ParisTech Review / Editors / 2014-10-23
It’s understood, the twenty-first century will be the century of robots. And there is a lot of talk concerning a subfamily of these machines: drones. While these remotely piloted aircrafts were first developed in a military context, there seems to be no end to their civilian uses. This development goes hand in hand with a radical change in business models, marked in particular by a sharp drop in prices and an increasing variety of uses. So what are the current prospects?
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All over the world, UAVs, or Unmanned Aerial Vehicles, are experiencing considerable growth. This is the civil phase of a phenomenon that was at first military. Since the 90s, fatally effective and highly controversial at once, surveillance, attack and transport drones have been playing leading roles in the wars conducted by the United States in Iraq, Afghanistan and elsewhere. These highly sophisticated machines owe their existence to costly programs and their prices reflect it. The famous MQ-1 Predator, for example, which was commissioned in 1995, cost more than two billion dollars in development and its unit cost is estimated at $ 4.5 million.
As U.S. military spending is declining, the Pentagon’s suppliers are now preparing to adapt their technologies to civilian use. In the past, similar transitions from the military world to the civilian one have often been remarkably successful: think of the Internet or the GPS. Such a switch commands a drastic reduction in the cost of technologies whose development expenses have been largely amortized in the military phase. Since the early 2010s, the cost of the computer components and sensors needed to build drones – that is to say both the hardware that flies and the software which communicates data – has dropped sharply and will continue to do so.
A Predator drone
Meanwhile, new players have emerged, which have benefited from the diffusion of certain technologies. Some are part of the “makers” movement: junior industrialists who practice collaborative economy. The former editor of Wired, Chris Anderson, thus said in an interview published by ParisTech Review how he started his drone company: “I realized the incredible innovations in the fields of sensors, GPS, wireless technology, cameras and memory meant that any smartphone would make a very capable autopilot. Drone technology is right there in our pockets. A kind of tech that’s accessible: why couldn’t ordinary people give it a try?” He thus created a community called DIY Drone, which in five years‘ time has become a company worth millions of dollars, with plants in San Diego and Tijuana, Mexico.
So on one side you have ingenious DIY tinkerers who are recycling tech and sharing solutions, on the other you have defense industries, relying on highly specialized expertise: the players in this line of business are varied and we are now in the market’s creation and growth phase. Consolidation is not yet on the agenda, but is due to happen sooner or later. No wonder leaders and observers of this nascent industry are wondering about its future. What is it going to be like and who is going to benefit from it? Let’s try to get a clearer picture.
What will the drones be used for?
Costing only a few hundred dollars, and enjoying almost unregulated circulation, recreative drones have experienced the strongest growth, but they are mere toys. Yet, beyond that, their civilian uses are potentially limitless.
Surveillance is one major outlet, concerning oil and gas facilities, pipelines and power lines for example, but also the monitoring of volcanic activity and pollution. After the Fukushima disaster in March 2011, drones flew over the destroyed nuclear plant to take pictures of buildings and of the flooded shoreline. Thanks to the data transmitted, TEPCO teams were able to cool the overheating reactors and to limit the damage.
The ability of UAVs to hover and to observe the same places with no time limit makes them extremely valuable for search and rescue operations, especially in extreme conditions where the lives of pilots would be endangered, and their capabilities limited as well. Farmers are also in the market for the spreading of fertilizers and the monitoring of livestock and large plots. Drones take pictures that can reveal problems otherwise undetectable by a simple visit in the field. In Africa, animal reserves are starting to rely on drones to fight more effectively against poachers.
Some drones can map out fields. With the infrareds emitted by a field, one can analyze the growth of vegetation and determine very precisely, at the scale of one square meter, where a field is lacking in fertilizer or pesticide treatments. Such maps also help detect plant diseases such as powdery mildew on vines, or a lack of minerals. The drone can also assist in the management of water resources. By identifying water scarcity, thermal cameras can save water by pinpointing the areas to be watered. In Japan, Yamaha has developed spreader models for rice fields and has sold 2,400 units since 2000, while forming 14000 remote pilots during the same period.
For law enforcement, a drone can help pursue a suspect or find a lost child in a difficult terrain. In the service of geologists and the mining industry, UAVs are capable of collecting geomagnetic data on natural resources, a laborious grid pattern which requires to fly for hundreds of miles in a straight line, then to sidestep fifty meters on one side and to start back in the other direction and so on. Project developers may assign simple tasks to drones while real estate agents envision the footage and still photographs taken from the drones as a great marketing tool. As for television and film, drones have been part of their filming equipment for years now.
