The technical name for drones is “Unmanned Aerial Vehicles” (UAV). They are aerial vehicles that come in a wide variety of sizes, shapes, and functions and are controlled either by remote or control systems from the ground. Drones are already serving a variety of military and civilian functions in countries around the world. From a futuristic perspective, drones are being viewed as platforms for emerging robotics, aeronautics, electronics, and artificial intelligence technologies designed to enhance business performance and meet diverse business objectives.
Drones have a long history. The earliest recorded use of an unmanned aerial vehicle for warfighting occurred on August 22, 1849, when the Austrians attacked the Italian city of Venice with unmanned balloons loaded with explosives. At least some of the balloons were launched from the Austrian ship Vulcano. Keane and Carr provide a brief history of early unmanned aircraft from World War I to the present.
Today, military drones are being remotely controlled by operators to deliver payload and missiles thousands of miles away. However, introducing UAVs as unmanned aircraft systems (UAS) into U.S. airspace for commercial purposes has been challenging for both the Federal Aviation Administration (FAA) and the aviation community because the U.S. has the busiest, most complex airspace in the world.
On February 15, 2015, the U.S. Federal Aviation Administration proposed a framework of regulations that would allow for the routine use of certain small, unmanned aircraft systems in the aviation system. The FAA proposal offered safety rules for small UAS (under 55 pounds) conducting non-recreational operations. Although the rules are not final, the U.S. Federal Aviation Administration did approve limited commercial use of drones. While the new safety rules are undergoing review, UAS Rule Section 333 of the FAA Modernization and Reform Act from 2012 is being used to grant permits for commercial use of UAS on a case-by-case basis. Over 250 permits have been granted to date. So, the market is open. Close encounters with small drones are routinely documented by the media. Safety concerns will remain a key focus of the FAA’s new permanent rules.
It is unclear how much of the global commercial market U.S. businesses will gain, but the global market is a market of significant interest. In one forecast, Teal Group and BI Intelligence Estimates predicted that the global aerial drone market will grow to $13 billion by 2024. The civilian segment, which includes both public and private drone use, has a projected value of approximately $3.3 billion. The 2015 forecast for the commercial aerial drone market segment, however, is under $500 million dollars. These data are shown in this graph, with market stats starting in 2013.
The forecast is that the market segment for commercial/civilian drones will expand at an annual growth rate of 19 percent between 2015 and 2024, compared with 5 percent growth on the military/defense side. In dollar terms, the defense market segment grows by twice the amount of the civilian market segment.
Another forecast by Radiantinsights.com estimated that the global commercial drone market was worth $609 million in 2014 and will reach $4.8 billion worldwide in 2021. While more detailed revenue information, such as platform sales, maintenance, and operating revenues, is not yet available for 2015, it is likely to be useful in decision making over the next five years.
The official U.S. entry into the global aerial market is estimated to begin when the preliminary FAA rules are finalized in 2017. In the interim, the FAA has set up four testing drone sites in Alaska, Nevada, New York, and North Dakota, and plans to open three more in Hawaii, Oregon, and New Jersey. At these sites, drones can be flown with FAA approval for development or training purposes. The testing sites are said to be looking for customers. A lot can be done in the two years before the widespread but heavily restricted commercial UAV flights become routine.
Around the globe, BI Intelligence is tracking early commercial manufacturers, such as Switzerland-based senseFly Ltd. (owned by France-based Parrot), Canadian firm Aeryon, publicly traded Swedish firm CybAero, Shenzhen, China-based DJI, and Korea-based Gryphon. Market research on commercial drone markets can be gathered by visiting the websites of these corporations. The emergence of leading commercial manufacturers in Europe is not surprising since the European Aviation Safety Agency has encouraged this development through the creation of new categories and regulatory rules for drones in farming, entertainment, and parcel delivery. While France and Germany are the two EU countries with thriving commercial drone markets, in its March 16, 2015 EASA Vision 20/20, the European Aviation Safety Agency suggested that national authorities faced with a lack of resources could delegate some overage functions to other countries and the EASA. Businesses can gain insights into future U.S. market developments as new rules for specific industries are implemented by the EASA.
Commercial Drone Market Segmentation
Today’s flight platforms, remote controllers, cameras, sensors, and apps are being introduced into market segments. Four sectors are being scoped out, the first being agriculture. Japan and Australia have been using drones in agriculture since the 1980s. Mexico is actually ahead of the U.S. in using drones to sense when crops need to be fertilized or pesticides applied, and in effective use of scarce water resources. In this segment, work that had been conducted by field workers, who were often using less-than-scientific measurements, is now being done by drones. Analysts and farmers still need to read and interpret the proper use of the information. The bottom line is that drones can provide more information at lower costs than human inspection teams. Interested practitioners can learn more by visiting leading company websites like that of Danish Aviation Systems.
In the entertainment, film and commercial market segment crews are exploring the use of drones as alternatives to boom cameras on traveling vehicles, helicopters, and small planes for aerial shots. New options are emerging, and the quality and costs of alternatives are being analyzed to determine future best choices.
The public sector is investigating the role that drones can play in fire management, crowd control, police investigations, armed confrontations, car chases, and other dangerous situations. Improved health and safety are the key reasons drones are being used in the emerging public sector. Other functions that UAVs can perform include taking sight pictures during a crisis and environmental actions such as monitoring fishing grounds, inspecting dams, and gathering ice cap measurements.
