The Drones Are Coming!
lawrence m. fisher writes about business for The New York Times and other publications.
Published January 21, 2014.
When you think about drones, you probably think about death from the sky. But that's about to change. A host of companies, old and new, are racing to market with unmanned aerial vehicles (UAVs) intended for nonmilitary applications from wildlife tracking to real estate marketing to last-mile package delivery. The size of the market for these benign uses remains a subject of intense speculation. But the technology is flying ahead, far in advance of regulations governing safety and privacy.
Weapon-bearing drones like General Atomics' Predator and Reaper generate the headlines. Yet even in the military, a vast majority of UAVs are small, nonlethal craft, used primarily for surveillance, intelligence and reconnaissance. They resemble radio-controlled model airplanes with video cameras – and that, in essence, is what they are. But with the benefit of advanced technologies ranging from infrared sensors to GPS, they become versatile flying robots.
The appeal to existing makers of military drones is obvious: if the civilian market is even a fraction of the size projected by boosters, it offers spectacular opportunities to companies with flexibility and imagination. But civilian products will need to be priced at least an order of magnitude lower than the military craft these manufacturers are accustomed to building, and it's an open question whether any of them could make a profit under such constraints. Indeed, there are good reasons that all of the prime military contractors stopped making small airplanes on a budget decades ago.
At the other end of the spectrum, a flood of start-ups, many of them spawned by the hobbyist community, are approaching this nascent market with a missionary zeal that evokes the early days of flight and the birth of the PC. An Apple Inc. may ultimately emerge from DIYdrones.com – and along with them, of course, a host of flashes-in-the-pan, like Altair, Kaypro and Osborne. But drones come with an image problem; they make many people feel creepy in a way that early airplanes and personal computers never did.
For the time being at least, hobbyist drones literally fly below the radar. The Federal Aviation Administration does not regulate aircraft of less than 55 pounds gross weight that fly below 400 feet, provided they are not used for commercial purposes. Commercial drones exist in a legal no-man's land. But Congress has charged the FAA with creating a general framework for regulating the use of commercial UAVs over United States territory by 2015.
Not surprisingly, anecdotal evidence points to a great deal of illicit testing and "volunteer" work that treads a fine line between commercial and recreational flying. But a drone crash in a populated area or a collision with a passenger aircraft could be catastrophic. As long as the government dodges the issues of who flies which drones and where, this is an accident waiting to happen.
There are other public policy issues to consider here. If unmanned aircraft are used for common tasks like delivering pizzas – as more than one start-up has suggested they will be – the airspace over urban areas will become a scarce resource and its allocation inevitably a matter of dispute. Likewise, the radio spectrum needed for remote control. For hobbyists, these resources are more-or-less satisfactorily managed on a first-come, first-served basis, but a commercial market will require systematic regulation.
Arguably, the most contentious issue raised by the commercial application of unmanned aircraft is privacy. While citizens willingly share the most intimate details of their lives across social media and casually grant online retailers free use of their personal data, the backlash to revelations about National Security Agency snooping makes it clear they are not comfortable being spied upon. Drone-based surveillance drastically increased the opportunities for peeping – not to mention opening the door wide to anybody with the budget to buy the equipment.
Legacy of the Other AMA
Today's hobbyist drone start-ups have an antecedent in Radioplane, which was founded in Southern California in the 1930s by the British actor and model airplane enthusiast Reginald Denny. Radioplane's most lasting contribution to Western culture may have been as the workplace of a young assembly line operative named Norma Jeane Mortenson (Google it). But the company also delivered nearly 15,000 drones to the Army during World War II.
Radioplane was acquired by Northrop in 1952. And Northrop (now Northrop Grumman) still produces drones, as do Boeing and Lockheed Martin. The market-share leader by far, though, AeroVironment Inc., is a comparative unknown whose small hand-launched vehicles account for fully 85 percent of the unmanned aircraft in use today by the U.S. military. The company, by the way, claims a similar-sized share of the market for industrial fast-charging stations, mostly used for electric forklifts and airport support vehicles. But it is probably best known as the maker of the Gossamer Albatross, the first human-powered aircraft to cross the English Channel.