Nevertheless, in 2014, and despite costs much lower than their military counterparts, civilian drones are still not competitive enough. The information they provide is still significantly more expensive than that provided by satellite: several tens of euros per hectare, against 6-10 euros for satellites, which deal with much larger volumes. That is why the use of drones is possible at present only for high-value crops, such as vineyards. In addition, in the current state of regulation, drones are not allowed to cross great distances, which limits their productivity.
How to evaluate the impact of the revolution that civilian drones will bring about? It has sometimes been compared to the introduction of the horseless carriage in the early twentieth century, and sometimes to the advent of PC after the era of mainframe computers. Anticipating lower costs and an explosion of uses, one must examine the business model, while keeping in mind there may well be many different ones. What are the economic foundations of drone aeronautics?
The quest for a business model
By analogy, like Chris Anderson many people want to see it as a “flying smartphone” that they plan to pilot with free software, unlike the proprietary model used by military drones. For all those who think the future market, the smartphone serves as a benchmark, with its blend of hardware and software, its ecosystem of applications, its function of transmitting information in real time and its close working relationship with “Big Data”.
With decreasing hardware costs, questions arise about the most interesting segments of the value chain. A new service industry is emerging, which will provide drone service to customers – be they businesses, local governments, or private individuals. What’s more, the technological and hardware portion is also full of promise. At this stage a distinction can already be established between standard products, whose cost is going to fall and that are going to be mass produced – as is already the case for small toy helicopters – and more specialized aircraft, which will derive their added value from specific features developed for particular uses.
The key qualities, for example, for drones used to monitor infrastructure, will be their positioning accuracy and stability, so that, over time, pictures can be mass produced and compared automatically. A machine used to spread seeds or spray pesticides, on the other hand, shall have to be heavy-duty and have a great flight range.
The multiplicity of uses should thus result in some form of technological specialization. An extensive supply chain shall provide many enabling technologies, ranging from flight control systems, propulsion and communication, to sensors, telemetry and power. And the development of these technologies, mobilizing vastly different skills and fields of expertise shall come at once from major players and small structures. In the long run, cooperation between large industries, small businesses, research institutes and universities will allow for the development of local networks of expertise on UAVs, as well as the grouping of suppliers.
It is Impossible, at this stage, among the thousands of start-ups that are being launched worldwide in the drone business, to tell who’s going to be the next Airbus, Apple or Google of “dronautics.” Yet some prospects can already be outlined.
The software dimension, for example, is crucial. In a MIT incubator, a few start-ups are working on the design of a standard operating system that all civilian drones could use. Much along the same lines, the Pentagon has hired hundreds of engineers to create a kind of “app store” to try to reduce the enormous expenses incurred by the software upgrades that military drones constantly require. Civilian “dronautics” shall benefit from both these developments. But however tempting it may be to transpose military technology into civilian daily uses, civil society will accept neither the same risks nor the same intrusions. The industry’s development could therefore end up being hampered – not by technological or economic issues, but by legal and societal ones.
The delicate issue of acceptability
When an unarmed Predator monitoring drone crashed in November 2013 along the U.S. border because an operator had accidentally closed the throttle, a heated debate pitted customs, border police and the Federal Aviation Administration (FAA) against each other regarding the way the accident should be assessed. In military terms, it was a minor incident within the otherwise exceptional service record of a piece of equipment. But in civilian terms, it’s quite different. The accident rate is currently 350 times higher than the limit allowed by the civil aviation. And fatal accidents have already occurred. In August 2009, a Yamaha RMAX helicopter, a commercial drone the size of a motorcycle, crashed while dusting crops in South Korea. Manned aircraft are designed for an accident rate of one per million flight hours. For UAVs, currently the ratio is rather of one per ten thousand hours.
There is also great concern about breaches of privacy. The eye of a drone is all-seeing: it can see everything, all the time. A telling example: in 2014, Aurora Flight Sciences, a Virginia-based company, tested a UAV to monitor large urban areas. While a human observer may well not notice anything, an algorithm run by an onboard computer could observe behavior and movement patterns that may suggest hostile intentions, such as a car passing several times in front of a bank. This would pose a legal problem: could the police invoke this behavior to preventively arrest a suspect?
