Unmanned Aerial Vehicles (UAVs), popularly called drones, are rapidly developing from hobbyist photography and videography and finding strong commercial application. The benefits drones can deliver to multiple industrial segments are growing. Most notable to consumers is their application in photography and videography segment, with many video production companies now heavily relying on drones for much of their aerial footage. However, sectors ranging from agriculture, to energy, to insurance, to mining and many more are all seeing considerable benefits from the use of drones.
In CY 2018, we estimate that the drone market will grow by 45% in volume – mainly due to faster growth in the commercial sector. Commercial applications are growing due to falling prices and technological innovations such as collision avoidance, autonomous flight mode, home return and first-person-view (FPV) which have made drone systems relatively easy to use across a wide variety of applications.
In terms of players, DJI dominates the hardware segment, capturing two-thirds of the total market. As the hardware market is highly concentrated, many players have switched their focus to providing software solutions and services to help the companies in deriving maximum benefits from their drone operations.
Commercial drones have a wide variety of applications. For example, in agriculture, they can monitor variability in crops, determining optimal levels of irrigation, pesticide and fertilizer use. The results are available much faster compared to traditional methods and the saving in time and input costs leads to improved yields, revenue and margins for farmers. Drones are also being used with equal success in many other industry sectors.
Drone delivery is often positioned as a promising area of drone deployment. Several companies are testing their potential ranging from package delivery (Amazon Prime Air) to providing emergency support services (e.g. Flirtey, Zipline) where drones can be used to deliver supplies in remote or otherwise difficult to reach areas. This is critical in situations where conventional overland or air supplies are difficult due to availability, resources or difficult terrain.
Below is a quick overview of the impact of drones in various segments.
Exhibit 1: Current Drone Applications Impact by Segments
Even though adoption across certain industry segments has been increasing, regulatory issues remain a stumbling block to broader deployment of drones in the commercial sector. Regulations vary by country, though most currently require drone operators to have “line of sight” contact with the drone always. This limits the distances that drones can fly from the user or base. Mandatory registration of drones beyond a certain weight is also a requirement in many countries.
We believe that, currently, in the commercial segment, companies are driving value mainly from media and entertainment, agriculture and construction sectors. Going forward, commercial drone usage will increase in emerging sectors like insurance, telecom and logistics, with a rise in drones-as-a-service business model. Counterpoint Research expects the the commercial drone hardware market to reach around US$ 0.7 billion by 2020 growing at a CAGR of 33% p.a. with Average Selling Price (ASP) almost double that of the consumer drone segment. Services delivered on the commercial hardware will likely generate significantly more revenue.
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