Executive Summary
Drones have become a part of our everyday language and landscape. As manufacturers, vendors, and conglomerates continue investing in the technology, it is geared to revolutionize the global economy.
Facebook’s (FB) launch of “Aquila,” the solar-powered drone technology used for providing Internet access to remote areas, will open up the global economy to billions of individuals. This however is just the tip of the iceberg, as Facebook is not directly dealing with its customers, instead it is partnering with local ISPs to deliver its services. The most prominent drone service in the media would be Amazon’s (AMZN) Prime. Alternatively, Alphabet (GOOG) (GOOGL) is developing its own drone delivery system and the two companies have very different ideas as to how the system should be run.
This clearly indicates the dependency of the emerging drone industry on the growing, supporting ecosystem of its core drone technologies (hardware and software) and its complete value chain (from manufacturers and vendors, to resellers and value-added service providers).
Explosive Growth
The global drone market is showing a visible shift from catering to the defense market to the commercial/consumer side. As the market for civilian/commercial drone gains momentum, with a compound, annual growth rate CAGR of 19% in the next five years, the global commercial market is taking shape around seven core industries — energy, construction, real estate, utilities, agriculture, mining, and film production.
The AUVSI’s estimate that by 2025, 160,000 drones will be sold every year, a clear indication that the drone industry as a whole (from design and rapid prototyping to manufacturing and cost-effective supply chain management) is maturing.
Although Amazon has taken to marketing its UAV delivery systems, regulation bottlenecks, and safety concerns for effective, deployment of delivery drones in civilian space, have kept the e-commerce delivery space as a distant focus for the industry, which is driving the development of ground-based drones. Meanwhile, in China, Alibaba (BABA) started testing drone deliveries in 1H15 while in Europe, Swiss Post began using unmanned drones to test mail delivery in the same period.
Emerging Drone Industry Ecosystem
Investment opportunities in the growing drone industry can be identified by understanding the ecosystem that will sustain the industry.
The drone industry and ecosystem can be structured into distinct players — starting with the construction of the craft itself, the development of specialized components and its technology, to the uses it is put to by operators in the field.
The figure below maps the maturing ecosystem of stakeholders and dependents in the industry:
Primary stakeholders include:
Manufacturers and assemblers — These design, prototype, and produce drones and the payloads that they can carry. Some have established complete, independent entire production lines, while others only assemble the components supplied by other niche-based component manufacturers.
Technology suppliers — These include complete software and hardware solutions for allowing the drones to perform certain tasks and functions. Examples include flight control operating systems, mapping new and unknown area/environments, real-time analytics, among others.
Component suppliers — These supply the manufacturers and assemblers with the various components needed to construct/assemble the drones. Components include electronics, sensors, engines, batteries, remote controls, etc.
Operators — The people and equipment used to control the drone from ground and complete operations. This is the service industry that currently charges per operation. The service industry also offers analytics for the data collected by the drone.
Training centers — Authorized centers and programs that aid clients to gain the skills and practical knowledge about regulations and effective control and maintenance of the drones necessary to safely utilize them. This also includes programs that offer certifications to students for operating drones for civil and military missions.
This is known to overlap as some drone operators also develop training centers. For instance, in France, Delta Drone has created the Ecole Francaise du Drone, and Drone RC has established the Centre de Formation et d’Apprentissage du Drone.
Industry trends
The drone industry is set to take off, with dramatic implications for everything from airspace regulations and public safety, manufacturing, and a plethora of industries — ranging from agriculture, construction, and real estate, to energy, utilities, mining, and entertainment.
According to the AUVSI, if the Federal Aviation Administration manages to integrate its unmanned aircraft systems (UAS) within the US’s national civilian airspace (the deadline was originally 2015 but was missed), the net economic impact of the drone industry could easily reach USD82.1bn by 2025 — creating over 100,000 high-paying jobs within the drone ecosystem. Additionally, the short-term impact is huge. During the first three years alone, it will create over 70,000 of the 103,776 new jobs that will be created by 2025. The overall economic impact is projected at USD13.6bn.
The commercial drone industry is maturing thanks to the wide acceptance and demand of drone technology and drones themselves. The industry spans major manufacturers, integrators, resellers, and value-added service providers that can work in tandem to scale the production and hence, the reach, of drone manufacturers.
Key challenges
Regulations
The current expansion of the market is limited because of a lack of an adequate and standardized regulatory framework in most countries. This has forced manufacturers and new startups to seek individual authorizations in different countries.
In the US, current laws regulating airspace are effectively banning the flight of commercial UAVs, and the mandated changes will not be finalized before 2017. During that time, manufacturers can easily work through existing technology roadblocks that prevent entry into the market against established global manufacturers.
Google visited Australia to flight-test its drone technology for “Project Wing.” The Australian authorities are concerned about the privacy and safety of the general public. Canberra made it clear that drones for the civil space must not threaten the privacy and physical integrity of the general public.
This is changing, however, as laws previously authorizing the development of drones in the civil airspace are further consolidated by some governments, including the European Commission (2013, development of framework for safe integration of drones in civil airspace), France (2012), the US (2012), Canada (2015), and Australia and Brazil (2014).
France’s example:
The use of drones is regulated by two ministerial decrees as of April 2012. The decrees identify concerns for:
Drone manufacture — Identifies conditions under which they can be used and certain capabilities for the people who pilot them.
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The airspace — How the drones function within it. Currently, the biggest concern is how these drones can operate within the same airspace as other aircraft.
To ensure the right and proper cohabitation of the airspace with other aircraft, the Directorate General of Civil Aviation (DGAC) has also offered four scenarios for use. The scenarios are categorized according to:
The type of piloting — This includes direct view or out-of-sight view/first-person-view of the pilot.
Over-flight site — Non-populated area or an agglomeration.
The scenarios offer the maximum airspace radius, the maximum height, and the maximum payload that the drone can carry.
Traffic management
The drone industry will be competing for airspace with the established airline industry. NASA already has started testing and developing its air traffic management system for drones to ensure the safe simultaneous use of the already congested airspace.
Emerging competitors outside of the US
Various notable early UAV manufacturers have emerged outside of the US, with Israel, France, Germany, UK, Australia, Japan, Korea, and China striving to gain a bigger share of the pie.
Legacy manufacturers have an advantage.