Businesses in a variety of consumer product and service industries are also exploring the use of drones. Amazon and Google are preparing to introduce drone package delivery options in Europe prior to the United States because current FAA rules state that commercial drone operators in the U.S. must maintain visibility and cannot fly above 400 feet. In Australia, drones have made deliveries for the last two years. Operators in Australia have no visibility restrictions, but drones are not allowed to actually land with package deliveries; they must be gently dropped. Parcel delivery markets are also active in Germany and France.
The global civilian commercial drone market is therefore open, but still years away in the United States. When it does open, there will be substantial European competition. The future market growth is likely to provide a range of different opportunities for small to medium businesses to be innovative and succeed. But it will also be difficult for the large defense giants to draw themselves away from the lucrative world military market. This article suggests that small to medium-sized businesses can distinguish themselves from other players by exploring options that clearly support their core business values, including social and environmental objectives.
Using Drones for Social and Environmental Purposes
Business people who choose to provide platform hardware, applications, devices, or services to drone markets can customize them for defense and civilian markets. Businesses with strong social or environmental goals can choose between different commercial segments and emerging value propositions. Three specific social and environmental segments are emerging: drones that do hazardous or life threatening work, drones that build customer integrity, and drones that enhance brand image through innovation.
Each year, fire fighters, rescue, police, and disaster relief workers risk their health and safety. Drones can be used as workers to collect crisis and sight information for analysts, command centers, and relief management teams. Such drones will not replace humans, but will reduce the health and safety risks at a fraction of the cost. Reducing health and safety risks for workers, using fewer resources, such as water in drought periods, and supporting disaster relief are all expected social and environmental outcomes.
Drones that build customer bonds with staff typically do so by performing time-intensive tasks that free up workers to interact more quickly or effectively with customers. Such drones are like robots in factories that do repetitive tasks. An example of a business that is using drones to allow waiters and table workers to remain closer to customers in a restaurant is presented below. Jobs that require substantial walking and repetition are prime candidates for restructuring if the time cost savings of such activities are greater than the costs of the drone systems.
When inspections are done over long distances, such as over electrical transmission lines and oil pipelines, drones may be able to collect and transmit more accurate maintenance information at lower costs than the current alternatives. Doing so to improve the reliability or speed of customer service yields added value to both businesses and consumers.
Drones that enhance brand image through innovation can offer businesses an effective way to distinguish themselves from competitors. The use of media to spread the word that a company is testing drones to determine if they have substantial benefits could be used as part of an image-branding process. The use of drones can help farmers, businesses, and water managers improve water usage, reduce chemical and pesticide use, and report emission levels, for a few possibilities.
The next section of this article highlights businesses that are using drones for social and environmental purposes. The examples they provide are not typically discussed in the United States.
Working Business Models
Two illustrations or cases are highlighted here to showcase the use of drones for social and environmental purposes. The first is a restaurant chain in Singapore. Bloomberg cites the use of drones to serve drinks in a restaurant as a response to a severe labor shortage. Hence, technology unemployment or the loss of jobs due to automation is not present. A CNBC report covered the same story. In their view, drones, which they referred to as “flying robots,” are being utilized to increase worker productivity and improve consumer satisfaction. The following diagram shows before and after views of waiter service areas for six tables with three waiters.
In the after view, drones do not deliver food directly to a customer’s table; instead, the food is prepared by a chef or bartender who places the items on the drone and keys in a central waiting table number. Waiters then take the food off the drone and serve the customer. Without the long walks to the kitchen and back, waiters can remain near the customers. This also eliminates “kitchen hiding,” which has long been a complaint of customers around the world.
INFOCA, the Andalusian authority for the management of wildfires in Spain, uses drones such as the ELIMOC E300 to track wildfires at night. The night UAV with specific payloads can fly directly above the wildfire area to collect information and record video on the fire line, including thermal images that are then geo-tagged and relayed in real time to mobile command centers. ELIMOC’s Information gathering and collection costs are lower and faster than alternative methods and not only improve the effectiveness of resources, but also improves the health and safety of fire fighters.
There are many other examples of businesses pursuing social and environmental objectives, with Infinium Robotics for the Singapore restaurants and ELIMOC for wild fire management illustrating just two of the many global cases.
In the United States, small to medium business often lead the market early in product life cycles. While the International Business Times predicted that twelve large companies will dominate the defense market for drones, small to medium business also have the opportunity to enter and thrive in the emerging commercial market for drones. Boeing leads this list.
Capital requirements to enter the market will vary. While substantial capital is likely to be required to develop new platforms, creating apps for existing platforms is much less capital intensive. Those who use the next two years wisely and choose to focus on the social and environmentally driven commercial slice of the drone market have the potential to not only be financially successful, but to also improve the health, safety, and productivity of their workers and customer services. As Chuck Spaulding, the president and founder of start-up Aerial Alchemy Inc. in Southern California, recently said in an interview, “The technologies are available to build commercial UAV drones today, but the FAA will ultimately determine when and how. The UAV businesses that distinguish themselves early in specific market segments that add value for better decision making will come out ahead.”
I thank MBA Candidate and Research Assistant Pallavi Thacker for her research and helpful input in preparing this article.
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