Drones Are Taking Off, but Where are they Headed?

By contrast to wireless charging, the drone market shows real momentum. I wrote last year that going into CES drones were the hot topic, but the show floor was disappointing, with only a small number of products on display. That changed considerably this year.Drones Are Taking Off, but Where are they Headed?

The good news is that there are new a large number of new drone companies on the market. I counted at least fifteen new drone brands on the show floor, in addition to leading brands from last year like DJI, Parrot and Hubsan.

Also encouraging was the support coming from the supply chain. A number of largish Greater China-based companies were offering turnkey drone deliveries. That is to say, if you wan to make your own drone, you can have a company in Shenzhen or Taiwan bring you from design to production in a few months. This support is a key indicator of the health of the supply chain, and lets companies tap into the economies of scale upon which all successful CE devices rest.

On the other hand, we can view these developments in a darker light. The market is getting crowded. Companies are going to need to move fast, build distribution and brands, and find their niches soon because anyone can now build a drone.

The leading drone company, Shenzhen-based DJI had a great booth at the show this year, that was packed with people the whole week. I have heard various estimates that they did $1 billion in sales last year, which works out to about 0.5 million to 1 million units. DJI also seems to have done the best job in building out its Global distribution network. Distribution – retailers, wholesalers and ‘the channel – are crucial for consumer devices. However, a closer inspection of some of these channel partners carries an important message about drones.

Most of the drone distributors I spoke to at the show are distributors of other products. For the most part they are re-sellers of high-end Audio Visual gear and specialty cameras. Increasingly, I think it is becoming clear that the drone market is for commercial and hobbyists use. DJI’s best selling products are around $1,000 and up. This is not a product going after a mass consumer market.

The people who use drones are either very enthusiastic hobbyists or people who generate revenue with their drones (e.g. site surveys, news and movie filming). That is a good market, and companies like DJI can build solid businesses on that. However, it is not a massive market. Speaking anecdotally, many people I know who recently purchased cheap drones as toys quickly lost interest, pretty much putting them down once they crashed the first time. Admittedly, the software running drones is getting better all the time, making them much easier to fly. Nonetheless, I think the total size of the drone market is never going to be very big, at least not for consumers. Limited battery life, growing regulatory complexity, and just basic motivation and interest, are going to add up to a market that in a good year is never going to be more than a few million units. This is a good business for a small number of players, but the supply chain is already well past that scale. This will be good for the small number of interested buyers, but will eventually lead to a winnowing of the number of companies who can compete here.

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