Currently, legacy drone manufacturers which have already been in the field as manufacturers for the defense sector have an advantage in the fast-evolving niche of drone technologies in the consumer/commercial market.
Drone insurance now catering to business risk averseness
Additionally, as insurance companies take on a more prominent role in creating insurance plans for drones, entry into the drone sector has become less risky. AIG has started selling insurance for businesses using UAVs. The intention is to capitalize on the adoption of drone technologies for business use.
The Robotics Internet of Things and the new, connected UAV airspace
Drones are becoming more consumer oriented and commercialized because of the rise of the Robotics Internet of Things (RIoT), where connectivity across sensors has made it possible to create ever smaller and more powerful drones.
This allows drones to become smarter, more intelligent, and autonomous, further reducing the limitations imposed by regulations and accelerating the development of a standardized framework for regulating drones across international airspace.
Introduction – Know drones
Once confined to the military sphere, drones have become a common sight today. Technological advancements has made aerial technology cheaper and made it available for numerous applications in a multitude of industries, including agriculture, logistics, entertainment, law enforcement, and of course, the military. Although military applications still account for over a 90 percent share (USD6.4bn) of the global drone market, the use of drone technology for commercial purposes continues to climb and is likely to reach 12 percent of total global spending on drone technology.
Definitions
The term "drone" is commonly used for aircraft that have no human pilot onboard. Drones which are used for civilian application are also known as Unmanned Aerial Vehicles (UAVs) or UAS. But more accurately, a drone, by definition, is a system that can be teleoperated or operate semiautonomously or fully autonomously. So in short, all mobile components in the RIoT ecosystem, be they teleoperated, semiautonomous, or autonomous can be called drones or robots—the terms are interchangeable.
John Villasenor defines drones as “an unmanned aircraft that can fly autonomously.” The Federal Aviation Administration of the US defines drones as “devices used or intended to be used for flight in the air that has no onboard pilot. This device excludes missiles, weapons, or exploding warheads, but includes all classes of airplanes, helicopters, airships, and powered-lift aircraft without an onboard pilot. UASs do not include traditional balloons, rockets, tethered aircraft, and unpowered gliders.”
On the other hand, the US Department of Defense defines drones as, “powered, aerial vehicles that do not carry a human operator, and uses aerodynamic forces to provide vehicle lift.”
After analyzing these three definitions, we can identify the following essential characteristics of a drone:
- A drone has the capability of sustained and reliable operation.
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- A drone has no onboard human operator.
Software — This includes the operating system(s) for the onboard flight controller and other FCSs, and the operating system for the ground control system/remote-controller.
Electronic speed controllers (ESCs) – The job of ESCs is to control the flow of electrical power from battery to the motor in order to help the drone ascend, descend, or move forward/backward.
Propellers – The number of propellers present on a drone vary. The higher the number of propellers present on a drone, the greater load it can carry.
GPS and compass – These components help on determining the altitude and position of the drone. Most consumer-drones have a ‘return home’ function as well.
Battery – The battery serves as the source of energy for these unmanned vehicles. However, drones with a heavier battery usually have a lower load carrying capacity.
Frame — The body of the drone.
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Extras – Drones may also contain some extra features, such as DSLR cameras, propeller guards, etc.
- A drone provides enough control to enable the performance of useful functions.
Components of a drone
Drones vary on the basis of their size, endurance, maximum altitude, maximum range, battery life, data downlinks, maximum loading capacity, and additional features, such as videography, First person view (FVP), etc. Manufacturers differentiate drones based on one or more of these features and capabilities, and their innovative products. However, all of them rely on several core components.
Understanding these core components is crucial for understanding the ecosystem that produces drones, and hence in identifying the opportunities present across various stages of its value chain.
The primary components of a drone include:
Flight controller board – This is the brain of the drone’s Flight Control System (FCS), and is responsible for making everything work. It has built-in sensors that measure gravity, rotation, and movement. The flight controlled board converts the signals received from the sensors into data and sends it to the ESC to increase or decrease the speed of the motors. extra batteries, storage devices, etc.
How drones work
The advent of consumer grade, commercially viable drones have put the drone market under the investment spotlight. The industry is new and the market has yet to mature. Given that industry leaders and legacy manufacturers who have been primarily targeting the defense sector, e.g. Northrop Grumman (NOC), Lockheed Martin (LMT), Boeing (BA), and Airbus (OTCPK:EADSY) have not yet announced or completely entered into the civilian/commercial sector, the new arrivals have to pioneer drone technology.
The “pioneers” in the emerging industry will be working on improving and evolving every aspect of drones — ranging from their external frames to onboard electronics.
Investors can better identify, understand, and asses the opportunities that will emerge — as drone technologies and processes mature and give rise to de facto standards — by understanding “how drones work.”
#1 Functions of the drone
Prototyping of any new drone begins with the purpose that the drone must serve. The purpose/function defines several important parameters for the design and prototyping process of the drone. For instance, if the drone was designed for aerial cinematography (videography and photography), then this function will directly impact:
Payload — The weight that the drone should be able to carry in addition to its own weight e.g. the user may choose different third- party cameras depending on their needs.
Battery and flight time — The flight time of the drone, and hence,
the number of recharges that must be made before a shoot can be
completed, depends on how much power the battery can supply to keep the drone and the camera functional.
Propellers, motors and ECS —Payload and battery life determines the size of the propellers and the power of the motors needed to generate the thrust that will allow the drone to reach the required heights for aerial cinematography, and to consistently hold that height. The electronic speed controller plays a crucial role in efficiently transferring the power from the battery.
Design of the motors — In general, motors consume the most
electric power on an unloaded drone. To increase the effectiveness
of the drone, the motors have to be both light (weight ratio of their weight to the weight of the unloaded frame) and should minimize the loss of electric power as heat during longer flights.
Frame Design — The aerodynamic design of the frame is directly impacted by net payload, different sub-payloads, and common aerodynamic conditions:
Net payload — The total weight that the drone has to carry defines number of motors that are needed, type of material required for its construction, the span of the frame, and the reinforcements needed on the frame.
Environmental conditions — The example drone is for aerial cinematography where windy conditions are expected. Wind creates additional torque and adds tension on the frame, making proper aerodynamic designs crucial for maintaining the integrity of the frame.
Onboard FCS — The available flight controllers define the frame design. If multiple electronic chips/boards and sensors are needed, then it means that the frame has to be designed to incorporate them.
