Drones get a bad reputation. Most people associate them with expensive military aircrafts or small consumer toys. However, recent data shows that the future of drones will actually be shaped by practical commercial applications. The usage of drones in business operations has broadened in different industries in the last few years due to their ability to drive efficiency and data analytics. VCs have invested a total of $1.5 billion since 2012 in drone commercial startups that are shaping the industry.
In this article, I will define drones and their addressable market as well as highlight how their capabilities can be leveraged in commercial business operations. I will also include investment trends and explain their appeal to investors. I’ll then conclude with my predictions for the future of the industry. In general, I will provide not only third-party analysis, but also my personal insight after learning about the industry in the course of developing a drone company myself (Archon).
What Is a Drone?
Put simply, a flying drone is an aircraft without a human pilot aboard, earning their alternate name as unmanned aerial vehicles (UAV). Drones are robots typically remotely controlled by a pilot, though fully autonomous drones are in the late stages of development. Drones were originally created as safer, cheaper alternatives to manned military aircraft. Today they are still used for military purposes, but are now also consumer toys and purveyors of commercial operational efficiency.
Drones can vary in shape and size, but the main core elements (battery, microcontroller, motor, sensors) are essentially the same. Since drones are made with smartphone parts, investments over the last 10 years in these parts have driven drone prices down, increasing accessibility to consumers and businesses.
Drones can be viewed as smartphones with the ability to fly or move. Unlike most fintech developments such as big data and payment innovation, drones are valuable for their combination of mobile hardware and internet connectedness. Drones are distributed sensors that make the internet smarter. They can serve as a platform on which different applications, software, and business models can be built. Indeed, everything from drone mapping software to flight planning software, drone insurance, and marketplaces for people to find drone pilots has emerged.
Drone Market Size
The drone market will grow steadily in the consumer, commercial, and military sectors. In a 2016 report, Goldman Sachs estimated that drone technologies will reach a total market size of $100 billion between 2016 and 2020. Though 70% of this figure would be linked to military activities, the commercial business represents the fastest growth opportunity, projected to reach $13 billion between 2016 and 2020.
The Commercial Market—Not Consumer or Military—Will Drive the Industry Forward
In many business activities, drones can substitute traditional methods of operation. This development comes after the Federal Aviation Administration expanded permissions for commercial, non-hobbyist usage of drones. With less human operation and no safety infrastructure, drones can reduce time and costs. They can also enhance data analytics, which allow companies to better comprehend and predict operating performance. In some industries, drones will even enable new business models and opportunities.
PWC estimates that commercial applications have a total addressable market of $127 billion globally. Drones are expected to become part of daily operations across industries as varied as insurance, agriculture, and journalism. Consulting firm BCG estimates the industrial drone fleet in Europe and the US will be $50 billion by 2050 and more than 1 million units, with most of the value linked to drone services and data collection.
According to market research from Gartner, the market size for commercial drones in 2016 was $2.8 billion with only 110,000 million units sold. In 2017, commercial drones sales are estimated to grow about 60% and reach 170,000. While personal drones dominate unit sales at 94% of the market, they only comprise 40% of the market’s revenue share. Commercial drones only represent 6% of the market, but their price tags of around $100,000 are projected to represent 60% of the industry’s revenue.
According to PWC, the most promising industry seems to be infrastructure, with a global potential value of $45 billion, followed by agriculture and transportation.
Drone Hardware Will Be Commoditized; Value Will Derive from Services
Since drone hardware has become more affordable to produce and purchase, manufacturing and the hardware itself will not drive industry growth going forward. Instead, services that operate and manage drones for companies will generate most of the value. End-user companies will turn over services that operate drones, manage drone data, and manage maintenance to third parties. For example, telecommunications companies may end up selling drone data communications services for guiding drones and relaying the data they collect. Indeed, value-added services will represent $23 billion of the $50 billion total market.
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