’Twas the year of the Drones. Did you get to fly one?

What an amazing year 2014 was for the drone industry. Amazing highs and frustrating lows. Lots of new companies, new startups, many kickstarter success stories, and an ecosystem of technology companies developing to service the new industry. It is safe to assume most people probably heard about drones this past year (even those who planned to shoot them down from the sky), but question is, did you get to fly one? If not, find a friend that got one as a Christmas present. You will be delighted to see even your own home in a never before-seen perspective.

I got involved in the industry several years ago as an investor when commercial drones were illegal (unfortunately they remain so), FAA had no real plan to allow for commercial drone operation (seems to still be the case) and hobbyist drones were niche toy items (that has dramatically changed in 2014). A friend of mine emailed recently when he himself got a drone as a christmas present…and asked if we had reached #peakdrones. Or was there more excitement to look forward to in 2015. I told him things were just starting to get busy in the drone world and here are only some of the things I expect to see from the industry in 2015:

1. Hardware, software, data or service — industry remains unsure where profits will be had. On one hand this means we are seeing innovation across the value chain, on the other it also means companies are hedging and trying to change their tune on a monthly basis. Hardware companies opening up platforms for software developers and software companies trying to lock in hardware manufacturers to use their systems. Data guys tried to take the higher ground but not much data available without owning hardware & software solutions. Its a mess out there and will take a while to clear up. I like Helen Greiner’s (CyPhy Works’ founder & CEO) opinion on this: “Customers don’t buy hardware, software, data or services. They buy solutions to their problems”. A lot of the rest is sloganeering that is more relevant to silicon valley more than anywhere else. [disclosure: CyPhy Works is a Lux portfolio company]
2. That said, we are starting to see some fantastic companies emerge in and around the drone ecosystem. I expect 2015 to bring more data analytics (+mapping + visualization + crop models), camera (high resolution, 3D, infrared, multispectral) and service (imaging as a service) companies.
3. Optical stabilization/computational imaging — Most UAVs are being designed for use as imaging platforms. 2015 is bound to bring the latest in computational imaging to the drone world. From onboard computational imaging to stabilize the drone itself, to computational imaging to stabilize and crop the image and real-time video editing. For example BrightSky Labs is already working on this. [disclosure: BrightSky Labs is a Lux portfolio company]
4. Precision navigation — even though it is used on almost all drones, GPS navigation is still far from ideal for drone use. Drones often find themselves in GPS denied environment, close to buildings, under bridges, in electronically noisy environments and indoors. In the coming year or so we will see some new technologies brought into commercial world that use RTK, SLAM and other techniques to aid, and in some cases replace, traditional GPS navigation. Just as important will be sophisticated (but low cost) sense and avoid systems built around lidar or optical imaging systems which will rely on on-board intelligence for autonomous flying.
5. True consumer drone — Yes DJI is expected to do $500M or so in revenue and others like Parrot, 3DR and others are offering consumer drones, I still believe these drones need help with form/function ease of use. They still look and feel like hobbyist playthings, rough on the edges hardware-wise and relatively complicated software to work with. Many still rely on external cameras (such as the popular GoPro) but we are already starting to see built in cameras, and rumors are ripe that GoPro is working on its own drone as well. 2015 might finally bring us that elusive pocket drone that would be cute, friendly, really easy to use, and a sexy selfie/follow-me drone that one can take on their next trip even to Disneyland. Market is still looking for the iPod of the drone world, one that I could give to my 6 year old daughter to play with and even take into the pool with her.
6. Virtual Reality space is taking off at about the pace and fervor as drones. And I am super excited about the two coming together in the near future. While we have already seen demos of drone-view through Oculus etc, I am looking forward to VR specific camera systems getting mounted on-board so a true VR experience can be created. How awesome was this video of a drone flying through fireworks? Now imagine feeling like you are flying through it in 3D yourself.
7. Application specific drones — some companies would have you believe a drone is a drone is a drone. That is certainly not true and I think as the industry grows up a bit we will see segmentation and application specific drone development. We may already be seeing signs of that. The $500 drone you gifted to your uncle is probably not best suited to be used by a farmer in the field or on an offshore oil & gas platform. Just because you can put solar cells on a drone doesn’t mean it is able to carry the weight needed for high resolution imaging for agricultural uses, and most likely neither the traditional multicopter or the fixed wing is the right solution for drone delivery. Similarly, while its OK to put all computational capabilities and intelligence on a cell phone for a selfie drone, a security/remote monitoring drone many need on-board real-time image processing for it to be fully effective. We are also starting to see interesting work arounds to the battery limitation problem. For example SkyCatch has shown a battery replacement system while CyPhy Works is using a micro-filament tether for power and communications. So on and so forth with many applications, especially in the commercial/industrial sectors.
8. Management of drone fleets — Right now customers are buying what they would themselves consider prototypes, in onesies and twosies. But expectations are that if the promised value is there, drones will be operated in fleets, no different than cars, trucks and other specialized equipment. Not only will we see software tools for fleet management (especially with all kinds of sense and avoid technologies) but also a secondary service industry to grow up around repair, maintenance of fleets and management of insurance and expert pilots (until drones are allowed to fly fully autonomously).
9. Cost — we have started to see a bifurcation in the pricing of consumer vs commercial drones. Consumer drones are priced around $1,000 (as low as $500) while commercial drones are priced anywhere from $10,000 to $100,000. There is a lot of work to do on cost reduction of drones, and in business models to make drones available for general use. I would like to see consumer drones priced at <$500 with retail store margin built in. On commercial front we should soon start seeing more drones as a service companies vs the traditional buy, maintain, manage own fleet of drones.
10. Internationalization of US drone industry — we are already starting to see that happen. While 3D printing was touted for bringing manufacturing back to America, FAA inaction and in fact hints of regressive regulation, is forcing our fledgling drone industry to look for markets, partners and even investors abroad. Australia, Japan, France, Dubai etc will be beneficiaries of technology leadership that US held for a while. I am already starting to see foreign companies pitching investors in the US for startups bringing commercial revenues outside the US. Lawyers facilitating commerce department and ITAR clearances stand to benefit. Unless FAA can soon bring a common set of principles to govern drone use, we will unfortunately continue to see loss of local talent, technology and business leadership in this space.

2014 was definitely the year of the drones. This year the conversation changed from “drones kill” to “drones affect privacy”, and hopefully 2015 will bring conversation to “drones do good”. I am a big believer in drones, especially because drones are basically flying robots and there are so many things robots can do better, faster, cheaper than humans…we have seen what amazing things robots can do in our homes (e.g. Roomba), in commerce (e.g. Kiva) and even in hospitals (e.g. Intuitive Surgical’s Da Vinci). At Lux Capital we expect to continue to look for additional investments in this exciting space in 2015.