For most of their nearly 100-year history, remote piloted aircraft were used for the lowest of low-level missions, like target practice. But AeroVironment's Pointer, introduced in the late 1980s, was something different: a tactical reconnaissance vehicle.
The Pointer and its descendants – the Raven, the Wasp and the Puma – represent disruptive innovation. The Raven and its brethren drastically undercut the cost of manned aircraft, which makes their purchase an easy decision. As important, not putting a pilot at risk allows their deployment in situations where a conventional craft simply could not go.
AeroVironment executives say their experience making small drones for the military positions them well to address the civilian market. Steven Gitlin, AV's vice president for marketing strategy, foresees markets for UAVs in public safety, infrastructure monitoring and hazardous waste disposal, among others. "When we developed our initial systems in the 80s, we had in mind these kinds of applications," he said.
Founded in 1971, AeroVironment is hardly a start-up, yet it retains a strong hobbyist ethos. Some engineers proudly wear AMA badges – as in Academy of Model Aeronautics – alongside their security ID cards, and are keen to show visitors their whimsical creations, like a hummingbird drone, which closely mimics the bird's size, appearance and method of flight. Yet they are serious players: AV's Puma AE is the first hand-launched unmanned aircraft system to be approved by the FAA for commercial missions. The "restricted category" certificate permits operators to fly the Puma for applications like oil-spill monitoring and ocean surveys in the North Slope region of the Arctic. The FAA said that previous military acceptance of the Puma design allowed it to issue the license.
AV's Raven, its most popular model, is sold as a complete system, with three aircraft and two ground stations and varying levels of support, for $100,000 to $200,000. That is a fraction of the $4 million price tag for a Predator, but probably still too much to make it viable for most contemplated commercial applications. While AeroVironment executives are confident they can hit lower price points once they reap economies of scale, hungrier entrepreneurs aren't waiting. Hobbyists can already buy a DGI Phantom quadcopter on amazon.com for just $479, and a raft of start-ups foresee a market for much more sophisticated small drones costing just a little more.
Running to Stay in Place
Drones are "a disruptive industry that is going to be disrupted itself," explained Timothy Reuter, president and founder of the DC Area Drone User Group. "You have the traditional suppliers who are used to selling to the government. But at the other end you have a race to the bottom from companies that will disrupt them. Obviously, you don't get the same capability for $500 as for $50,000, but why pay extra when all you need is something small and simple? I honestly believe that folks like the DC drone users are going to incubate the next $100 million companies because it's such a ripe ecosystem now and there's no established player dominating this technology."
San Diego-based 3D Robotics is the highest profile company to emerge from the maker culture. Its founder and chief executive, Chris Anderson, the TED curator and former Wired magazine editor, also created the Web site DIYDrones.com. 3D Robotics is producing fixed-wing and multi-rotor helicopter UAV designs using the open source model previously associated with software like Firefox and the Linux operating system. 3D's online store offers kits and parts, plus ready-to-fly models starting at about $600.
While 3D Robotics' origins are in the hobbyist community, it is very much a commercial enterprise; the company has raised $35 million from well-known Silicon Valley venture capital firms and is now operating a factory across the border in Tijuana. It expects to find markets in all the obvious places, along with many that are not. "Drones are going to be one of the biggest sources of big data for the biggest industry in the world, which is agriculture," Anderson said, speaking at "The Atlantic Meets the Pacific 2013" conference sponsored by The Atlantic magazine and the University of California at San Diego. "We love agriculture because there are no people there."
He added, "I'm not going to say we've come up with the Macintosh for drones, but we're right on the verge."
Oddly, it is another Apple product, the iPhone, that has inspired the technological innovation driving drone prices down to consumer levels. Inside the iPhone (and all smartphones) are the processors, sensors, accelerometers, GPS and camera technology needed to create a sophisticated autopilot. All that's left to do is write the software. And software is cheap – even free, using the open source model. Drones are benefitting from Moore's Law, which famously states that the number of transistors that can be packed in an integrated circuit roughly doubles every two years, driving an inexorable increase in capability and reductions in both price and equipment weight.