Range and radio — Drones can be teleoperated. The range of this control depends on the power of the radio being used. The range can be anywhere from just 100m to 1km, and requires creating more powerful radio transmitters and receivers.
Design of the controller/ground station — The remote control of the drone, or a complete ground station (where the data can be sent) is dependent on the maximum range of the drone, and the amount of information that is required to complete its tasks. In the case of aerial cinematography, the ground control station could be anywhere between a simple remote control to a complete receiver with a downlink for the sensors, and software for showing current flight path on a map.
Currently, the market segmentation for “types of drones” is rather loose, and hence, many commercial- and consumer-grade drones are designed to be multi-purpose with the option of adding different payloads to customize its purpose (e.g. cameras, carriers, etc.). However, over time, 3D printing will result in more drones that are designed to perform specific tasks with increasing efficiency.
Below are the individual components that enable drones to work.
#2 Flight controller board
The flight controller board is a small self-sufficient computer that controls all the electronics on the drone. For instance:
The ECS consistently sends signals to the controller informing it of the current amount of power it is transferring to the motors (and hence, generating the right amount of thrust needed to reach and maintain a height).
The information generated by the onboard gyro is computed to know the current orientation and altitude of the drone and hence controlling the ECS to increase/decrease the power and hence, the thrust until the drone reaches or maintains the required height and orientation.
The information from the accelerometer is used in tandem with the GPS to know the speed of the drone and hence calculate the time needed to arrive at a pre-determined location.
The controller also monitors the battery life, informing the ground station/controller of battery life, and using data from the GPS and accelerometer to determine the time remaining before the next charge.
Additionally, the flight controller also is responsible for keeping the drone as autonomous as possible. For instance, it is nearly impossible to manually keep the drone in a static position and orientation or at a specific altitude. This is where the controller comes in — it consistently takes and computes data from all the sensors and re-adjusts the orientation and altitude of the drone by controlling the thrust and direction of the motors.
The processing power, efficiency, number of inputs, and weight of the flight controllers are propelling advances in onboard flight controllers for drones.
#3 Frame
Ultimately, the frame of the drone defines and restricts the components that can be added to the drone. Even when all the parameters have been defined, achieving the required aerodynamic properties and the structural strength of the frame often requires prototyping multiple frame designs.
Additionally, even when the right frame design is achieved, the placement of the electrical and electronic modules can affect the drone’s center of gravity.
The frame has to enclose a wide range of components ranging from the flight controller and electronic sensors, to motors and additional features. This highlights the potential industry for 3D modeling software for developing and building drones.
It is possible for existing aerodynamic modeling software to be used for drones. However, the current manufacturers who own them are giants (e.g. Lockheed Martin and Boeing). Hence, it is unlikely that the same software can be cost-effectively implemented or used by emerging startups in the short term. It is likely that a supporting niche for software for startups will rise to meet the needs and reduce barriers to entry in the drone market.
Additive manufacturing is another industry that will most likely integrate within the drone market due to the use of 3D printing for creating frames. The technology already is ahead on the maturity curve than drones, with several consumer-level desktop printers already available in the market (e.g. 3D Systems Project 7000HD, Lulzbot TAZ 5, Cubify CubePro, Airwolf AW3D HD, and Type A Series 1, among others).
3D printing allows faster and cost-effective modeling of frames, and hence significantly reduces time to market for new products.
#4 Motors
Motors are a common engine of choice for powering a drone’s flight. Connected to propellers, their spinning motion creates the downward thrust needed to lift and carry the drone into and through the air. The market for remotely controlled aircraft has matured, bringing powerful yet lightweight motors to the drone niche (e.g. brushless DC motors). However, most consumer drones are “multi-rotor” that take flight vertically and do not require runways as is the case with most remote- controlled aircraft.
The Short Take-Off and Landing (STOL) and Vertical Take-Off
and Landing (VTOL) capability of drones make them the
standard choice for almost every niche: Their time to flight and
landing is negligible and they are easier to handle and portable to carry.
However, this VTOL capacity comes at a cost: the motors have to be far more powerful and still offer a low weight: Thrust ratio for the drone. This is because remotely controlled aircraft do not solely depend on the thrust generated by their motors to propel themselves into the air or to remain airborne. They also leverage aerodynamics and movement of their wings through the air to generate additional lift.
The same is not possible for multi-rotor drones. Their flight depends solely on the thrust generated by the combination of their motors and propellers. This has brought a recent niche of motors under spotlight. These motors are commonly called "out-runner" motors. They differ from ordinary motors because their outer shell is not stationary, and rather, are connected to the shaft and that spins around the electrical windings. Traditional motors have a fixed shell and windings around the shaft. As a result, these motors are capable of spinning at over 20,000 RPM and consume hundreds of watts of electrical power.
As the market matures, technology for motors is most likely to focus on improving the weight-to thrust and thrust-to-power-consumption ratios to increase their thrust while reducing power consumption.
#5 Electronic speed controllers
The speed and power of rotation (torque) of the motor is dependent on the amount of power (current and voltage) that is supplied to it per second. This control is crucial to getting the drone airborne to everything that has to do with keeping it airborne at a specific height and controlling its direction.
The ECS’s job is to regulate the amount of current that is supplied to the motor. Power depends on current and voltage supplied at a given time. Although boosting the current increases power, it also increases the loss of energy as heat (more electrons flow through electrical wiring release more heat), whereas higher voltage for smaller currents can also create the same power but reduce heat loss.
The ECS exists to balance current and voltage and choose the right amount of current and voltage to perform a specific task. For instance, starting the motor from scratch (getting the drone airborne) requires more current, whereas simply increasing the thrust while in air requires sending more power (which can easily be done with either with 1) more current and less voltage and hence more heat loss; or 2) less current at higher voltage while reducing heat loss).
The ECS is a closed loop system, which means that it consistently informs the onboard flight controller about how much power it is supplying at the moment.
Currently, ECSs are a byproduct of the already mature remote-controlled aircraft market. They perform as effectively as they do on RC aircraft and robots, and we see no foreseeable niche specific to the drone industry.
#6 Propellers
The design and aerodynamics and choice of material of the propellers directly affect how efficiently power supplied by the motors is utilized. The sturdiness and balance of the “props” is crucial for generating the right amount of thrust, getting the drone airborne, and affecting the movements.
