aren’t all the things you need to know but if you don’t know these I suggest you get some basic film-school training and offer a better service than the kid next door with a quadcopter and a GoPro.

Skill 2 – Mapping

In researching drones and aerial photography and mapping, you might find yourself coming across new terms. One of the basic ones you should know is “orthomosaic photo” or “orthophotos.”  Orthophotos (aka ‘orthos’) are basically photos that have been stitched together to make a larger one and then corrected.  The technique is not unique to drones.  Orthomosaics have been created by aerial photographers in manned aircraft for years and used by lots of industries.

The point here is if you are not familiar with the techniques and software to create orthos, then I recommend you acquaint yourself with it because it is a valuable service for which customers in the Mapping / Surveying market will pay handsomely. There are even drone apps that automate the whole process like DroneDeploy and Pix4D.

Skill 3 – Photogrammetry

Photogrammetry is a technique which uses photography to measure the environment. This is achieved through overlapping imagery; where the same site can be seen from two perspectives, it is possible to calculate measurements. Again, this technique is not unique to drone imagery, but there is some good news here.  Off-the-shelf software, like Agisoft PhotoScan and SimActive, is plentiful and fairly easy to learn.

The hard part is providing your customer with valuable measurement information.  And the harder part is competing with firms that have been offering this service for years now using ground-based systems combined with aircraft.  For this, you will need some specialized skills and will need to be certified so that you are recognized. One way to get certification is through the American Society for Photogrammetry and Remote Sensing (ASPRS).

An ASPRS Certified Photogrammetrist is a professional who uses photogrammetric technology to extract measurements and make maps and interpret data from images. The Photogrammetrist is responsible for all phases of mapping and other mensuration requirements, which include planning and supervising survey activities for control, specifying photography or other imagery requirements, managing projects for mapping or other mensuration requirements and interpretation. You can find more information on their programs here.

Skill 4 – LiDAR

LiDAR drones are fairly new as the units have become smaller and lightweight.  But LiDAR is not new to surveyors and engineers.  They’ve been using ground-based and airborne LiDAR scanning units for years.

The good news is LiDAR drones are great for scanning small areas like building sites and getting in hard-to-reach areas like under bridges.  In this way they provide a significant cost advantage over aircraft or helicopters with LiDAR units and have the greatest margin potential as a service for the Inspection / Monitoring market.

You can get trained and become a Certified LiDAR Technologist (CLT) through ASPRS.  A CLT is technician who performs routine LiDAR collection support and first-level data processing integrating established plans and procedures.  Find information on that here.

Skill 5 – Spectral Imaging

I put this here last because, as I mention earlier, it’s not clear whether drones provide a significant cost savings to the buyer vs. the same service provided by manned aircraft for the Precision Agriculture market.  There are ROI studies being done now, but most people who provide this service will tell you that farmers aren’t willing to pay much for this service.  Why spend $4 to $5 per acre for you to fly a drone overhead and deliver a normalized difference vegetation index (NDVI) map unless there is a clear return on that investment?  Some will – like growers of high-margin crops like fruits and nuts – but most won’t. Again, this is a competitive market that demands a lot of knowledge about precision agriculture and remote sensing techniques.

I would to hear your thoughts on these skills.  Send me your comments or write us colin@droneanalyst.com.

Image credit: Shutterstock

FAA Proposed Drone Rules: Market Opportunity Winners and Losers

On February 15, 2015, the commercial drone industry breathed a collective sigh of relief. The Federal Aviation Administration’s proposed new rules for small unmanned aircraft systems seemed, at first blush, somewhat practical.  The FAA regulations will eventually allow commercial operations of drones that weigh under 55 pounds in U.S. airspace, without requiring operators to acquire a pilot’s license. You can read the full 195 pages of proposed rules here (hereafter sUAS notice of proposed rulemaking, or NPRM) and some analysis about them here, here, and here.

In this post, I’ll focus on what I think are the immediate economic winners and losers.  My analysis is concentrated on the business impact and market opportunities that the proposed rules have for drones manufacturers, distributors, service providers, and investors.

What do investors need to know?

According to CB Insights data, 2014 investments in the budding drone industry topped $108M across 29 deals. Year-over-year funding increased 104% as venture firms jumped into the drone space with sizable bets. Still, over the past couple of years, I’ve heard VCs and potential investors discussing the FAA bottleneck and questioning whether this was the right time to invest.  Regulatory uncertainty has kept many on the sidelines. But this new clarity should help investors, including those interested in investing in operational and data / information services.

Clarity comes in not only knowing what the rules will look like, but also in the FAA’s commitment to no longer regulate UAS like they do manned aircraft — and in no uncertain terms the U.S. Department of Transportation’s (DOT) understanding of the macro-economic impact of commercial sUAS. In a document captioned Notice of Proposed Rulemaking Regulatory Evaluation, Small Unmanned Aircraft Systems, the author states:

“This proposed rule would create an enabling business environment which would encourage the growth of private sector activity in the manufacturing and operating of small UAS. Therefore, the major benefit of this proposed rule is that it would enable new non-recreational aviation activities for small UAS in the NAS where such operations are currently not permitted without an FAA-issued exemption. The private benefits would exceed the private costs if there is only one UAS and that UAS operation earns a profit.”

As noted here, it’s possible this is a leaked early draft that has since been revised or is otherwise incomplete or inaccurate. [fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][Update: see comment below with link to actual doc] Still, the DOT evaluation explores in depth four potential markets: aerial photography, precision agriculture, search and rescue/law enforcement, and bridge inspection. These fall more in line with what I believe are the proper commercial market segments:

  • Precision Agriculture
  • Inspection / Monitoring
  • Mapping / Surveying
  • Film / Photo / Video
  • Public Safety / First Responders

As I see it, all of these markets are winners, but some are bigger winners than others. The devil is in the details, because success in each market depends what type of sUAS operation the sUAS NPRM allows or doesn’t allow.  The FAA summarizes these operational limitations here, and I’ll discuss each market below.

