Some Thoughts on the Growing Drone Market

One of the most discussed technology sectors over the past few months has been drones – or more specifically autonomous flying vehicles designed for non-military purposes.

While the technology is not new, the rapid decline in costs driven mainly by cellphones and open source software is driving the creation of products for the enterprise and even the every day consumer.

Spending some tracking the market over the past few months, here’s how I think about framing the opportunity:

Cost Curve Decline

Today, the average “commercial” drone costs more than $100,000 ranging up to costs of more than $1,000,000 which restricts the market to use mainly by government and defense entities.

However, the high per-unit cost of early generation products will fall with economies of scale and as productivity gains take hold.  In the case of drones, this is amplified by the growth of the smartphone market as the products share many of the same components including GPS, Processors, Batteries, etc.

Subsequent generations of UAVs are likely to fall towards a baseline level that is lower than conventional aircraft as unmanned craft saves weight and cost that otherwise would have been spent on life-support-systems and onboard human-directed control.

Due to economies of scale, basic drones will commoditize as the market scales, which will further drive down per-vehicle costs as manufacturers standardize models and build them at greater scale

Drones with basic features will be good for the general market with specific drones being customized for specific vertical markets built on top of exiting platforms. (This is similar to what happened to the early automotive market with the Model T)

Technology Curve Improvements

There are two basic functions of drones:

  • Transporting physical payloads
  • Transmitting Digital Information Remotely

Driven by Moore’s Law, digital drone technology will double in power every year meaning that current drivers can be made smaller and more can fit onto a given device.   Similarly, mimicking the computer industry, makers will launch drones with ever improving series of cameras detectors and communication links

Comparatively, physics related to propulsion, drag, and lift will not improve at anywhere near the same speed leading to the more investment opportunities in the short-term to be related to digital use cases of drone technology.

Learning Curve Escalation

Going up the learning curve means attaining further mastery of the devices and their support networks, as well as earning additional insights on how to improve them.

From direct operating experience, knowledge about drone performance and mission impact will be fed back to further lower cost curves and boost technology improvement.

On the ground, organizations will learn how well devices work in different operations and how to better integrate their use.

Part of this is also learning how recipients react to drone-use in public for non-military use cases and overcoming existing drone stigma – similar to how residents in London had to re-learn not to duck and cover following the plane buzz that had built during WWI.

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  • http://www.startupmanagement.org/ William Mougayar

    Hi Adam, Good overview!

    What do you think is going to happen with the low-end/personal usage segment of the drone market?