For example, the direction of the drone is controlled using three
movements — rolling, yawing and pitching it. Each of these
movements is achieved by reducing the thrust (and hence slowing
the speed of) one or more propellers. This change exerts varying
(and at times inconsistent) amounts of torque on all the propellers. Hence, the design of the propellers must be in line with the function or the possible uses of the drone with or without a payload.
Multi-rotor propellers have the advantage of enabling the miniaturization of drones.
However, as the size of the drones decline, the normal rules of aerodynamics that are applicable to bigger drones do not apply. This requires more innovative propeller designs to ensure the required stability and efficient transformation of power from motors into thrust.
As a result, we expect a new line of miniature propellers will take form as the miniature UAV niche evolves.
#7 Dry batteries
The loading capacity and flight time of every drone ultimately depends on its stack of batteries. Liquid-based batteries are heavy, are inefficient, and unsafe. Hence, drones are dependent on dry batteries. The problem is that comparatively dry batteries do not generate as much power as their liquid-based counterparts.
This has been overcome with the use of lithium-polymer batteries and in this area we see LG Chem (OTCPK:LGCLF) as a major beneficiary. The biggest advantage of these batteries is their ability to deliver power in a high energy burst that are crucial for taking the drones to the air and while withstanding windy conditions.
Currently, motors, batteries, propellers, and drone payload capacity are all directly dependent on one another for increasing the flight time of the drone.
From the standpoint of power consumption, thrust generation, and hence, loading capacity, even a very powerful battery requires motors that efficiently transforms the electrical energy it is supplying into mechanical energy (torque and rotation) with minimal loss of power into heat energy.
From a supply point of view, motors require batteries that can pack in a lot of power and are able to effectively supply them for a longer time. Additionally, motors depend on the strength and aerodynamic design of the propellers to effectively convert their rotational power and torque to generate the maximum amount of thrust.
As the drone industry matures, battery technology will require and possibly see a breakthrough in the near future.
#8 Radio and wireless technology
The majority of drones (UAVs) are remotely controlled, allowing a ground team to changes its trajectory, set new flight paths, and to view the data it is transmitting in real-time (e.g. video from during an aerial videography shoot) and make required changes.
This requires that the drone is connected to a sufficiently powerful radio module that allows two-way communication between the drone and the ground team.
The power and effectiveness of the wireless module directly affects the controllable range of the drone. For instance, if the radio can only send data over 100m, the team will lose control and the drone will be rogue outside of that limit.
Additionally, the security of the wireless channels is crucial to ensure that the wireless channel’s frequency band does not overlap other frequencies in the atmosphere.
Currently, the majority of low-cost consumer drones offer basic line-of-sight control and negligible feedback. However, as the drone’s functions become more complex, feedback and greater radio and wireless coverage is needed with data ranging from current altitude and heading to battery life, airspeed, and direction of the drone. Additionally, a robust and secure downlink channel is needed to ensure that any data from other sensors (e.g. a camera) are sent to the ground station in real-time and at high- resolutions.
Currently, the wireless technology of the commercial consumer and civilian drone lacks in comparison to established defense contractors such as Northrop Grumman, Lockheed Martin, and Boeing. However, as the use and function of drones becomes more complex, we can expect startups and established players to invest in pioneering long-range wireless technologies for the consumer sector.
#9 Drone accessories
Every additional payload that adds additional functionality to the drone falls under this. This can range from adding a simple mount-on camera, lighting accessories, or gyro-stabilized DSLR cameras with motorized gimbals, to adding complete surveillance modules and payload carriers on the drone.
The widespread availability and use of GPS has led to various add-ons that allow the controllers to create more specific flight paths for their drones, as well as control the flight more precisely from remote areas.
This emerging market will see tremendous growth going forward. It will evolve as drone functionality becomes categorical and niche specific. Once that happens, we will see accessories designed for addressing niche-specific issues.
Classification of drones
Large drones
Small drones
Micro drones
Nano drones
Technological evolution of drones
Like with every emerging trend in the field of science, drone technology is evolving at a breakneck pace. From being just UAVs of yesteryear that were used for simple aerial surveillance by the military and other authorities, the technology of the present day has allowed drones to be much more. They are becoming smart devices, with the ability to analyze data and make decisions based on it. And the future has great things in store for this field. As microcomputers get smarter, so do our drones.
But it is not just the brains. Aerodynamics and battery technology also play a huge role in how efficient the drones of the future will be. And just like semiconductor technology, there is still a vast amount of research going on in the latter two fields which is being employed into drones. This is reminiscent of how airplanes took the world by storm after the Wright Brothers made their first flight. Drones are going through a similar phase and we expect to see many opportunities arise from this equation.
New drone technologies
1. Data analytics
One of the fields that has greatly benefited from drones is data collection and analytics. They are extensively being used in the construction field for conducting thorough analysis of ground structures from all angles, something that was extremely difficult to do before. With drones, it is now possible to take to the point measurements and carry out minute adjustments in architectural design, on the spot. Drones are also being employed to collect mapping data and for navigational purposes. They have also helped a lot in the scientific study of natural phenomenon such as volcanic eruptions, landslides, and sinkholes.
2. Technology fusion
If there is one thing that amalgamates so many different technologies into itself after smartphones, it is drones. Like previously mentioned, a drone is not just a miniature remote controlled airplane with a camera attached to it anymore. It is a fusion of mobile, aerospace, material, electronics, and instrumental engineering. And it is only with each of these technologies working hand in hand that we have been able to achieve so much in such a short time.
3. 3D printed drones
Much like drones, 3D printing is an inexhaustible field unto itself and has made immense contributions to the advancement of drone culture as well. A developer no longer needs to be a material engineer or aerospace expert to know what material or shape the wings should be. You download the blueprint, make your adjustments, and hit print and you have a drone ready. And with future advancements in 3D printing technology, making drones is going to be even cheaper and easier.
4. Jam-proof communications
Being reliant on radio waves for communication, drones are prone to jamming devices just like any other electronics that use a part of the electromagnetic spectrum to send and receive commands. And with the increased security threats posed by drones being so readily available - this may be a good thing. However, there are a few cases where we need drones with jam-proof technology, for example in areas with high electromagnetic interference, or terrorist facilities with jammers installed. For this reason, research in this field has been going on for some time by the organizations such as DARPA and NASA.