Precision Agriculture – Winner and Loser

Precision agriculture is a farming management concept based on observing, measuring, and responding to inter- and intra-field variability in crops. Precision agriculture uses detailed, site-specific information to manage production inputs. Information technologies enable segmenting a farm into smaller units to determine the characteristics of each individual segment.

For the most part, the proposed rules support the farmer’s and/or researcher’s ability to locate a precise position in a field, observe it, and create maps of as many variables as can be measured — but only on a small scale. That’s because all observation and measurement would have to be done by a drone that is within visual line of site (VLOS) of the operator. The problem is that fields and farms are big– bigger than VLOS.

Sure, operators could conduct many operations in a day by moving section to section to section and stitching together larger maps, but this is costly – both in terms of manpower and time. Even if it was cheaper, the market potential for drones in precision agriculture still needs more vetting. It’s not yet clear how a sUAS can deliver more usable data to a farmer or provide a cost benefit over the existing manned aircraft or the satellite image solutions available to them today (see Film or Farm: Which is the Bigger Drone Market? – Part 2 for more on this).

Bottom line: Demand for turnkey drone systems will increase as farmers and service providers work within the rule constraints (see my list of drone vendors serving agriculture  here). However, the big caveat is drone usage alone will not “transform agriculture” just yet.  For that, we would need to see a change in the adoption rate for variable rate technology (such as applicators) — which is currently down. So, if you are banking on precision agriculture data services, you will continue to see competition from incumbents and continue to see slow adoption for now.

Inspection / Monitoring – Big Winner

With sUAS’s ability to perform functions like perch-and-stare, video capture, and laser scanning, they are poised to replace many of the dull, dirty, and dangerous functions of inspection and surveillance. The main beneficiaries are civil and public entities that perform enterprise asset management (EAM) and facilities/infrastructure management.

Never is the benefit more evident than in the energy, telecomm, and construction verticals.  For example, the sUAS NPRM mentions power-line/pipeline inspection in hilly or mountainous terrain and antenna inspections (page 8f) as examples of possible operations that could be conducted under the proposed framework.  The DOT evaluation goes further and dedicates a whole section on bridge inspection (section IV.A.1.d. page 21ff). I would add to this structures like buildings, oil rigs, refinery flare stacks, cell towers, and wind turbines.

GIS professionals should pay particular attention to the bridge example. The National Bridge Inspection Standards (NBIS) mandates that routine inspections be performed at 24-month intervals. With almost 600,000 bridges in the United States and 300,000 requiring inspection each year, the DOT evaluation report estimates that about 45,000 annual bridge inspections could utilize some form of small UAS. Multirotors in particular are highly adept at getting into tight spaces.  With advent of smaller/lighter survey grade LiDAR, the combo provides a stable and portable platform for precision scanning of bridges. I think drone products and services that target GIS firms are hot—you can read why here.

Bottom line: Demand for and use of drones (especially multirotors) dedicated to asset and infrastructure inspection will see a big uptick. There is also now a very large opportunity for firms like Accenture and IBM to provide information architecture and data integration services for drone data to existing enterprise and mobile applications like SAP EAM and Oracle EAM.  I also see opportunities for companies to provide motion imagery, video analytics, object recognition, and image metadata processing solutions.

Mapping / Surveying – Winner and Loser

As I mentioned above, the new rule supports the ability to locate a precise position, look at it, and collect the data to create maps on a small scale. Again, that’s because all observation and measurement would have to be done within VLOS of the sUAS operator. The problem here is many mapping projects are bigger than what can be captured in VLOS.  As in the precision agriculture example, operators could conduct many operations and stich together larger maps, but this may be more costly than what can be currently conducted by manned aircraft.

Rules aside, good solutions exist today that support autonomous missions beyond line of sight (BLOS) and therefore create large maps in one flight.  Some investors in this market may be disheartened by the proposed rules that restrict flight to VLOS, since so much effort has been put into autopilot / mission planning / ground control solutions.  Nevertheless, almost all of the existing solutions provide semi-autonomous flight capability where the operator is still in control (or can take back control). You just won’t be able to fly multiple drones at the same time. The proposed rules are one operator, one drone.

Bottom line: The surveying industry has the most to gain here. The door is wide open for drone operations like stockpile measurement and small open pit mine mapping.  The door is also open for laser scanning, 3D imaging capture, and data processing that architectural engineering firms can consume.  As such, there are new opportunities for dedicated and differentiated cloud-based in-memory processing data services.

Film / Photo / Video – Big Winner

The DOT evaluation dedicates a whole section to aerial photography (section IV.A.1.a. pages 16ff).  It says:

“Small UAS industry experts have informed the FAA that a proposed rule could enable a viable market for small UAS aerial photography.  These unmanned aircraft operators would likely specialize in low-altitude aerial photography and video. Consequently, once a small UAS aerial photography market becomes established, it would increase safety by substituting an unmanned aviation operation using a very light aircraft for a more complex manned aviation operation that uses a much heavier aircraft.”

Really? The photographic, film, and real estate industries have known for years small UAS are a more viable and less costly substitute for manned aerial photography.  It’s also no secret that this market is already established and towers above all others both in revenue and number of existing service providers (see what I wrote about that here).

Bottom line: Drones have already created new sources of demand for aerial photography, and this will continue in earnest. As with land-based photography, the financial and technical barriers to entry are low, making it easy for businesses to begin offering sUAS-based film and photography services. Now that the regulatory hurdle looks to be low, expect aircraft vendors and specialty retailers to flourish, too.