"The DIY movement around small UAVs has been able to piggyback smartphone development and build a vehicle around it," said Andreas Raptopoulos, cofounder of Matternet, a Silicon Valley start-up that is designing small networked drones for delivering goods. "A UAV is a vehicle that is 80 to 90 percent software, which allows it to navigate, respecting the laws, and to reach its destination autonomously. Its interface with the physical world has very few moving parts; the rest is a computer with a battery."
Matternet's first application will be a system for delivering small, high-value goods – for example, pharmaceuticals – to areas that lack adequate transportation infrastructure like remote villages in sub-Saharan Africa. "In many places in the developing world, the roads do not work," Raptopoulos said. "Our game plan is to set up a number of pilot projects, learn how to transport medical supplies in those environments, and over time learn how to set up businesses in alternative delivery of goods."
Raptopoulos believes the "killer app" for drones will be something not currently done with manned airplanes or helicopters; nor is it likely to originate with incumbent producers. "Will a breakthrough in this industry come from the big players or someone who operates without constraints?" he asked rhetorically. "Historically, it comes from the upstarts. That's Silicon Valley writ large."
The commercial drone industry is already specializing, with newer companies targeting specific pieces of the unmanned aircraft system – the airframe, the autopilot, the software. Some entrepreneurs believe the airplane itself will be increasingly commoditized, with greater value being added by software, instrumentation and the like. This approach would benefit greatly from common standards, so that each application developer does not need to start from scratch. But so far the industry has no Intel, whose 8080 microprocessors gave early PC developers a platform to build upon, and certainly no Microsoft Windows operating system – though many drone developers are using Linux.
Enter Airware, a start-up based in Newport Beach, Calif., that has received backing from the venture capital firms Andreessen Horowitz and Google Ventures. Airware provides an operating system and development platform for UAVs. The business model is to combine hardware, software and application programming interfaces to make it easier for developers to integrate unmanned aircraft technology into their projects. Jonathan Downey, Airware's founder and CEO, brings serious drone credentials, having worked on Boeing's A160T Hummingbird and Phantom Eye UAV programs.
At Boeing, "I got to see what it's like to be on a large unmanned aircraft program that stretches over 10 years," Downey said. "All of the military aircraft go through this siloed effort; they're all running proprietary software, which is like a black box. On the commercial side, I thought there needed to be a platform, and we would let other people worry about the applications."
Airware is currently supplying hardware and software to beta customers, including Delta Drone, a Paris-based company that designs, produces and sells civilian drones. Early applications are primarily in land management and infrastructure inspection; Delta plans to deploy drones in Kenya by early 2014 to aid in anti-poaching efforts. Commercial drone companies "are more than willing to shift to a common platform," Downey explained." Our goal is to be the Wintel of this space."
The Regulation Factor
Just how big that space is remains a matter of conjecture. True believers speak of a market worth tens of billions of dollars annually, but are vague about the composition and the timing. A 2013 market study by the Teal Group, an aerospace industry research firm, estimates that UAV spending will more than double over the next decade from current worldwide expenditures of $5.2 billion annually. But the report concludes that the civil and commercial drone market will represent well under 10 percent of the total for the next five years, largely because of safety and privacy concerns holding back regulatory approval.
The more practically minded drone purveyors concede that the regulatory environment will determine everything. "It's an extremely attractive market opportunity, but it's all gated by the FAA right now," said Gitlin of AeroVironment.
The FAA is playing its cards close to its vest, but states that some 100 United States companies, academic institutions and government organizations are currently developing more than 300 unmanned aircraft designs. In typical government understatement, it notes that "because the industry is in its infancy, forecasts of the number of units are relatively few and have considerable variation." The FAA has plans for six designated UAV test sites and said it had received 25 applications from 24 states to host one, all in high hopes of being the future Drone Valley. Yet based on work by RTCA, a private not-for-profit enterprise that aids the FAA in technology assessment, the agency expects the volume to be relatively small – approximately 15,000 craft by 2020 and 30,000 by 2030.
Advocates say those estimates are far too cautious and point out that the worldwide computer market was once estimated at just a handful of units. According to a March 2013 report by the Association for Unmanned Vehicle Systems International, the economic impact of the integration of unmanned aircraft systems in the United States will total more than $13.6 billion in the first three years and will grow to more than $82 billion by 2025. Moreover, it will create some 100,000 high-paying jobs in the first decade. But the report concludes that for every year that integration is delayed, the United States stands to lose more than $10 billion in business.
