2016 was a hard year for many drone companies: Zano and Lily failed to bring out products, GoPro is having problem re-launch its Karma. 3D Robotics decided to quit the competition of consumer drones and turn to industrial drones. Other companies, including Zerotech, Yuneec and Parrot, reduced their work force. Media begin to hold doubts on the industry—is it heavily bubbled? It’s already March of 2017, what will drone companies do this year? How will the industry perform?

Influence of capital

VR and AR industry had very similar experience like drone industry from 2015 to 2016. Once so promising, VR/AR suddenly entered winter in later half of 2016. HTC Vive has got really good sales numbers, but HTC’s financial quarter report shows the income fell by 64% year on year. Facebook shut down over 200 experience stores. Just like Recode once pointed out, VR age is still far away.
Venture financing trends in the US

The reshuffle of drone market could be a result of globally decreased investment. According to KPMG, venture investment has plummeted compared to 2015.  Hot money were thrown into drone, VR and AR in 2015, stirring intense completions.
drone quarterly financing trends

According to Market Watch, the investment for drone market has dropped drastically in late 2016. VR and AR are having shrinking investment. Large proportion of these companies are start-ups. When investment stops pumping in, the supply chain, would be endangered. Drone start-ups will fall into deep financial crisis.

Facing similar difficulties, the environment of drone market is quite different from that of VR/AR.

Is drone market heavily bubbled?

What kind of AR/VR products do we want? In what scenario do we need them for? These are questions we are still trying to figure out. But drones are quite different, they have simple appearance and clear features: they are convenient, reliable and intelligent aircrafts.

In my point of view, VR /AR industry is based ‘future demands’, which are not very urgent today. But Intelligent aircrafts are already improving efficiency of various industries: military, agriculture, security control, search and rescue, television and filming etc. The demand for UAVs has been expanding steadily since 2013. IDC Report of 2016 pointed out that DJI’s market share in China dropped for a while. This aroused doubt that drone industry has peaked. In fact, the reasons behind could be much more complex.

Foldable Mavic Pro was a blast to drone industry. It has sparked unexpected enthusiasm, even DJI was surprised by flooding orders of Mavic Pro, so it has been out of stock for quite a while. Fool.com estimates that DJI’s revenue in 2016 may hit $10 billion, increasing ten times of what was anticipated. For now it’s hard to tell how big drone industry is, but Mavic Pro at least proved that consumer drones are truly needed.

So drone market didn’t reach saturation. 2016 witnessed a very unique drone market influenced by capital.

Supply chain

UAV and AR/VR products are very different in terms of production. When a drone company is short of fund, it might be faced with huge pressures from its supply chain.

There are various VR/AR products on market now, many of which are low-end products. These products do not need highly advanced technologies and cost little. Even high-end product like panorama camera is not very difficult to handle—at least not dangerous. So short of fund is not that precarious for VR/AR companies.

Drones are quite different. If a drone crashes during flight, it could lead to serious consequence. Thus, consumers are expecting high-quality drones. Which means the process of R&D and production must be highly strict.

With lower costs, VR/AR products are sold at lower prices than UAVs, which means mass production is easier. The price of drones is less flexible with high costs. When the comments of a drone are not positive, it’s really hard to sell. This in return puts lots of pressure on supply chain.
Inspire 2

The threshold for drone market is actually really high. Only mature companies are able to control supply chain and manage their products. In 2015, DJI sold its Phantom 3 Professional at $1259, while 3D Robotics sold its solo drone at $1700. Chris Anderson, CEO of 3D Robotics commented that ‘no one but DJI won this brutal price war’. By early 2016, the stock of solo drone has reached 60,000, draining up the cash of 3D Robotics. Soon 3DR quit consumer drone market silently.

Will DJI remain the unicorn?

Drone technologies are more mature than that of AR/VR, and have been used for quite a few years. As the profit rate decreases, it would be harder and harder for others to keep up with DJI. With inferior technologies, these drones are less attractive to consumers, which in return affect R&D input. The gap between DJI and new drone companies will be widened.

Taking Xiaomi Drone for example. As a smartphone giant, Xiaomi has huge advantages on supply chain. So many were very optimistic about it entering drone industry. However, the result was not satisfying. It turned out that Xiaomi Drone has similar features and functions of Phantom 3, which was released in 2015. Public started to realize Xiaomi is lagged far behind of DJI in terms of technology.
Mavic Pro

Other portable drones like Dobby and Breeze have unsatisfying features: short video transmission range, short flight time and low-quality footage. By the end of 2016, both companies had to lay off. But Mavic Pro showed the market how DJI managed to miniaturize a drone without compromising its performance. Media around world gave it positive reviews, TIME magazine even named Mavic Pro as one of the ‘Best Inventions of 2016’. Its success once again proved DJI has far advanced technologies than the rest.

With lower profit rate, drone companies are more vulnerable than AR/VR companies are. When the investors are throwing in less money, the R&D and production of new drones will be severely influenced, which would eventually lay bad influence the sales of new products.

What will drone market like in 2017?

In conclusion, 2016 marked the reshuffle of drone market. The market remain stable, but has changed a lot since two years ago. In 2014, DJI was only slightly ahead than others. When it came to 2016, other companies were left way behind.

As many companies have been driven out of drone market, those who have survived mainly choose to develop industrial drones (just like 3D Robotics did). Can they find their places in the market of industrial applications? Is industrial drone market an ‘asylum’ for these companies? We will have to wait and see.

When the investment slows down, companies that are weak in R&D and supply chain would be ruled out. The reshuffle of drone market is not necessarily bad: it makes room for strong competitors in terms of market share, talent and capital.