The U.S. has a long reputation as a global leader in technological advances, just a few examples being the Internet, software and artificial intelligence (AI). However, you may be surprised to learn that this isn’t the case with consumer drones, where the leader is an obscure, privately-held Chinese company called DJI, which is short for Dà-Jiāng Innovations Science and Technology Co., Ltd., as reported by the Wall Street Journal. DJI has received more than $500 million from venture capital investors and is anticipating revenues to exceed $1 billion in 2017, according to another Journal article. With DJI now valued at about $10 billion, only 12 other start-up companies backed by venture capital are worth more, per the Journal’s data.
Consumer purchases of drones reached an estimated $1.7 billion worldwide in 2016, an increase of 55% from 2015, per technology research firm Gartner Inc. (IT), as cited by the Journal. For the year ending April, drone sales in the U.S. more than doubled versus the prior 12-month period, according to consumer research firm The NPD Group Inc. Looking ahead, Gartner predicts global consumer drone sales to exceed $3 billion in 2018 and reach $4.6 billion by 2020, the Journal adds.
Shooting Down Rivals
DJI already dominates more than two-thirds of the consumer drone market and plans to expand that share even more. It has a rapid development plan and is pursuing an aggressive pricing strategy that is pushing rivals to the wall, according to MarketWatch. For example, Yuneec International, another Chinese company that sells both consumer and industrial drones, is struggling to turn a profit and is laying off an undisclosed number of employees, per the Journal. Founded in Hong Kong in 1999, Yuneec is the fourth-largest seller of drones in the U.S., per NPD data, and has received an investment of $60 million from the venture capital arm of Intel Corp. (INTC), the Journal notes.
Intel-backed Yuneec isn’t the only one. GoPro Inc. (GPRO) had to recall its Karma drone, which often fell from the sky due to technical problems. After fixing them, the company now reports good drone sales over the past two months, but admits that profits are thin, the Journal says. GoPro announced the layoff of 200 employees during the earlier period of flight snafus, MarketWatch reports. As an indicator of the pricing pressure exerted by DJI, the GoPro Solo drone has plummeted in price from $1,400 to less than $300, MarketWatch adds.
3D Robotics Inc., another drone maker, laid off 150 employees in September, per MarketWatch. The company burned through $100 million of venture capital funding, with little to show for it, Forbes reported in October. „It was classic Silicon Valley hubris, 3DR was a $100 million blunder based on ineptitude,“ a former employee told Forbes.
Parrot SA, the French maker of the Bebop drone, announced in January that it would lay off 290 people, or 35% of its 840 person drone team, MarketWatch reports. Lily Robotics Inc. has crashed and burned into bankruptcy, after burning through $15 million of venture funding and being engulfed in a number of lawsuits over $34.8 million of pre-orders for what the company touted as a state-of-the-art camera drone, which never got off the ground, according to a report in Recode. Among the allegations in these lawsuits is that „a dazzling promotional video“ from Lily actually used a GoPro drone, Recode adds.
These examples would lead most investors to a single conclusion. The drone industry is ideal only for investors enjoying high levels of risk and a very narrow path to financial reward.