Air, land, and water — a movement towards biomimetic drones
As drone technology continues to evolve three defining aspects of the future of a matured and consolidated drone industry have become apparent: the need for faster, agile, and responsive drones.
A prominent trend in achieving all of these has been to look towards nature and learn, develop, and implement technology that allows drones to become more maneuverable, faster, and easily controllable. This has led to the interest and development of biomimetic drones — robots that look and act like animals. Prominent examples of such drones are shown in the table below.
IoT and drones
The Internet of Things is a phenomenon that is rapidly evolving. Drones are a core component of the Robot Internet of Things (RIoT), which incorporates the actuators, the components that can alter our world, affecting the environment rather than simply analyzing it.
Drone technology and RIoT are technologies that are shaping our generation. The RIoT consists of technologies that can make devices smart. What we mean by smart is that devices such as thermostats, refrigerators sprinklers, or cars are being connected to the Internet so that they can receive, deliver, and act on data.
For example, an elevator equipped with sensors can detect real-time failures and instantaneously alert the designated support teams. This process has multiple steps and starts with the data being transmitted from the elevator to the cloud, and ultimately to a monitoring facility. It then triggers a response from a maintenance facility to a technician so that he/she can provide support and attempt to fix the issue. Similar cases can be demonstrated in retail shopping, children’s car seats, traffic lights, or a variety of other scenarios.
This technology that captures the data, analyzes the data, and generates feedback, provides unprecedented real-time capabilities. This is made possible by the creation and convergence of current cutting-edge technologies.
Non-military uses of drones
As commercial drone technology evolves, and as stable flight and robust onboard collision avoidance systems become more consumer oriented (more compact and cost-effective), the use cases for drones are rapidly maturing and moving towards targeted and specialized video footage and package delivery systems.
Prominent non-military use case scenarios and application opportunities for drones include:
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Target tracking
Inexpensive drones have replaced the previously used choppers that allowed government agencies to keep an eye on persons and areas of interest.
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Weather research
Drones are rapidly replacing weather balloons for recording weather forecast data. Their main advantage is that they can be remotely navigated to study weather patterns over several locations unlike balloons that stay in a single place. They can also transmit weather data in real time.
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Communicationsandmedia
Increasingly used by journalists, photographers and filmmakers, every day new drones are showing up in the market, some incorporating the latest innovation in camera technology like 4k, 360 degree aerial recording, and high framerate video shooting.
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Wildlife monitoring
Similar to target tracking used by security officials, wildlife agencies are using drones to keep an eye on animals in their habitats inside reserves to ensure their well-being.
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Mining
Drones are used not only in oil and gas exploration, but for scouting out other natural reserves as well. They are also used to ensure safety of workers inside mines and for rescue purposes in case of a collapse.
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Agricultural applications
Drones are replacing expensive tractors and aircraft on farms for spraying crops with fertilizers and pesticides. They are also used for monitoring the growth of crops and ensuring there is no problem with the plantation.
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Infrastructure monitoring
The use of drones in infrastructure starts from the planning phase and goes on until after project completion. During that time, they are employed to carry out a number of tasks and analyses.
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Traffic monitoring
Drones are a good way to unobtrusively monitor traffic conditions, as they hover over everything and do not disturb the traffic. Having an aerial view of the entire area gives them an added advantage and the traffic data analyzed can be used to prevent jams and for future road construction plans.
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Disaster response
Again, having an aerial view puts them at an advantage over other forms of travel as they can directly fly from point A to point B without any obstructions in their path. They are mainly used for pinpointing survivors and bringing medical supplies to inaccessible areas as well as a means of communication.
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Industry trends
Robotics is a revolutionary technology that is changing the world in ways that will create massive socioeconomic disruptions. Robotics is the latest major technological shift, and like fire, the printing press, and electricity, will bring forth an array of new questions, concerns, and challenges for that will reverberate throughout the world and beyond.
The shift that robotics and drones are bringing to the world is far larger and deeper than any previous shift. Much like the development of the atomic bomb, nobody would have forecast that it would bring the second-order effect of creating the cold war. Nor would most have predicted the third-order effect of creating a space race that would take humanity to the moon and beyond. This in turn brought about, according to P.W. Singer in his book Wired for War, a fourth-order effect of creating a generation of sugared-up kids drinking Tang every morning like the astronauts.
These shifts are not just ripples in the evolution of modern civilization — they are tsunamis. The robotics revolution will be the biggest wave to sweep the world and with it will new islands of domination and territories be carved out in business and politics.
Noteworthy developments in the drone market
Ford and the transformation of automotive industry into a “Transport and Mobility” industry. Ford, the automotive industry giant and pioneer has clearly indicated that its future will be filled with self-driving cars and drones.
Ford’s former CEO Mark Fields stated that new ideas — drones, apps, autonomous cars — “could move to the core” of the automaker’s business someday.
The automotive industry could soon reach a standstill as the industry’s core goal of “a car in every garage” is both unsustainable and unviable. As a result, Ford is moving towards becoming a mobility and auto company, and we expect drones to become its core business. This will significantly change its current business model, and hence of that of the auto industry in general. The result will be a tectonic disruption and expansion of a saturated industry.
EHang unveils drones for personal use
Forget flying cars, there is now a drone you can take a ride in. Ford (F) is moving toward the drone industry for a good reason: It may become the future of transport, and EHang, the Chinese drone company is already on the move.
The company unveiled an electric autonomous drone at CES 2016 that is capable of transporting a single passenger.
Capable of carrying a payload of 220 pounds, the personal autonomous aerial vehicle is powered by electricity. To get from point A to point B, a passenger simply enters their desired location into the smartphone app and the drone does the rest of the work.
The drone may disrupt the existing transport industry but also the defense and commercial market space.
Google and Amazon to combine resources in managing air traffic
The US is currently the biggest market for drones, and figuring out how to efficiently and safely manage drone traffic over its airspace is crucial to the drone-based service industry Amazon and Google are trying to pioneer.
Currently Google, Amazon and almost every stakeholder in the emerging commercial drone market are working together with NASA and the FAA on their Unmanned Aircraft System Traffic Management (UTM) project.
Although both Google and Amazon agree on creating a “loose framework” that does not straitjacket the industry and possibilities of rapid growth, each has a differing outlook on the technological needs for the management system.