Public Safety / First Responders – Uncertain

The DOT evaluation dedicates an entire section to “Search and Rescue/Law Enforcement” (see section IV.A.1.c. page 19 ff).  It describes how small UAS missions can create significant cost savings to federal, state, and local government entities because they offer a more economical alternative to manned helicopters. The report estimates (page 20):

“…a significant number of public entities will contract the services of a small UAS operator. … The FAA and industry expect that some of the larger public entities would train their own operators and purchase and operate their own small UAS. The majority of the smaller public safety departments that could not afford to train their officers to fly a small UAS would contract these services out to commercial small UAS enterprises as the need arises.”

If true, this would create a viable market. But there a few catches. The first catch is the proposed rule does not allow sUAS operations at night. The second is there are or will be local rules to contend with that prohibit certain types of operations, like surveilling criminal suspects.  The third is the recent Presidential Memo creating standards for how government agencies and some recipients of federal funds will address the privacy issues associated with drones.

Bottom line: Under the proposed rules, demand for turnkey drone solutions and services for police, fire, and emergency medical services is uncertain.  Technology adoption by fire and rescue may be good, but adoption by local and state police agencies will no doubt be fraught with continued controversy over privacy and Fourth Amendment rights.

Conclusions

Almost all drone industry insiders expect the clarity about forthcoming rules to foster investment that will create new jobs and spur economic growth — if not now, certainly when the proposed rules become law in 2016 or 2017. Expect then to see increased productivity, improved worker safety, and saved lives.  In the meantime, the FAA wants to hear from you about the proposed rules (see 31 Questions the FAA Wants you to Answer).

I would love to hear your thoughts about the proposed rule for commercial drone use. Feel free to comment or write me at colin@droneanalyst.com.

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Commercial Drone Markets: 2014 Year in Review

Judging by the headlines, 2014 turned out to be the year for drones. I referenced in Tweets a total of 503 articles with the word ‘drones’ in the headline last year.  A Google search brings up about 61.4 million results referring to ‘drones.’  Granted, that search includes references to military and hobby drones, but it still delivers higher results than other years.

If the first theme of 2014 was the rise in popularity of drones, the second theme was how hamstrung the commercial markets are in the U.S. because of a lack of regulations. But there’s more going on than the buzz and frustration with FAA progress; in this post, I’ll review what I think were the five most significant commercial market trends for drones in 2014.

  1. ‘Drones’ Got Hyped

As mentioned, 2014 brought lots of hype about drones in the media, and investors can’t tell fact from fiction.  Here’s one example where a writer and industry analyst asserts that the civilian commercial market for unmanned aircraft systems (UAS) will dwarf that of the military. But the evidence shows otherwise. My colleague Mitch Solomon summarizes the problem well in this article:

“Venture investors have a huge variety of questions about the commercial drone market, but two stand out in terms of their importance.  The first is: what is hype and what is reality?  Put another way, is this market really a big, high growth, high margin market?  If you rely solely upon media hype and AUVSI [fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][Association of Unmanned Vehicle Systems International], your answer would be an unequivocal: yes, the commercial drone market is the biggest, highest growth, best new market opportunity to come along in decades (or maybe centuries…AUVSI shows the US commercial market at over $1 billion in the first year after regulations are approved by the FAA.  (Really?!).”

Like Mitch, I’m not so quick to buy the media hype or AUVSI’s forecast (for more on that, see this article), and my market view is much more pragmatic and measured. Still, if tier-one venture investors are asking questions about the hype, then that is a good sign. It means that while there is interest in the space, investors will need to work smarter to make sure capital won’t be wasted chasing fictional opportunities.

  1. Oil and Gas Inspections in the U.S. Got a Frivolous Beginning

While drone inspections of land-based refinery flare stacks have been permitted in other countries for some time, it wasn’t until June of this year that the FAA granted permission for the first commercial drone for this industry in the U.S.  Problem is, it wasn’t for the same purpose. That permission went to oil company BP and drone manufacturer AeroVironment to fly aerial surveys of over Alaska’s North Slope.

The lack of real-world consequence of this permission is best stated in this article. Until June, the FAA has approved drones for public safety, such as police or firefighters, or for academic research, on a case-by-case basis. Most of those cases were for use cases similar to flare stack inspections (perch and stare) and were for small, versatile drones with relatively low-cost technology.  But this was for an expensive 10-year-old military spec fixed-wing drone that has limited commercial viability. As the article states:

“The FAA is essentially using the military’s prior experience with this specific drone platform in place of the agency’s airworthiness certification requirements, so it is not an option for people hoping to use the newer drones being designed by high-tech startups that are not involved in military applications,” [Brendan] Schulman said. “It is a small step in the right direction but really only for companies who want to operate in very remote locations using military surplus equipment.”

  1. Drone Cinematography Came Out of Shadows

As this research points out, filmmaking, video, and photography drones have flown commercially without FAA authorization for years now.  It’s no surprise, then, that this is the biggest and most mature commercial market for drones. Notwithstanding, drone regulation was among many issues the Motion Picture Association of America (MPAA) lobbied on in 2012 and 2013, at a total cost of $4.11 million. The MPAA has been constantly appealing to the FAA to let them use smaller drones for film-making purposes. It seems that lobbying paid off.  In September, the FAA granted regulatory exemptions to six TV and film production companies to operate drones on sets: Astraeus Aerial, Aerial MOB, HeliVideo Productions, Pictorvision, RC Pro Productions Consulting, and Snaproll Media.

There is a catch here.  Operators are required to hold private pilot certificates. This has many scratching their heads.  Why do commercial remote control operators need to learn how to land a Cessna when they’ve been operating these drones safely for years as ‘hobbyists’ without that requirement?

