Drones take flight for businesses that can navigate red tape

Supper dropped automatically at your door; construction sites monitored by machines; oil and gas pipelines inspected and buildings cleaned from the air; automated crop fertilisation.

This is the world which drone enthusiasts say we will inhabit in the not-too-distant future. It is a vision on which some companies are betting big. On Monday PwC, the management consultancy, announced it was setting up a UK drones team. It believes the market for work carried out by drones could be worth a whopping $127bn worldwide.

Others are equally optimistic. In 2016, Goldman Sachs predicted the market would be worth $100bn up to 2020, with non-military demand making up a fifth of that. The Association for Unmanned Vehicle Systems International — which has some skin in the game, as its name suggests — says commercial drones could add $82bn and 100,000 jobs to the US economy by 2025. Drones, their proponents argue, will be ubiquitous, whether in industry, telecommunications, energy, medicine or financial services.

Given that sales of commercial drones last year were just $2.4bn, according to Gartner, the hype seems suspiciously overblown. Are drones really going to transform the way many companies do business?

First, the hard facts. So far, manufacturing drones has not been a good business in which to be. The sector is dominated by Shenzhen-based DJI, estimated to have more than two-thirds of the market. It made sales of $1.5bn in its most recently reported year, but others have struggled to compete. On Monday, GoPro, the action camera maker, said it was abandoning its drone operations. Last year, California-based Lily Robotics stopped production, 3D Robotics switched its focus to software and France’s Parrot cut jobs. Bigger tech and industry players such as Boeing and Intel are entering the field, but if hardware suppliers are struggling to make money, demand may not be as buoyant as dronophiles suggest.

Restrictions on where and how drones can be flown will need to be eased or adapted before their commercial potential can be anywhere near fully exploited

A more imminent challenge, though, is the regulatory environment in which drones operate. Goldman Sachs believes the industry’s rapid growth has outpaced the development of rules and systems to govern their use, and that the resulting uncertainty has weighed both on innovation and commercial adoption. Regulators in the US and UK have shifted recently to make drone flights easier, but restrictions still significantly limit their commercial uses, banning drones from flying near buildings or people, or requiring pilots to keep them in their line of sight. In 2015, the US Federal Aviation Administration granted hundreds of new exemptions for companies to operate drones and, in the UK, users are waiting for the draft drone bill which will be published this spring by the Department of Transport. But restrictions on where and how drones can be flown will need to be eased or adapted before their commercial potential can be anywhere near fully exploited.

Regulation is one reason why drones flying through the streets of Manhattan delivering parcels are a long way off. Other practical concerns — like the so-called “last mile” challenge of landing safely while avoiding phone lines, children and other animate and inanimate objects — are also likely to cause delays, as will more mundane challenges such as limited battery life.

But in more “people-free” spaces, forward-looking companies are already investing in a drone future. Ocado, the UK online grocer, is building a robotic warehouse in the south of England for the French retailer Casino, in which pre-programmed drone caddies move along metal rails sorting and moving goods. Oil and gas companies are already replacing pricey helicopters with drones for routine pipeline inspections. Farmers are using drones to monitor crops and soil condition.

As well as energy and agriculture, Goldman and PwC believe some of the biggest opportunities lie in the construction industry, with investors able to survey sites more effectively, and in insurance, with drones used to assess both risk and claims. Drones’ most exciting commercial potential is probably less in their ability to shift things around than in their capacity to gather data more cheaply and effectively than other methods available.

Given all this, it is not surprising that PwC thinks that money is there to be made in telling clients about the benefits of drones. In a rare example in the business world, this seems one case where hyperbole is justified.

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