What Google basically wants is an automated version of the air traffic control (ATC) system that already exists today. According to the existing ATC requirements, all flight operations have to be scheduled prior to the flight through a centralized control system.
Amazon, at CES 2016 argued for a collaborative sense-and-avoid system that prioritizes the ability of drones to see and avoid each other and any other airborne objects (birds, balloons, kites, etc.) and hence less focused on a central command-and-control structure.
Collaboration between the two will significantly boost the development of the drone airspace needed for the emerging market.
Intel Capital invests in Yuneec
Intel Capital’s investment of USD60mn in the Chinese drone startup Yuneec shows the potential for the rising demand and acceptance of drone technology. Intel sees drone technologies as an avenue for deploying onboard processors and hence its energy conservative chips.
The two will co-develop future products.
Yuneec manufactures over one million radio-controlled aircraft a year. In the drone sector, it is known for its ready-built/ready-to-fly drone series “Typhoon” that offers sophisticated aerial photography tools.
Intel’s investment shows a strategic move: drones are built on self-sufficient chips. The move is strategic and is geared to bring Intel’s RealSense three-dimensional image capture technology onto drones.
Yuneec Electric Aviation is not the only one. DJI also received USD75mn from the Silicon Valley VC Accel Partners, and 3D robotics has received USD64mn in funding.
Intel (INTC) introduces an autonomous robot
Intel unveiled a hoverboard that transforms into a personal robot, making a statement about its movement beyond just chips and into the domain of drones and developing the processing power needed to target them.
The robot's tech is open platform, meaning anyone can build on it. The robot features voice recognition and streaming video via an Intel RealSense 3D camera, which also helps it maneuver around obstacles. The robot's developer release, expected in 2H16, will allow developers to create new uses and applications for the robot.
The unveiling comes a day after Intel said it would acquire Ascending Technologies, a German drone maker that builds drones for professional and research tasks like surveying, industrial inspections, or aerial photography.
Working with Ascending Technologies, Intel has also developed a collision avoidance system that allows the drone to navigate around any obstacle.
The importance of the strategic move is evident from Intel’s CEO statement at 2016 CES "we believe this is the beginning of a new ecosystem, one where robots can actually be open platforms and become useful partners," a clear indication that the processor giant was developing a separate line of chips and components targeting the RIoT ecosystem.
Rising demand for “easier” drones in the defense sector
Northrop Grumman was awarded a USD93.1mn contract December 24, 2015 as part of DARPA's Tactically Exploited Reconnaissance Node program, which aims to enable drones to operate from smaller ships.
The aim is to make drones portable and readily deployable on existing “small-deck naval maritime vessels.” Traditionally, fixed-wing unmanned aircraft have posed "substantial financial, diplomatic and security commitments," because they required large aircraft carriers or dedicated bases. Northrop Grumman is contracted to enable the naval fleets the ability to deploy drones in operations that offer" robust, affordable, and highly flexible unmanned intelligence, surveillance, reconnaissance, and strike capability."
Northrop Grumman, already an established defense contractor, will provide the new seaborne drone system that combines vertical takeoff and landing with the ability to fly long distances like fix-winged drones.
Disruptive technologies in micro drones
Mirko Kovac, Director Aerial Robotics Laboratory, claimed “we want to create machines that can live autonomously, building nests, repairing each other and reproducing within their own ecosystems.” This clearly indicates the direction the research teams in the industry have taken towards the emerging drone technology.
With more research into miniaturization of drones, the industry gains lighter and more powerful components for use with drones. Pioneering manufacturers and developers will gain competitive advantage as lighter sensing and computing payloads increases the flight time of drones.
Gesture control technology for drones
Gesture control technology is also gaining traction. Recently, PVD+, a startup based in Taiwan has announced their new gesture recognition engine, the "Dong Core."
The software enhances the capabilities of drones (among other third-party accessories and automation devices) to be controlled using hand gestures. As the startup matures, it will most likely catch the eyes of bigger, established players in the industry.
NASA develops new traffic management system
Drones are becoming more consumer-oriented and commercialized because of the rise of the IoT and its evolution in the RIoT, where connectivity across sensors has made it possible to create ever smaller and more powerful drones.
The problem with UAVs roaming the skies is clearly problematic. Consumers are concerned with how the proliferation of these technologies from the sky can affect their life on the road.
NASA has already started testing and developing its air traffic management system for drones.mAdditionally, as insurance companies take on a more prominent role in creating insurance plans for drones, entry into the drone sector has become less risky than before. AIG is started selling insurance6 for drones for businesses using UAVs.
The intention is to capitalize on the adoption of drone technologies for business uses.
According to the AUVSI if the Federal Aviation Administration manages to integrate its UAS within the US’s the national civilian airspace (the deadline being 2015), the net economic impact of the drone industry could easily reach USD82.1bn by 2025 — creating over 100,000 high-paying jobs within the drone ecosystem.
The AUSVI estimates that by 2025, 160,000 drones will be sold every year.
The current apprehension of all regulatory authorities is their inability to readily track, monitor, and manage the “grey airspace” that drones occupy. With the development of a robust traffic management system for drones, the current regulatory deadlock will be broken, speeding up the process of creating the needed, standardized framework for managing the air space for drones.
Qualcomm Robotic Accelerator backing robotics startups in the drone industry
Qualcomm (QCOM) has manufactured efficient chips for drones and Yuneec will be the first one to use it. Qualcomm’s latest processor, the Snapdragon Flight board is a complete onboard flight control system for drones. The advantage is that in general multiple boards, components were needed to manage flight control, FPV (first person view) video and high-definition recording. Qualcomm has combined them on a single board, significantly reducing the weight and hence increasing the flight time of the drones.
With established manufacturers and technology pioneers stepping in to support emerging startups, the chance of failure is low. This increases stability in the already disruptive emerging RIoT ecosystem for drones and drone technology.
Drone insurance
Technology is barreling ahead at such a rapid pace that it is creating new emerging insurance coverage issues that were not contemplated when policy language was originally drafted. It is now up to the insurance industry to keep up. There are a myriad of complex liability and coverage issues which are further complicated by complex operational, procedural and technological challenges. The potential commercial usage of drones in the skies have sent the regulatory bodies such as the FAA in the US and Transport Canada scrambling, as the commercial market is chomping at the bit to launch their respective businesses.
