Second-Order Market Innovation and The Future of Drones
One of the most exciting parts of watching a new technology and market develop is observing the ancillary opportunities created that may not have been obvious initially. Often, these second-order innovations present meaningful investment opportunities, as the initial technology has enabled a market to develop and created fertile ground for new, related ideas to take root; sometimes, these ideas are actually solutions to brand new problems that this technology has created. Happy Returns is a great example from my own experience — the team is tackling a problem (convenient, in-person retail and broken reverse return logistics) that never existed before the rise of e-commerce, and is creating real value to all involved stakeholders.
I am also watching the rise of the commercial drone industry closely and am excited about drones’ ability to drive huge business value in both the short and long term. As I wrote about recently, I invested in a company called DroneBase that is creating the market to match hundreds of thousands of drone enthusiasts and pilots with opportunities to monetize or engage with their drones for commercial, professional and personal/gaming uses. Essentially, DroneBase is creating the activity layer that will drive the drone economy. As part of my interest in this developing technology, I recently hosted a small dinner discussion with various stakeholders in the drone industry, from manufacturers and software providers to local government officials. Obviously, the commercial drone industry is far behind e-commerce in its maturity, but our conversation raised a number of new opportunities in the drone space that remind me of the second order applications I’ve seen succeed in many other spaces — below are a few that I found particularly interesting.
First “drone swarms.” Admittedly, this phrase can conjure a terrifying image at first blush. However, swarming technology may enable some of the most broadly useful and publicly beneficial applications of drones. Most of us saw our first glimpse of drone swarming in action during Lady Gaga’s halftime performance at Superbowl LI; at the start of her act atop NRG Stadium’s rafters, 300 drones buzzed around behind her, glowing red white and blue and eventually organizing into an American flag behind her. Pretty cool (and creepy), right?
But swarm technology may soon be able to accomplish far more significant tasks than aerial light shows; the behavior behind a swarm — working together cooperatively as part of a distributed system — is a great way to perform work that solitary drones cannot. With decreasing hardware costs and improving autonomous capabilities, soon a large team of drones may be the most cost-effective and efficient way to carry out a search and rescue mission, contain a forest fire, or monitor an area damaged by an earthquake or hurricane. In addition, there is exciting potential for drone swarms to handle non-aerial problems — such as containing and cleaning an oil spill in the ocean. We are still approaching the point in the hardware cost curve and regulatory environment (autonomous drone usage is still largely prohibited) where such applications become feasible, but I’m looking forward to seeing further developments in using swarms to magnify the impact of drones.
One area of discussion that particularly surprised me is the expanding appetite for anti-drone technology. We heard that the likes of major metro police and fire departments see the potential benefits of drone usage, but they have had a challenging time getting departmental approval due to well-organized political opposition from citizens, usually around privacy concerns. However, law enforcement has had a much easier time making investments in anti-drone capabilities. For example, the LAPD has made 100+ drone-related arrests over the past two years due to flying over restricted areas and other negligence, and expects this problem to accelerate. More problematic is the risk of using a drone to drop weapons or otherwise wreak havoc on a stadium, music festival, or other large public gathering. Even prisons have had a growing issue of drones delivering contraband to inmates on the prison yard or through windows. To combat challenges like this, a new field of anti-drone tech has begun to blossom. Several companies, such as Australia’s DroneShield, are building versions of what are essentially drone force-fields, which can be placed around perimeters to either block drones entirely, disable them remotely, or notify owners of airspace breach. Even companies with less explicit “drone defense” mission statements, but which provide logistics mapping to drone pilots and promise safer skies, are enjoying tremendous success: LA-based AirMap, which manages drone air traffic to help pilots plan safe, legally compliant flights, just announced a $26M funding round last month. As drone usage grows, I believe we’ll see these drone defense and safety applications become more and more important.
When exploring the barriers to increased drone adoption, a few usual suspects always arise: regulatory challenges, public perception, businesses’ willingness to adopt new technologies. However, the functional endurance and range of current drones is also a limiting factor — right now, most commercial drones max out at a flight time in the 20–30 minute range and can carry a payload of 2–3 pounds. This is plenty of time to snap some pictures of a newly listed house for a real estate agent, or inspect a cell tower for AT&T, but many of the most game-changing opportunities with drones require improved flight time and carrying capacity.
Oil and gas companies would love broad deployment of drones to monitor their pipelines, but right now these drones must remained physically tethered to a track along the pipeline to maintain their charge for longer than 30 minutes; similarly, delivery via drone becomes significantly more interesting for non-consumer uses when payloads can exceed a few pounds (the expected limit for Amazon’s Prime Air service). While drone manufacturers continue improving their capabilities here, it’s interesting to explore alternative approaches to these challenges, specifically around battery life. Some proposed solutions that have caught my interest are wirelessly charging drones via close flight over power lines or other structures (as is being explored at Imperial College of London), leveraging solar power (a big challenge due to cloud cover and the low height at which commercial drones fly), and even deploying charging drones whose sole purpose is to keep other drones in the air. More dramatically, what about re-thinking the quad-copter form-factor that dominates commercial drones right now? Could alternative designs, such as Parrot’s fixed-wing Disco Drone, which is ultra-light and can fly for 45 minutes, be better adapted for specific use cases? Any innovations that can dramatically improve drones’ ability to fly for longer and carry more will be massive unlocks for the future of this industry — and they may be developed by folks other than the established players who own the drone market today.
The commercial drone market is still far away from fulfilling its potential as the $100B+ behemoth that industry forecasters project — but we’re already reaching the point in its maturity where ancillary opportunities in the space are cropping up left and right. I’m keeping an eye out for any founders focusing on the new problems and openings the drone industry is creating each day.
