A DJI drone sprays water over a rice field in Zanzibar. DJI is now caught in the middle of a national security storm. Photo by Reuters
WALKING around shopping malls this holiday season, I noticed one thing that was not there last year, or in the years before. Many big malls across the US have built huge net cages, some smack in the middle of the mall, that are being used to demonstrate the newest models of consumer drones. Shoppers donning goggles that give a drone’s point of view, through a video, pilot them before they decide whether they want the big, expensive toy for Christmas.
Most consumer drones are made by a Chinese firm headquartered just across the border from Hong Kong in Shenzhen that has suddenly found itself in the eye of the storm over global surveillance, intellectual property and national security concerns.
Dà-Jing Innovations Science and Technology Co, widely known as DJI Technology Co, dominates the industry with popular drones such as the US$99 (RM413) Ryze Tello, US$399 Phantom 3, US$499 Spark Quadcopter and US$1,299 Mavic 2 Pro Platinum. It has a 77% market share, according to SkyLogic Research, up from just 50% three years ago. The words “Da Jiang”, or literally “Great Boundary”, are derived from a Chinese phrase that means “great ambitions have no boundaries”. Yet, if policymakers in Washington have their way, those boundaries are likely to be severely tested over the next few years. Indeed, we could see more walls going up to ring-fence DJI and other Chinese drone makers from making further inroads.
Founded by Frank Wang Tao, DJI is one of China’s largest unicorns, with a valuation of US$21 billion. Born in Hangzhou, Wang attended Hong Kong University of Science and Technology where he won an HK$18,000 bursary to conduct research on unmanned aerial vehicles, or drones. He developed a flight control system for an unmanned mini-helicopter that became the seed for the first consumer drone.
Wang launched DJI from his Hong Kong dorm room and chose Shenzhen as the base for his fledgling start-up mainly because of its proximity to the former British colony. He had always been fascinated with flying objects. As a child, he owned a toy helicopter that crashed, so he vowed to build a more stable flying object when he grew up. As a teenager, Wang learnt about flight stabilisation, and on a wing and a prayer launched his start-up, which raised money from prominent venture capital (VC) firms, including Sequoia Capital China and Access Partners.
The Shenzhen drone giant now has 15,000 employees globally and research labs in the US, and recently began rolling out its own iconic retail stores around the world, even though you can buy its drones in an Apple Store, on Amazon.com or indeed in any of the pop-up stores that have sprung up in the malls for the holiday season.
The company’s annual sales topped US$2.7 billion in 2017 and nearly US$4 billion last year for a business that is now growing over 45% annually, and unlike some of the high-flying internet companies with stratospheric valuations, DJI actually makes money. Over 80% of its sales are now from exports to North America, Europe and the rest of the world.
The global drone market — including consumer, commercial and military drones — is growing at a 40% annual clip. Barclays Capital forecasts it will exceed US$100 billion by 2024, with commercial drone sales rising to nearly US$40 billion in five years, up from US$4 billion last year. Chinese firms like DJI, Jiangsu-based Yuneec International, Beijing Yi-Hang Creation Science & Technology (which makes Ehang drones), France’s Parrot, Silicon Valley-based Kespry and Canada’s Aeryon Labs are among the major drone players.
Most of us have seen the Amazon delivery drone video on YouTube or TV, seen children fly drones in local parks or heard of farmers and construction workers using them to map cornfields or survey building sites. Yet, drones these days are doing much more, including surveillance and work like inspecting overhead power lines that used to be considered dangerous; oil and gas pipelines for wear and tear, as well as airplanes and trains from onboard cameras.
In the US, home builders employ drones for aerial photos to be used in promotional materials as well as for surveying and mapping. I have walked around neighbourhoods where insurance agents regularly survey homes with their drones. DJI’s corporate customers include American Airlines, Union Pacific Railroad and Warren Buffett-owned freight train network operator BNSF Railway.
So, what’s behind the boom in drones? Look no further than your smartphone. Drone makers such as DJI have deftly leveraged the explosive growth of the smartphone market, which has pushed down the prices of components such as sensors, including accelerometers, gyroscopes, barometers, global positioning systems and magneto-meters, cameras and graphics processors, and put them together with propellers, landing gear, speed controllers and flight controllers to build affordable drones. Consumer drones can take photos and high-resolution videos, stay airborne for up to half an hour and can be easily folded up and carried around.