In sync with the regulators, some insurance carriers may be looking to develop policies to cover insurance exposures presented by these small unmanned aircraft, yet there is little clarity or guidance in this area. For example, very few commercial farmers have obtained a Certificate of Authority to fly drones, yet it appears US laws and regulations managed by the FAA will eventually require FAA permission for the non-recreational use of drones.
Nonetheless, toward the end of 2013, for example, certain insurance carriers began writing coverage for customers utilizing drones. Coverage is endorsed onto an existing P&C policy. Most of the drones are valued at less than USD5,000 and coverage is currently for general liability only.
The drone market space
Currently, the drone market is rapidly evolving, making it difficult to accurately forecast how the emerging technologies and new entrants will affect the market space in terms of throughput and revenue. However, certain forecasts can be made using available data.
The utility of drones for commercial applications will drive growth in the commercial UAV section, with shipments increasing from 80,000 units in 2015 to over 2.6 million units/year by 2025. This should generate USD4bn in revenue from drone hardware alone.
Furthermore, the drone market will grow at a compounded annual growth rate of 19% in the next five years taking shape primarily around seven core industry sectors — energy, construction, real estate, utilities, agriculture, mining, and film production.
Alternative sources also suggest that the market space for drone technology will grow from USD3.6 bn in 2014 and is anticipated to reach USD16.1 bn by 202110. This is in terms of six identified market leaders and 35 market participants prominent in sustaining the value chain and hence the drone ecosystem.
The most lucrative opportunities currently available in the drone-enabled services are in the commercial sector, which are forecasted to generate USD8.7bn in revenue annually by 2025.
Service industry will thrive on the B2C applications that manufacturers are targeting, e.g. drone racing, autonomous follow-me filming, delivery services, etc.
Currently, the US serves as the established market leader in small Unmanned Aerial Systems (sUAS), and which will target the fast-growing B2C consumer market. The US’s market in sUAS is expected to surpass USD8.4bn in revenues by 2018, and will dominate the UAV market with revenues exceeding USD5.1bn — becoming at least 2.3 times bigger than the civil/military market, and roughly five times larger than the hobby/prosumer market.
UAS sales in US during 2015 amounted to USD3.3bn in net revenue from sales of drones for commercial, civil, and military applications, 3.8% (USD125mn) was from sales in commercial and civil applications. The market should grow to USD4.3bn by 2020, generating under 10,000 jobs, allowing entrants to tap into a budding and competitive talent pool of resources.
When non-consumer/civilian applications and segments for the drone are included, the market is reaches USD27.1bn by 2021. These segments include US Homeland Security, law enforcement, border patrol, in addition to aerial cinematography, package delivery, oil and gas, agriculture, and disaster response.
Although each forecast considers different variables and generates different forecasts, all of them point to the maturity of drone technologies and the market space, the reduction of barriers to entry, increased competition, and the exponential growth of the industry.
To further gauge and understand the opportunities, start by taking into account the startups in the industry instead of established manufacturers.
Why?
Because startups are far more agile and hence are more responsive to the changing market needs and are flexible enough to rapidly respond to the new market needs and opportunities. They are more innovative, and hence major manufacturers will leverage one of three opportunities:
Backing them through funding
Acquiring them
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Strategically partnering with them
We will start with an overview of the current startup space for drones.
Startup funding in the drone market
The drone market has already broken through the ceiling. Drone startup funding in 2015 YTD was up 61% YoY, allowing startups to raise USD172mn well before 3Q15.
3D Robotics, a UAV developer and manufacturer led the funding spree. It has been backed by investors such as Qualcomm, Maveron, Foundry Group, and O’Reilly AlphaTech Ventures, raising USD99mn in funding.
Other prominent startups include DJI Innovations, the largest global drone manufacturer who raised USD75mn, and a recent valuation of USD10bn valuation from Accel Partners. Accel Partners and DJI are in the process of establishing a USD10mn joint fund to invest in a new drone technology called SkyFund.
Airware, a technology provider that develops drone operating systems and enterprise level drone technology raised over USD40mn from First Round Capital, Andreessen Horowitz, and Felicis Ventures.
There are only 10 drone companies who have managed to raise USD10mn or more, and are in the limelight for future developments in the global commercial UAV market space.
The emerging global drone market
In summary, commercial drones will lead the growth of the world drone market in the next five years. In 2019, revenue from the commercial drone segment should overtake that from the consumer segment. While multi-rotor drones will remain as the largest drone type from 2014 to 2020, fixed-wing alternatives should grow at the highest rates among drone types.
The key challenges are the regulatory restrictions on drones which are anticipated to be eased in 2017, resulting in a boom in the world drone market from 2018, especially in the commercial drone sector.
Understanding the key challenges
Regulations
In mid-December, the FAA issued an interim final rule establishing registration and marking requirements for small unmanned aircraft used recreationally – i.e., drones. Like other drone owners, owners of drones that weigh between .55 pounds and 55 pounds must register their drones before operating them in the national airspace. But for these small non-commercial drones, the rule creates a system in which drone owners can register their drones online and pay a USD5 fee. In the first two days that the site was up, 45,000 people registered. Owners must also mark their registration numbers on their drones. The expectation is that the FAA will work with local law enforcement to enforce these rules.
Yet the FAA concedes that laws related to state and local police power, which includes zoning, privacy, land use, and law enforcement operations, will not be preempted by federal law. For example, the FAA Fact Sheet accepts that laws prohibiting drones from being used for voyeurism or for hunting; would be acceptable.
Drones and the business world
How drones are transforming the business world
It is not often that a technological trend completely revolutionizes the business world. The last time it happened was with the advent of smartphones. And now, it is happening again, with the mainstream availability of cheap commercial drone technology. Everything, from personal security to medical science, has been affected in one way or another with this new technological trend.
Industries being revolutionized by drone technology
1. Logistics
Drones have found great use in logistics. Recently, many retail and courier services are increasingly planning to make use of drones to carry out deliveries right to the customers’ homes. This is not only much faster, it eliminates the need for personnel and delivery vehicles, and prevents shipment damage. Some really big names in the industry like Amazon and DHL are experimenting with this idea.
And it is not just finished goods and retail items. Drones are being used to transport raw materials and equipment to construction sites, as well as for humanitarian aid by delivering food packs and medical supplies to the needy.
