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Drone Market Bubble- Investor’s Nightmare

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Drone market is one of the fastest, developing branches of the technology. Everything started with military drones and proceeded from there. After the advance of many other technological products, civic drones started to gain popularity and appear on a market, with the last 4 years focus on multi-rotors.


The drone market is so hot these days, a lot of companies from different fields started investing in drones. However, many of those investments were not the gold mine that many had anticipated. Some of the more recent flawed investment deals included: 

Intel and Yuneec:

All of you have heard about the huge investment of circuit giant Intel in the RC company, Yuneec. To recap, in September 2015, Intel invested $60 million USD in this upstart, Chinese drone manufacturer. Beginning 2016, Yuneec announced a product called, “Typhoon H.”  At the time of its release, the Typhoon H was not functioning as it was supposed to be for a simple reason: Yuneec cheated used a VICON system for its presentation. There was then a delay in its release taking 8 months instead of the initial promised 4 months of its final product. After people started receiving the Typhoon H and comparing it to the Phantom 4, a drone from the same price category, there appeared a lot of flaws. It was a raw, unpolished product with lots of software and hardware bugs. To make matters worse, People had to pay $1899.00 for the Typhoon H with a version with Real Sense technology-a collision avoidance sensor used to compete against the Phantom 4 but resulted in costing consumers more than $500 extra.

Yuneec Typhoon H

After few month of sales, Typhoon H performed far below levels of what Intel expected and they decided that their partnership with Yuneec was not profitable enough. Intel branched out on its own and announced another drone, this time without Yuneec’s participation. If you compare that amount of sales on the main e-commerce platforms to that of with DJI, you will get very clear idea why Intel regretted initial investments and made their own drone called Aero. One could imagine that Intel would incorporate a SDK software based platform designed for developers and could of opened an SDK program for Yuneec in the same way that DJI did. Instead, they cut off the Yuneec and made their own drone. Now you see where it’s going?


ZANO -Not a familiar name?

Here is an unfamiliar drone company that raised £2.3M from a Kickstarter campaign last November. The main idea of the drone design was not too practical as well: a mini-aircraft with huge flash and no gimbal. Just another “easy to fly, simple and portable drone”.

Zano Drone

Zano became a Kickstarter sensation, galloping way past its original funding target. Unfortunately, disaster prevailed when Zano founder Ivan Reedman found an ugly truth: they just did not have the skills or the experience to mass produce the mini-drone. Check more on BBC.

It wasn’t a complete scam because 600 of 15000 ordered drones were eventually sent

The unfortunate result was that the product was never delivered with thousands of people who lost money backing this doomed project. However it wasn’t a complete scam because of the 600 of 15000 ordered drones were eventually sent to the investors-a small pittance of comfort for what should have been a goldmine of a new idea-which brings us to the story of a new American drone startup company.


3D Robotics

In February of 2015, another circuit manufacturer Qualcomm invested $50 million dollars in American drone company 3D Robotics. Initially 3DR was making open source flight controllers and other drone hardware. After that investment they announced their first Ready-to-fly drone, “Solo.” It was a quadcopter with GoPro on board. Again, due to the sales that was way lower than estimated by expert and investors and DJI price damping, 3DR got “knocked out”. They stopped production, cut the majority of their jobs and left the consumer drone market. They stayed on the drone market but now they are focused in commercial solutions only. 

3DR solo


Ehang

Maybe not a familiar name again, but this company surprised the drone market by rising $42M USD in August 2015. Their drone product had no success so they concentrated on something more extreme. They made an aerial vehicle that can actually carry a person. However it’s still a concept and who knows how much time will it take to really see a one man personal flying drone. 

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Hover Camera

Zero Zero Robotics has raised $25 Million in total funding, including a $23 Million Series A investment. The funding was participated in by prominent investors including IDG, GSR Ventures, Zhen Fund and ZUIG, among others.

The great thing about Zero-Zero is that unlike Zano it actually delivered a product advertised a half year ago. Now Passport Hover Camera is the latest product on the drone market. Check out this video and see what they are trying to sell for $550:

Even from the short test we can see what kind of product it is. How long will it survive is a question. We Talk UAV ordered this drone on October 14th and it was promised to deliver it within one week, today is October 23rd and Zero Zero Robotics replied saying they need 2 more weeks to start shipping. Will 2 weeks be enough to ship this product or will their product remain a sold out item? Only time can tell.


DJI

Through all of this remains the industry leader DJI, company that holds 70% of the consumer drone market. Much like other companies mentioned above DJI received investments in amount of $30M USD in May 2014 get major returns on the Inspire and Phantom lines of personalized drones. Exactly one year later, another company called Accel Partners invested $75M USD in DJI. 

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DJI’s 1 year net profit is a few times greater than the amount of all other recent investments on a drone market mentioned earlier.

According to All China Tech, DJI’s present valuation is USD $12B. It also said that DJI’s sales revenue skyrocketed from $26M USD in 2012 to around 1B USD in 2015. It estimated that. DJI, more than any other company is the example of successful case of investing money in a drone company.

 


Is it all about money?


We have reported plenty on drone companies and Kickstarter campaigns getting huge investments but still fail. The end result is that are millions of dollars loss in chased dreams and bad business plans in the drone industry. Why does these plans fail?

  1. Like many other flawed business ideas, business plans boast grandiose ideas but not understanding the needs of consumers. Some companies have the false assumption that customers care more about portability more than quality and technology. Other companies assume that people are ready to give up their 10 bucks selfie sticks and pay more than $500 for selfie drones instead. However, those companies truly underestimated what consumers are wanting out of their drone which brings up one critical flaw.R&D
  2. Research and development is very crucial in the technology field. It’s not just an art industry where a piece of black paper can be sold for millions of dollars. In high-tech world, people are paying for how advanced the product is, not for how “simple” it is. Even when companies understand a consumer’s need but can’t deliver a good product, it can lead to the failure. Intel and Yuneec are examples of this: Great idea, good understanding of market but bad implementation which in turn drives big investors away.

What’s left in the end?

How much left from Intel’s $60M in Yuneec’s budget? Where are the $50M that was invested in 3D Robotics now?  People started Zano still can’t answer where are the investment funds of £2.3 M that they raised on Kickstarter.  Hover camera is an odd success story in that they got $25 M in investment money and now selling a “drone” that can fly about 8-10 minutes long, 20 meters distance and take what are ultimately cheap smartphone quality pictures for $550. With all of the investment loss, the industry feels like a bubble that keeps growing with more and more money are getting thrown into new drone companies in which the initial investment money will never be recouped.

And as always, thanks for reading!

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