  1. Agricultural Drones Got A Reality Check

A reality check is an assessment to determine if one’s circumstances or expectations conform to reality.  This certainly is the case with the market for agricultural drones.  It needed a reality check because of the hype created by AUVSI study titled The Economic Impact of Unmanned Aircraft Systems Integration in the United States. It claims precision agriculture and public safety will make up more than 90% of the market growth for unmanned aerial systems. The report confidently states, “…the commercial agriculture market is by far the largest segment, dwarfing all others.”  To this day, that fiction gets repeated over and over again in the media.

The market potential for drones in precision agriculture needs vetting—see Film or Farm: Which is the Bigger Drone Market? – Part 2 for my thoughts on this. It’s not yet clear how a UAS can deliver more usable data to a farmer or provides a cost benefit over the existing image solutions available to them today. But don’t take my word for it–watch this video of Rory Paul at the 2014 sUSB Expo for his take on the misconceptions about this market.

  1. The GIS Market Heats Up

Back in the spring, GIS software market leader Esri published this article about how drones greatly benefit the work of professional surveyors and mappers.  Devon Humphrey states it clearly:

“Due to the unique flight characteristics of UAVs, the imagery is sharper and offers some unique advantages. This means that the camera captures high ground resolution on the order of two to five centimeters. In addition, because there is a large amount of overlap in the imagery, digital photogrammetric processing results in 3D point clouds of similar resolution. Turnaround time is a few hours, instead of days, weeks, or months in the case of traditional delivery times. The user also controls the process rather than working with an outside vendor or being stuck using “day-old donuts,” generic imagery that doesn’t meet the temporal requirements.”

He is not alone in that assessment. I think this market is heating up to become the second biggest commercial drone market behind aerial photography and cinema and ahead of precision agriculture. In a nutshell, I believe the GIS market will continue to grow rapidly because drones provide a technical advantage over incumbent aerial technology and incumbent technology costs more.

What should we expect in 2015?

A lot depends on the forthcoming small drone rule from the FAA.  If it looks at all like the exemptions granted this year (which have onerous restrictions), then U.S. commercial market growth will be seriously hampered.  This should be no surprise to anyone.  Much has been written on how government regulations hinder economic growth (for example here and here).  Still, in other countries with smarter regulations, expect these and other markets to continue to flourish and those over here will be looking at the success stories with envy.

You can find more insights from 2014 on these SlideShare presentations.  I would love to hear your thoughts about the commercial drone markets. Feel free to comment or write me at colin@droneanalyst.com.

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Five Reasons the AUVSI Got Its Drone Market Forecast Wrong

My guest blogger is Mitch Solomon of Aironovo and this is an excerpt from his post which we developed together. You can find his post here.

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Since its publication in early 2013, AUVSI’s The Economic Impact of Unmanned Aircraft Systems Integration in the United States has become the gold standard forecast for the commercial drone market, garnering media attention typically reserved for celebrity weddings and babies born to royalty.  Its primary forecast is that the UAS market will reach a whopping $1.14 billion [fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][1] in the first year after the FAA issues favorable regulations and that the precision agriculture market will “dwarf all others.”

The accuracy of these predictions is enormously important. A lot of people – tens of thousands, if not more – have been relying upon them for big decisions like, “Should I leave my job to start a drone company?” or “Which market should my company pursue?” Commercial drones are not just cocktail party conversation–they are increasingly driving the flow of capital and labor, and impacting many lives in the process.

Inquiring Minds Want To Know

Recently, however, a growing chorus of industry observers has started to ask questions about the reliability of AUVSI’s findings. This post is a good example. These individuals, many of whom are among the true pioneers in commercial UAS usage, can best be characterized as enthusiastic but pragmatic UAS evangelists who don’t want to see unwarranted hyperbole lead to unmet expectations.  Many realize that initially overhyped industries never recover because customers, investors, and employees who were burned in the initial wave of unmet expectations are difficult—if not impossible—to ever win back.  They are passionately committed to the industry’s success and believe that rational expectations are a key part of it.

With no axe to grind or agenda to advance, I [Mitch Solomon] partnered with Colin Snow @droneanalyst to explore whether the skeptics and pragmatists were on to some something.  We felt our combined backgrounds in market intelligence and tech market strategy would give us a reasonable set of expertise to draw upon and would help others form a more balanced opinion of AUVSI’s forecasts.  So over the past several weeks, we’ve been carefully reviewing AUVSI’s report, as follows:

  • Compared their research methodologies to what we believe to be best practices in market research based upon our own experience.
  • Conducted an in-depth interview with the researchers themselves, so that we could directly ask them questions about their methods and results that were not made clear in the report.
  • Initiated a follow-up discussion with AUVSI leadership to understand their perspective on the report and its origins.
  • Performed intensive primary research with about 20 carefully selected professionals in the field of precision agriculture to understand their UAS adoption plans, since the report’s findings are almost entirely based upon rapid adoption by American farmers.

We then synthesized our findings into the following five conclusions about the report and its reliability.

  1. Research Can Be Objective, But Don’t Assume It Is

First and foremost, every reader of AUVSI’s report needs to understand that it is not an objective piece of research.  The report was commissioned not to paint an accurate picture of how the commercial UAS market is expected to evolve, but to give the 50 states and their elected officials the data they needed to:

  • lobby for funding during the now completed FAA-sponsored competition for UAS test sites, and
  • push the FAA to move more quickly on the integration of UASs into the national airspace.

These are certainly worthwhile goals, and AUVSI should be commended for pursuing them.  But as a direct result, the implicit (if not explicit) mission for the two researchers who did the work was to come up with the biggest numbers – the largest market, fastest growth rates, and biggest costs of delaying integration – that they could.  An objective attempt to size, segment, and forecast the commercial UAS market (all of which the report appears to be), is something it never actually was, and we believe it’s critical that all participants in the UAS industry know this and avoid making decisions based upon it.