2. Security and monitoring
This was the original intention behind the creation of the world’s first drone, and to date, it remains one of its most popular uses. The first UAV took intelligence warfare to another level by allowing the military to see directly behind enemy lines. From there on, drones evolved into weapons and into what we see today. Today, police forces around the world are employing drones to ensure law and order, maintain peace, as well as to have an eye over the public. They are also used by private security firms for security planning and surveillance.
3. Journalism and photography
With drones becoming mainstream and affordable, it has come as a blessing in disguise for journalists and photographers. Now, no longer do they need to risk their lives or invest in expensive equipment to get that exclusive footage or photograph. But it is a two-way road as drones have also created increased interest in citizen journalism and given hobby photography a tremendous boost.
4. Farming and agriculture
For almost two decades, the use of sensors, data analyzers, and GPS have been a standard phenomenon in agriculture and farming. This new practice is known as precision agriculture, and the information collected, previously mainly gathered using tractors during the course of planting of seeds and while harvesting of the crops, was studied by farmers and used to get a better understanding of the field and make informed decisions for the future.
But recently, more and more farmers and agriculture-equipment dealers are gravitating towards unmanned aerial devices, more commonly known as drones or UAVs. They employ these devices to get aerial shots and other data related to the fields. The main advantage of this is that, unlike tractors, which can only be used twice, during plantation and harvest, a drone allows for the monitoring of crops throughout the season and quickly address any problems found on spot, before any further deteriorating to the crop can take place. And drones are far most cost effective when compared to traditional aircraft.
5. Delivery and errands
With drones being so affordable, they are being increasing used by the general public to carry out deliveries or run errands they are unable to carry out themselves, either due to inaccessibility of transport or due to security concerns.
6. Disaster management
Drone technology is increasingly being deployed in disaster-ridden areas for saving lives. In places where the topography becomes increasingly difficult for medical staff to reach the affected people, drones have come to the rescue. They have been used in earthquakes and fires to pinpoint survivors trapped inside structures, and to deliver aid and medical supplies.
The future of drones
With so many advancements happening in this field, as well as its branch fields that have a direct impact on how drones are designed, for example, battery technology, there is a lot more in store for drones going forward.
Drones have become an essential part of militaries’ efforts to combat terrorist activity around the world and, new technology will allow surveillance flights and drone strikes to be launched globally from the hundreds of existing "small-deck naval maritime vessels," which include guided-missile destroyers and littoral combat ships, according to Northrop Grumman.
The new seaborne drone system will combine VTOL with the ability to fly long distances like fix-winged drones and provide highly flexible, robust and affordable unmanned intelligence, surveillance, reconnaissance, and strike capability, according to Northrop Grumman.
The future of drones and other robots, indeed for the RIoT ecosystem lies in autonomous systems. Consumer drone maker DJI has announced an autonomous drone for the consumer market available for purchase. This marks an important step in the RIoT system and we expect to see other companies accelerate their development of autonomous systems and machine vision technologies in response to DJI’s move.
Forecast for the civilian drone market
Even though there has been a tremendous growth in the market for civilian drones, it still pales in comparison to commercial demand. Drones are still mainly used as tactical military devices, first and foremost, with usage in mapping and as an aerial imagery tool following closely behind. However, unlike the commercial drone market, which has had some time to mature, the civilian drone market is still in its infancy, and with so many startups specifically focusing on the impact of drones on consumers, they have forecasted as much as a 300% increase in civilian drone interest in the coming years. Intel is also looking to secure a position in the RIoT market with its processor-designing capabilities and RealSense 3D camera imaging technology, which it believes will stimulate innovation in the consumer drone market.
Korea’s top drone plays
Hankuk Carbon formed a JV with Israel Aerospace Industries to develop and market next-generation vertical takeoff and landing (VTOL) drones.
Hanwha Techwin
Why? The company has a high-level view of the RIoT ecosystem for the defense sector. With connected security devices, military hardware, and aerial and ground robots Techwin is well positioned to be a major player in the emerging RIoT ecosystem.
Korean Air Lines was awarded a government contract in 1Q16 to develop drones for the Korean military. This should tremendous growth opportunities for KAL and related domestic component makers as 95% of its components will be sourced from domestic manufacturers.
Understanding the value chain
Understanding the evolving ecosystem of drones — including manufacturers (established and startups), vendors, resellers, and value-added service providers.
Identifying the investment opportunities in manufacturers
Identifying the investment opportunities in vendors
Identifying the investment opportunities resellers
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Identifying the investment opportunities in value-added service providers
Key providers of drone technology
- Military drone manufacturers
Continuing the trend from last year, the US remains the biggest manufacturer, and user, of military tactical drones.- Consumer drone manufacturers
China has become the leader in the consumer drone space with the US ranked second.-
- Commercial drone manufacturers
The US takes the lead in this one by a wide margin. Be it military drones, or drones used by health care, construction and logistics industries, American-made drones lead in terms of total value.Worldwide drone market development
- US
The US is where the drone culture started and has flourished the single biggest drone market in the world, paling all other markets in comparison. It has seen tremendous growth over the years and analysts have predicted that the market will grow manifolds in the coming years.
- Korea
Korea has several established companies and startups that are poised to benefit from the growth of the drone part of the evolving RIoT ecosystem. Recent government initiatives and partnerships will also hasten the growth of Korea’s drone and drone component manufacturers.- Israel
Israel is increasingly making use of military drones, most of which are made locally. Unlike other companies around the world, Israeli drone manufacturing companies have kept their focus on military technology. This has made Israel one of the world’s biggest suppliers of tactical and surveillance military drones.- France
France is rapidly emerging as the largest consumer-based drone manufacturer after China. Their Paris based company, Parrot, is a household name among drone photography enthusiasts, and has a stake in many other drone technology companies worldwide, for example the Swiss senseFly and Parrot US and Korea.- Germany
Germany has also become a big producer of both military and recreational drones. Furthermore, many foreign manufacturers from Korea and US have set up their plants in Germany to cater to the EU market demand for commercial and consumer drones.- China
Shenzhen-based DJI has become the largest distributer of consumer drones in the world and has a huge fan base following among drone enthusiasts, photographers, and movie makers.- Japan
- Many Japanese auto and airplane design companies, like Mitsubishi and Honda are all set to enter the drone market in the coming years. Sony recently announced a global 3D mapping enterprise system in partnership with 3D Robotics.