Now, with the advent of 5G connectivity, cloud computing, machine learning and artificial intelligence, which will help to dramatically improve image recognition as well as on-board processing capabilities, drones are about to become incredibly powerful and sophisticated. Specialised cameras could be used for emission detection. Drones used for inspecting power lines or telecom towers will be able to detect temperature, damage or wear and tear that may not be visible to the unaided human eye. Within the agricultural segment, where DJI has a 70% market share, drones equipped with specialised cameras are being deployed for precision fertilisation as well as soil and crop monitoring, land mapping and even plant pollination. That is helping farmers improve yields and reduce costs.
Until recently, a key issue with drones has been battery life, but just as batteries in smartphones are improving, the ability of drones to stay airborne for hours is likely to get better as well. Other improvements being readied include flying farther away from an operator’s line of sight and the use of LiDARs, or light detection and ranging, a remote sensing method that uses light in the form of a pulsed laser to measure ranges that will help make them fly without much human interference.
How did a company from China whose tech hardware industry has been built on stolen intellectual property get to be the dominant powerhouse in drones? For one thing, China is no longer just a source of cheap components and labour. The era of China as a technology copycat is over.
Cutting-edge tech companies such as Hangzhou Hikvision in surveillance, Tencent Holdings in mobile gaming, Alibaba Group Holding in e-commerce, AliPay and WeChat Pay in mobile payments, Bytedance’s TikTok in short video and DJI in drones are blazing a trail, and competitors from the Silicon Valley to Tokyo to Seoul that are finding it hard to keep pace are now increasingly trying to copy Chinese hardware, software and services.
Within the consumer drone segment, DJI was briefly challenged by a bunch of US players that have all exited the market. 3D Robotics, a firm led by Chris Anderson, former editor-in-chief of technology magazine Wired, raised nearly US$100 million and launched Solo, a mass-market drone. It lost most of that money and more. These days, it just makes software for drones used by construction, engineering and mining firms as well as government agencies.
Another competitor was US-based action camera maker GoPro, developer of the Karma drone, which failed to get much traction in the market. GoPro listed in mid-2014 at US$24 a share, saw its stock soar to over US$98 in just 12 weeks, only to crash and burn after its product failed to live up to Wall Street hype. Last week, stock of GoPro, which now just focuses on action cameras for a niche market, was trading at just over US$3.90, or down nearly 97% from its peak.
DJI was the Chinese tortoise pitted against the well-funded American hares like GoPro and 3D Robotics. While American firms pushed a handful of drone models, DJI flooded the market at every price point and aggressively cut prices, rapidly boosting market share and driving out its competitors.
A new US competitor to DJI in the commercial segment is Impossible Aerospace, which is founded by Spencer Gore, who worked as a battery design engineer at Tesla and aviation engineer at electric vehicle pioneer Elon Musk’s space firm, SpaceX. Impossible’s US-1 long-duration drone, which can stay airborne for 75 minutes, is purpose-built for first responder missions and law enforcement agencies. Because of Gore’s history at Tesla, US-1 is the first battery-electric aircraft to rival the performance of a conventionally powered system that runs on dry cells. The start-up has raised US$11.4 million from prominent VCs such as Bessemer Venture Partners and Eclipse Ventures.
Drones another front in tech war
For now, DJI’s problem is not some Silicon Valley start-up, but the Trump administration’s and US Congress’ attempts to prevent it from dominating the US market. In early November, the US Department of the Interior announced that it would ground its fleet of DJI drones because they might pose a threat to US national security. The department, which is responsible for maintaining federal land, uses a fleet of over 800 drones to help in tasks such as monitoring floods and fires, inspecting dams and property, and tracking endangered species. Other US government departments are moving to ground their own fleets of China-made drones or even US-made drones that use Chinese components or software. The moves follow legislation currently under discussion in both houses of Congress, including the Senate’s American Security Drone Act of 2019, which would limit all US government agencies from purchasing Chinese drone technology.
What’s next for DJI? So far, founder Wang has resisted the temptation to take his company public, though there has been media speculation about a late 2020 listing. With US Congress enacting laws that may ground a big part of its fleet in the US, DJI is likely to put off the initial public offering and refocus its energies on further widening its lead over other drone makers.
Assif Shameen is a technology writer based in North America