  1. Methodology – Boring But Oh So Important

A biased agenda is only one part of the story regarding the reliability of AUVSI’s findings.  An equally important part is the quality and reliability of the research methods.  Generally speaking, strong research methods yield highly defensible results.  While presented somewhat differently in the report, the methodology used by the researchers can be summed up as:

  • Studying UAS adoption in Japan
  • Adjusting the Japanese experience for the US market
  • Asking experts how big they think the market is / will be
  • Applying research on new technology adoption to the US UAS market

As experienced researchers, it sounded pretty good to us at first.  But, unfortunately, it did not hold up very well to careful scrutiny.

  1. Japan – When the Best Available Proxy Just Isn’t

We like the idea of searching for analogous markets and scenarios that can serve as the basis for forecasting the US market.  The question is: Is Japan an analogous market for the US? We believe that the US and Japan are so different, and the magnitude of the required extrapolations so enormous, that the resulting data is not useful.  Most in the industry already know that Japan’s UAS market remains dominated by one product, the Yamaha RMAX (77% market share in Japan), which is used to spray a large percentage of the country’s rice fields.  These fields tend to be small (less than five acres), are often in densely populated areas, and are located on steep hard-to-reach hillsides.  In contrast, rice represents a tiny percentage of US agricultural output.  Our farms are comparatively huge (very often running well into the thousands of acres).  No single product, much less a relatively large, unmanned helicopter from Yamaha is likely to dominate the American market.  And remote sensing, not pesticide application, is almost certain to be the dominant use of UAS for the major US crops of corn, wheat, and soy.

While we understand that Japan has been the most aggressive adopter of commercial UAS technology as a result of its rice industry, and we appreciate the resulting temptation to use Japan as a proxy for the United States, we see such a large disparity between the agricultural economies of the two countries that we find it impossible to draw any parallels that inform how the UAS market in the US will evolve.  And while no other country serves as a better proxy than Japan, the absence of a better alternative cannot justify the use of a bad one.

  1. Expert Opinions or Really Just Guesses?

Another method used by the researchers is referred to as “survey results.”  In short, the researchers conducted 30 telephone interviews with industry experts and asked many questions, including those regarding two critical matters: the size of the commercial UAS market, and the relative size of key market segments.  The responses were then used to develop “reasonable estimates.”  On the surface, the approach of asking experts for their opinions seems sensible whenever you’re conducting research.  However, many of the experts that were consulted were hand-picked by AUVSI, which immediately introduces the possibility (likelihood?) of bias given its agenda.

Perhaps more important, not every question is one that experts can necessarily answer well.  Certainly UAS industry experts would generally be well prepared to share their opinion on whether fixed wing or rotor aircraft will be more useful for particular applications, or what regulations make the most sense for the small UAS market.  But the idea that you can ask experts for opinions about the size of a market and obtain meaningful results is, we believe, inherently flawed.  Unless these experts were professionals focused on sizing, segmenting, and forecasting the commercial UAS market (and nothing close to 30 such professionals exist), the opinions voiced by the “experts” are nothing more than guesses, akin to asking 30 people how many clouds there are in the sky and expecting to get the right answer.  Our experience in sizing markets, and in working with many experts across a wide variety of markets over many years, gives us considerable confidence in stating that very few people have good insights into how big a market is today, much less how big it will be years from now, even if they work directly in it.  The lack of insight is only compounded for complex, nascent markets like the one for commercial UAS.

  1. A Brief Literature Search Isn’t Really a Research Method

The final method used by the researchers was a “brief search” of “literature…on rates of adoption of new technologies.”  The authors explicitly state that they could have gone deeper in investigating how this research might apply to UASs, and that a follow-up study on this subject is recommended.  That they simultaneously cite the use of the literature as one of their four methodologies, yet characterize their search of the literature as “brief” and recommend a follow-up study raises serious questions.  From our perspective, the brief use of literature on technology adoption trends is far from a true research method. It’s more akin to subject matter expertise and qualitative insight that professional researchers might use to inform or validate a forecast they developed with rigorous quantitative techniques.  How it was actually used and what value it added to the research is unclear, other than allowing the authors to make the statement that because UAS are already being used “….we reject the notion that these products will not be adopted,” a statement that even a layperson with little or no knowledge of UAS could likely have made.

In sum, we see a methodology that erroneously uses Japan as an analog; uses experts for answers that are really just guesses; and relies upon a loose, limited, and ambiguous application of prior research on new technology adoption to validate the statement that UAS will, in fact, be used in America.  As much as we want to support AUVSI, the authors, their methodology, and the research results, we simply cannot.

Sometimes You Get Lucky

As a final point, we do need to acknowledge (and quickly refute) the possibility that despite the flawed methodology, the research findings are reasonable, by pure chance.  Perhaps, as the authors assert, the US commercial UAS market actually will be at least $1.15 billion in the first year after rules are approved.  And perhaps 80% of this, or roughly $900 million will be driven by the precision agriculture market.  But at the risk of disappointing the reader, and with a view toward keeping this post a reasonable length, suffice it to say that while we have high expectations for the US commercial drone market, we do not see a billion dollar market in year one.

We base our position on the deep understanding we have developed of the precision agriculture market, which is at the heart of AUVSI’s forecast.  Indeed, the many in-depth interviews we’ve conducted with farmers, precision agriculture vendors, crop scientists, crop scouts, agriculture equipment dealers, input vendors, academic researchers, manned aircraft operators, satellite imaging providers, UAS-service providers, and many others indicate a building interest in the use of remote sensing in general, and in UASs in particular, but do not support the notion that a mad-dash by farmers and their consultants to use UASs is underway or right around the bend.  And after looking at many other vertical and application markets for UAS, we do not see any – not public safety, inspection, photography, mapping or a variety of other possibilities – that can close the resulting multi-hundred million dollar gap in the AUVSI forecast created by the much slower adoption we see in precision agriculture.