Some experts find these projections fanciful. "I think they're drinking the Kool-Aid here," said Tom Davis, former chairman of the House Committee on Oversight andGovernment Reform, and now a private consultant. The civilian market, he said, "is subject to a lot of potential abuse. You could have an Al Qaeda front come in and put up a commercial drone. You've got a whole area that nobody has really thought through. If an entrepreneur gets too far ahead of the regulatory regime, their business model can be knocked down by one incident by one company."
Unmanned Aerial Politics
Civilian drones do have friends in high places. The cochairmen of the Congressional Unmanned Systems Caucus are Howard P. McKeon, Republican of California, who is also chairman of the House Armed Services Committee, and Henry Cuellar, Democrat of Texas, who serves on the House Appropriations Committee and the House Steering and Policy Committee. According to the caucus Web site, the group sees its role as working "closely with industry to ensure we continue to expand this sector through efficient government regulation and oversight."
Aligned against the industry are a host of nonprofits focused on privacy issues, among them the American Civil Liberties Union and the Electronic Frontier Foundation. But naysayers also include a growing number of cities and counties primarily concerned with safety. Many states and municipalities have legislation pending that would regulate or ban drones altogether, although many of these laws may prove unenforceable. Local governments have no jurisdiction over airspace, which is regulated by the FAA. Meanwhile, the FAA has no responsibility for protecting privacy. Drone boosters point out that local Peeping Tom ordinances already prohibit citizens from spying on their neighbors, with or without aerial assistance.
But privacy advocates say UAVs are different. "People are more concerned about privacy from drones than other technology," said Parker Higgins, an analyst with the EFF in San Francisco. "License plate readers are everywhere, but we just can't seem to get people worked up about that. A drone in some cases is not very impressive technology, yet people are really concerned."
The EFF, he said, is most concerned about the use of drones by law enforcement without adequate oversight. "Texas, for example, has passed a law that limits commercial use and hobbyist use, but doesn't limit law enforcement use," he said. "From where we're standing, that's just about the worst possible law."
Of course, people may become accustomed to drones, just as they have accepted smartphones that transmit location to the cell network and anyone with access to it. And drone fans say the privacy issue is a red herring. "The ACLU and the EFF have used this as a bully pulpit," said Michael Toscano, president of the Association for Unmanned Vehicle Systems International. "They lost it with cellphones, GPS, the Internet; so this is their opportunity. [But] they're really talking about Big Data. How you collect it is immaterial."
The Next Big Things
One reason that UAV entrepreneurs talk so much about agriculture is that safety and privacy are far less pressing issues flying above an Iowa cornfield than circling midtown Manhattan. There is also a strong business case for using small unmanned aircraft for precision agriculture. Drones equipped with the appropriate cameras and sensors could identify the specific areas of a farm afflicted by pests and apply measured amounts of chemicals only where they are needed. In Japan, unmanned helicopters have been used for crop dusting for more than 20 years, and today UAVs spray 40 percent of the nation's rice crops – apparently without controversy. The University of California at Davis is currently testing the Yamaha RMAX drone on designated vineyards.
Nearly every developed country in the world (as well as some that barely qualify as such) has a drone industry just as keen to tap the civilian market as their U.S. counterparts. In many cases, these companies face a far friendlier political environment. Brazil, a major user of drones for applications like border patrol, has no laws restricting civilian use. Nor do Mexico or New Zealand. In Australia, operators of commercial drones need obtain only an identification certificate, which can be done on the Internet.
"We're shooting ourselves in the foot by going so slow because other countries are shooting ahead," warned Reuter of the DC drones group. "Small companies starting now in Australia will be the big multinationals we'll have to compete against because we're not even allowed to get started until 2015."
But no one inside or outside government expects that deadline to be moved up. Indeed, it's more likely to slip. The infant drone industry will try to advance UAV use gradually, starting with remote applications where unmanned aircraft don't bother anybody. Then, one day perhaps, the sight of a drone above a suburb or city will raise few alarms. As Anderson of 3D Robotics put it, "If our company and others in the DIY Drones community do our jobs, a generation from now won't remember that drones were once military technology."