More pragmatically, the question of acceptability also arises in terms of hazards. A few months ago, Amazon tested out the delivery of books by drones. The main objective was probably publicity, however questions arose: are clients going to accept the principle of an occasional visit of machines, when these machines – or others that look just like them – could also inform burglars or insurance companies, or tax officials?
There are also still many technical problems to solve. Onboard sensors and collision avoidance systems are still insufficient for the massive adoption of drones. The UAV’s frequency of communication breakdown is still much too high. While this does not pose an insurmountable problem on a battlefield, since the drone is programmed to either continue to fly or return to its base, such a procedure is not acceptable in a crowded urban environment.
In 2014, in the United States, leisure drones are already a reality, however only the military, border patrols and about 300 public agencies have a right to use professional drones on U.S. soil.
The U.S. market is in the process of restructuring in the context of the September 30, 2015 schedule, when, theoretically, all drones weighing less than 30 pounds and flying at an altitude of under 400 feet (122 meters) will be free to move across the country. Commercial excitement is high but the deadline is nevertheless likely to be postponed for a few years, as the challenge of making drone circulation compatible with the growing demands of air safety is liable to prove more daunting than anticipated. Until the end of 2015, six sites across the country have been selected by the FAA to serve as laboratories and testing fields.
A market of $ 100 billion in ten years
Given the infinite variety of their uses, drones will have a major impact on the economy. Not only will these systems reduce costs and enable more efficient operations in many areas, but they also will allow companies to emerge to develop the required technologies to fuel this revolution. In 2023, according to the Teal Group Automation company, the global market for UAVs could reach a turnover of $ 89 billion. In 2020, analysts expect 25 000 drones to operate in American skies.
This huge market whets appetites. In the military field, the United States and Israel have dominated the market, but seven European countries, including France, have decided to embark on the production of civilian drones. And in at the start of 2014, about a thousand civilian drones are in operation in ten European countries. Europe is dynamic, being home to a third of the UAV systems developed in the world, 80% of which are civilian drones. In 2013, there were 400 drone production projects in Europe – in the United Kingdom, France, Germany, Italy and Spain. Small businesses account for over 80 % of the companies involved.
The rise of dronautics and of its uses could have a positive impact in terms of employment. True, the drones are going to replace pilots, but an unmanned aircraft generally requires two people, and sometimes more, to be in charge of ground control, although it will certainly be possible to develop systems for a ground controller to follow four or five UAVs at once. Parcel specialists like UPS or FedEx are envisioning but one pilot on the ground controlling several drones following each other in a single file. The real new jobs will come from elsewhere, from an entirely new service industry at the crossroads of aviation, logistics, technology and the supply chain. Advanced countries will need to develop a skilled workforce to design, program, and organize the production, management and maintenance of drones. And skills that remain to be invented will become indispensable.
Regulatory issues necessarily have an impact on business prospects and, just the once will not hurt, European countries this time appear to enjoy greater regulatory flexibility. In the United States, however, the issue of privacy and air transport was filed in the 1960s and regulation has therefore been engineered in direct line with the fourth amendment of the Constitution, which guarantees “the right of the people to be secure in their persons, houses, papers, and effects.” Of course, this right is primarily a guarantee against the abuse of power by law enforcement, but it can all the more be invoked against companies.
In Europe, the question arises in different terms. While social tolerance for public scrutiny seems to be less of an issue than in the United States, regulators for their part seem more open to a civilian use of drones. In addition, drones shall benefit from the principle of subsidiarity: whereas in the United States, the question of drones is treated within a federal framework (Congress and the FAA make decisions), in the European Union it is treated primarily within that of individual countries. Because of a question of… weight! Aircraft weighing less than 150 kg are not subject to the supervision of the European Aviation Safety Agency, EASA. Pending an inevitable regulatory harmonization, each Member State is free to individually set its own rules and authorization procedures at its own discretion. Finally, in all countries, industrial enthusiasm is leading to an epidemic of illegal drones.
Tidying up the UAV market is a major concern. Since April 2012, to avoid unfair competition, a new regulation requires that French drone makers, prior to entering any business transactions, must obtain clearance from the Directorate General for Civil Aviation (DGCA, the French equivalent of the FAA). However, in 2013, out of the 354 drone makers listed in France, only 233 firms had actually undertaken the necessary steps. Such disorder can legitimately give cause for concern. Yet it also reflects the excitement of a still nascent market, with many players, and that has not yet reached its consolidation and structuring stage. A market where, without doubt, there are already hidden champions… which probably won’t hold the title long.
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