Acknowledging the Effort

Of course, it’s easy to critique the work of others, and hard to do the work yourself.  In defense of the report’s authors, we need to acknowledge that they did a lot with a little.  They had a budget to work within that was much smaller than is typical for an assignment of this complexity, and they invested much more time and effort than the budget allowed.  Like virtually almost everyone else in the brand-new (some would say still non-existent) commercial UAS industry, they had limited prior exposure to the commercial UAS market, making their learning curve steep.  And they had complex agendas to meet in order to satisfy their client, AUVSI, and its many stakeholders.  In light of the foregoing, there is much for which they should be commended.  But creating a forecast for the commercial UAS industry that participants can rely upon for critical decisions is not one their accomplishments.  Indeed, it’s not what they set out to do in the first place, so they can’t really be faulted for not accomplishing it.

Looking Forward

As we look to the future of the commercial UAS market in America, we believe the need for reliable data and insights is more acute than ever.  Critical decisions about products, markets, channels, and operational best practices are being made daily, even as we write. UAS technology vendors, service providers, and end-users are relying on intuition, gut feel, or data that is very likely misleading.  Some decisions will still turn out to be right, but many others will unnecessarily result in big missed opportunities, significant wasted time and resources, disappointed customers, angry investors, disgruntled employees, and many other negative outcomes that certainly could have been avoided.

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[1] AUVSI’s forecast implies a UAS market that is likely significantly greater than the $1.14 billion in 2015 shown in the report, because it does not address the large part of the market that is currently being satisfied by offshore vendors.  The $1.14 billion represents only product supplied by US manufacturers of UAS.  It may also fail to include industry profits, though further investigation would be required to confirm this.[/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]

Film or Farm: Which is the Bigger Drone Market? – Part 2

This is Part 2 in a two-part series that summarizes my views on why video/film/cinema – not agriculture and farming — will be the largest driver of sUAS commercial businesses. In Part 1, I explore thoughts on the market for video/film/cinema, and below I outline why I believe agriculture will lag in market uptake.

The March 2013 market study produced by the Association of Unmanned Vehicle Systems International (AUVSI) titled “The Economic Impact of Unmanned Aircraft Systems Integration in the United States,” says precision agriculture and public safety will make up more than 90% of the market growth for unmanned aerial systems. The report confidently states, “…the commercial agriculture market is by far the largest segment, dwarfing all others.”

I don’t buy it, and here’s why:

Let’s start with the AUVSI forecast.  Read what one commenter said in my last post:

“There is a basic problem with the AUVSI study methodology – it took the total arable land area of Japan and divided it by the number of registered UAS performing agricultural roles in that country to provide a demand factor. It then divided the total amount of arable land in the United States by that same demand factor and used this to forecast its prospective future demand for the agricultural sector as a whole. The problem is, the Japanese agricultural land areas do not correlate in size, capacity, or type of agriculture as performed in the United States. In fact the Japanese usage is largely restricted to spraying of rice paddies on small allotments as a replacement for labor which has shifted to the cities. The only possible comparison that the Japanese land area to UAS numbers ratio that could have potential validity is to compare the Japanese ratio with the total amount of land used in rice cultivation in the United States. That is a very different equation than that used by the AUVSI study and can be predicted to give a very different set of economic figures as a result. AUVSI has used very bad modelling to build its argument on, and its figures should be used very, very, very cautiously.”

He’s right.  So how do we get a proper forecast?  That will take some time to work out and look for material from me on that later. For now let’s look how modern agriculture has historically adopted and used technology, because the devil’s in the detail.

The farmer and the satellite

With the launch of the Landsat 1 satellite in 1972, NASA funded a number of investigations, including one that  examined the spring vegetation green-up and subsequent summer and fall dry-down throughout the Great Plains region of the Central U.S. The researchers for this study found a way to quantify the biophysical characteristics of vegetation from the satellite images.  They were able to calculate the ratio of the difference between the red and infrared radiation being reflected back by plants on the ground as a means to determine the vigor of plant life. This led to a metric known as the Normalized Difference Vegetation Index, or NDVI.

NDVI attempts to simply and quickly identify vegetated areas and their condition, and it remains the most well-known and used index to detect the health of live green plants today.  Since early satellites acquired data in visible and near-infrared, it was natural to sell it packed up in maps to farmers.

NDVI allows agronomists and producers to identify problem areas and make timely decisions. Scouting maps can be requested at key dates as guidance for field visits. NDVI-based scout maps show variations in the field, so users know where to look in the field to determine where corrective or preventative measures are needed. Users can plan their field visit locations, take it to their GPS or a printable pdf report, and accurately evaluate the reasons for in-field variability.

Monitoring fields

NDVI maps are also used for monitoring fields, detecting anomalies, and for estimating crop yields. A strong correlation has been demonstrated between yields and NDVI at certain crop growth stages, as described in this research.  Besides satellite-generated images, farmers also have access to more resolute imagery taken from manned aircraft.  They can subscribe to a service like Terravion and GeoVantage to get NDVI maps every week if they like. The greater the frequency, the lower the cost per acre.

Here’s the rub: use of aerial imagery all sounds great until you start to look at the numbers. According to this report, only 21% of service providers (referred to as dealers in the report) who offer aerial imagery say it’s profitable, and it remains less profitable than other precision application services.

To spray or not to spray?

Here’s more interesting detail from examining how farmers are using technology today. Farmers know that plant growth regulators, insecticides, herbicides, fungicides, and mid-season fertilizers applied to selective locations can be effectively used to maximize farm output. Since NDVI maps from satellites or manned aircraft show variation of biomass within a field, farmers can divide those differences into management zones and address crop issues with variable rate spray applications (i.e. use more of this nutrient here, less of that pesticide there).  The idea is to minimize costs while increasing yields by using as little as possible of expensive inputs, applying them precisely where and when they are needed.

