Commoditization & Differentiation of Drones Services

Drones are a key component to my Data 2.0 thesis. Not only do drones allow us to do things that previously weren’t possible at a commercially viable price point, but they are already proving able to replace other segments of the aerospace market like some forms of satellite imagery gathering or aerial monitoring via traditional planes.

We’ve seen Drone funding explode in the past year, and if I had to bet, there will be at least one “Unicorn” in the space within two years (aside from DJI) as well as the potential for many more in the future. The key thing to think about though is that as drone usage becomes more widespread, and as technology continues to advance for this newly formed tier of UAVs, the drone customer base is only going to get smarter. And this is where differentiation will stem from.

Despite the relatively early state of the commercial drone industry, the use-cases are becoming increasingly crowded. Merely doing things like gathering imagery data for agriculture or aerial analysis of construction sites will be commoditized in the next few years. That’s not to say these use-cases aren’t still valuable to the ecosystem, but I believe this movement will lead to a bifurcation of drone companies outside of a few dominant players (similar to what has happened in satellites): One path, which offers more targeted and action-oriented analysis around the imagery that is gathered for specific analysis lends itself to vertically targeted players who better understand KPIs or can develop proprietary baseline data sets for specific industries.

The other path is the Drone as a Service model, which cater more towards those who are looking to gather the data-set, and analyze it themselves at a previously unattainable price point (think farmers who used to fly airplanes over their crops for imagery vs. a simple quadcopter flight).

In services, the former wins, while for lower-value markets, as software increases the true autonomy and lowers the barrier of entry to drone data gathering for the lower-tier commercial consumer, the enablers will win (think companies like DroneDeploy). Either way, the non-differentiated service provider could build a good small business, but won’t win at the venture scale.