But here’s some breaking news. The vast majority of farmers do not use variable rate prescriptions, and the trend is currently in the wrong direction. This well-regarded survey says variable rate pesticide application usage decreased from 22% of all farmers in 2011 to 16% in 2013. And it seems there is low adoption of aerial imaging when it comes to providing guidance for targeted nitrogen application as well. Nitrogen fertilizers, which are expensive, are one way farmers are able to achieve the high yields we see today with modern agriculture. But a recent poll of Iowa farmers’ nitrogen management practices show only 25% of corn and soy farmers use aerial imagery to reduce nitrogen application.

The key takeaway is this: farmers already have data-driven tools available to them to make better crop management decisions, and the vast majority are not using them.

The farmer and the drone

Today, farmers have access to low-cost drones with cameras and image sensors on board.  These can be purchased for a few thousand dollars and flown by the farmer himself, or if they are lucky – and regulations aside – a local service provider.  Basically, the drones can produce the same NDVI images and maps that specialized satellite or manned aircraft image specialist do – only now with much higher resolution images.

You would think farmers would be thrilled with the combination of higher resolution images and more precise GPS coordinates, since it lets them identify problem areas within a few feet of accuracy.  In some cases, that is true, and others it is not. A higher resolution means you see more detail – detail that actually may detract from the usefulness of the image, like when it shows a shadow.  Is that a shadow or a bad crop area?  Hard to tell from the picture.  For that, you need to see it with your own eyes, as is done with crop scouting.

Crop scouting – the act of inspecting crops to look for problems such as pests, weeds, irrigation issues, and so forth — is generally done today via a simple drive-by in a pickup or an ATV.  Scouting is not a perfect science, and neither farmer nor service provider can assess every plant’s health and crop pressures. However, small drones are portable, and users can fly them over a field and see real-time images on a monitor. Since many farmers go out and scout their crops every couple of weeks manually, a drone crisscrossing the air could perform that work much more effectively. This helps cut down on the time identifying areas that need detail scouting and helps give the proper inputs on where to eventually spray weed control or pesticide, or even determine when it is time to harvest.

Beyond clarity of regulations, what’s missing for widespread adoption?

With the total value of our nation’s crop estimated at $140 billion per year, even a modest improvement in yield would have a substantial aggregate economic impact. However, it’s not yet clear how a UAS can deliver more usable data to a farmer or provides a cost benefit over the existing image solutions available to them today.

What seems to be missing from today’s solution is the expertise to interpret the data, correlate it with what is actually happening on the ground, and recommend a course of action.  Services that deliver aerial imaging can provide the data, but someone needs to invest the time, money, skills and software to get actionable insight from it. Right now, it appears that’s not being done well by the dealers who already offer imaging from satellites and manned aircraft. How’s that going to change when they start offering imagery from drones?

Here are few more questions:

  • What’s the incentive for a farmer to adopt a new imaging technology when 75% of farmers (at least in Iowa) don’t use what’s available to them now and dealers countrywide say it’s not profitable?
  • How will drones change that equation?  Why will farmers or crop consultants invest the money, time and expertise analyzing UAS-derived datasets if they aren’t doing the same with the manned aircraft or satellite derived data they can already purchase?
  • How will UAS service providers convince farmers that their data is more valuable, more actionable, and has a high ROI when so many farmers seem to be relatively uninterested in data in the first place?
  • Are farmers prepared to adjust their field operations and personnel to be data driven, and how will they make this happen?

I’m not saying that farmers won’t use UASs to improve their operations.  Some absolutely will, and in fact, some already are.  But given all of the underlying complexity, it does beg the question: Is agriculture really the biggest UAV market, “dwarfing all others” as AUVSI asserts?

My answer: I don’t think so.  To date, I’ve seen no research that really digs into the critical questions underlying the use of UAS in agriculture and shows the rationale supporting massive, rapid adoption; this despite the massive bets – in terms of time and capital investment – that are already being placed.  With so much at stake, I’m thinking that should be the subject of a considerable research study, one that I am currently formulating.  Stay tuned for details. Until then, my bet is that film – not agriculture — is the biggest sUAS market.

What do you think? I’m interested in your comments, reactions, and responses.

Film or Farm: Which is the Bigger Drone Market? – Part 1

This is Part 1 in a two-part series that summarizes my views on why video/film/cinema – not agriculture and farming — will be the largest driver of sUAS commercial businesses. In this part I explore thoughts on the market for video/film/cinema, and below I outline why I believe film and video will lead in market uptake. In Part 2 I’ll outline why I believe agriculture will lag in market uptake.

A total economic impact of $13.6 billion and 70,000 new jobs in the first three years. That’s the forecast for what drones will bring to the U.S. once regulations are in place, according to a March 2013 market study produced by the Association of Unmanned Vehicle Systems International (AUVSI). The report entitled “The Economic Impact of Unmanned Aircraft Systems Integration in the United States,” goes on to say that precision agriculture and public safety will make up more than 90% of this growth. Most important, the report confidently states, “…the commercial agriculture market is by far the largest segment, dwarfing all others.”

These figures get repeated over and over again in the media and across the blogosphere.  Existing players and potential new entrants in the UAV market are betting their business futures – and in some cases their entire family’s income and savings – on them.  Everybody wants in on the action.  But are the media, blogosphere, and AUVSI reports correct? I have some serious doubt. Here’s why:  The numbers from my recent study on the impact of Federal Aviation Administration (FAA) rules on the small UAS business say aerial photography and cinema – not agriculture –dominate the other vertical markets and will continue to do so for some time. This two-part post looks at those two industries – film making and agriculture – and attempts to separate market forecast hype from the reality by looking at detailed numbers, market forces, and the specific applications themselves.

“Survey says…”

Validated respondents to my survey represent principals and employees at sUAS companies whose annual revenues span from US$100,000 to more than US$10 million. Every significant market vertical is represented. Survey participants were required to identify their primary commercial service offering. The results appear in the table below.

Primary Service or Product Response Percent
Aerial Photography / Video & Cinematography / Movie /TV 41%
Sales of sUAS aircraft and/or technology 11%
Agriculture / Farming Services 8%
Mapping / Topography / Geospacial / Photogrammetry 5%
Education and Training 5%
Consulting 4%
Data Aggregation or Analytic Services 3%
First Responder Service (Police, Fire, or Medical) 3%
Utilities 2%
Scientific Research 2%
Construction 2%
All Others 13%

 

Clearly, the dominant service offering is aerial photography / video / cinematography / movie/ TV (41%). Only eight percent of participants identified themselves as offering or wanting to offer agriculture / farming services.

When viewed through the lens of each service provider type, this data offers some interesting insights. For example, the largest group of service providers, aerial photography and cinematography, have current revenues that spread across the whole range (from zero to over $1 million). In fact, several reported revenue over $10 million, a figure no other group – including agriculture – reported. Clearly current UAS market activity runs contrary to the AUVSI forecast.

Money talks

Drone regulation was among many issues the Motion Picture Association of America (MPAA) lobbied on in 2012 and 2013, at a total cost of $4.11 million.  According to this report, the MPAA has been constantly appealing to the FAA to let them use smaller drones for film-making purposes. If you follow the market dynamics and technical advancements of the TV and film industry, the push by the MPAA for sUAS makes sense. High-end digital cameras and computer-generated imagery (CGI) effects have drastically reduced film-making costs, and have been delivering scenes that weren’t possible before. Even so, the industry is striving for more technological enhancements every day because audiences expect to see something new and spectacular in each new film. The longstanding arms race in Hollywood among studios vying to deliver the most eye-popping shots and special effects continues unabated.

Drone cinematography is now the new kid on the Hollywood block. A drone costing just a few thousand dollars can deliver high wow-factor shots that were impossible to get before, or could only be captured using expensive cranes, stabilizing equipment, and a manned helicopter. The average TV or movie audience member generally doesn’t realize how much of a production is actually shot by a drone, but the astute viewer can already see drone footage being used everywhere in popular TV shows and movies (sorry FAA).  A growing share of Hollywood blockbusters and TV programming involve UAS footage – Oblivion, Man Of Steel, The Hunger Games, The Dark Knight Rises – to name a few. Perhaps the most famous is this scene from the James Bond movie Skyfall:

Drone cinematography is still in its embryonic stage. Multirotor drones that hold cinematography-grade cameras have only a range of up to a mile, and their battery only lasts about 10 to 15 minutes. Still, they give filmmakers a definitive edge over traditional methods. Drones allow directors to pull off mind-boggling, acrobatic camera stunts that would otherwise have been possible only through CGI or maybe not at all. This incredible sense of power and cost savings are the reasons many filmmakers continue to lobby for the commercial use of drones and one of the reason why my research finds this market the largest.  Case in point. The FAA just announced on June 2nd that seven aerial photo and video production companies (not any farming or precision agriculture companies) have requested regulatory exemptions under Section 333 of the FAA Modernization and Reform Act of 2012, which would approve commercial drone operations for TV and motion picture work. This is the first industry to do so on such a scale.  While beyond the scope of this post, the photojournalism industry is another major force lobbying for drone usage, based on similar logic; getting the shot that keeps the audience riveted to the screen while ridding themselves of the enormous cost of operating manned helicopters.

Photography & Video – Film’s nearest cousins

When you look at the ‘film’ market for drones, there is no clear way to delineate film from video from photography.  Aerial photography and video platforms are mostly the same and vary mainly in size, camera-carrying capacity, and technical capabilities that result in each platform being best suited for a certain grade of user (ranging from hobbyist to professional videographer). As I have written in The Democratization of Aerial Photography, technical and financial barriers to entry into the aerial photography, video and film services market are low, so it makes sense there are more players now and there will be more in the future. If a lightweight US$400 GoPro camera can shoot cinematography grade 4K video, and you only need US$1200 to get it up in the air with a small drone, and you can charge a US$1000-$2000 day rate for its use, and audiences are enamored of the resulting images, then it’s no wonder this market is exploding. Besides film and TV, here are some other aerial photography and video-related applications:

  • REAL ESTATE – showcase homes, marquee properties, commercial buildings, and structures
  • LEGAL – support forensic investigations, insurance claims, and property assessments
  • CONSTRUCTION – progress reporting for commercial, residential, and civil engineering
  • LAND – landscape architecture, land development, and research
  • SPORTS – player and team position analysis

That’s my argument for why I believe aerial cinematography / videography / photography will dominate the early sUAS business market.  To put a bow around it all:

  • Studios and audience are enamored of the footage / images that can be captured by drones, so there is clear demand for the final product that drones can create.
  • The financial and technical barriers to entry are low for many applications, making it easy for businesses to begin offering sUAS-based film and photography services.
  • Where the technical and financial barriers are higher (for example, studio quality film production) a technically astute and well capitalized film production industry is eager to get their hands on new technology like drones.
  • A lot of filming occurs in a tightly controlled environment on private property, where safety can be ensured and where a compelling case can be made for regulatory exemptions.

In Part 2 of this post, I’ll make my case for why I don’t think farming and agriculture is largest market. Later I’ll be releasing some research in conjunction with Aironovo Advisors on the economics of UAS in agriculture. As always, I’m interested to hear what you think—share your thoughts in the comments below or contact me colin@droneanalyst.com.

Image credit: Shutterstock