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DJI is running away with the drone market

Better products at lower prices are helping China’s drone giant take control of a fast-growing industry.

IFA 2015 Consumer Electronics And Appliances Trade Fair Sean Gallup / Getty

The nascent drone market is growing. And one company has been rising to the top in many industry categories, with few serious competitors: China’s DJI.

Stats for the drone market are somewhat hard to come by. Most top drone companies are not publicly held and are often based in China. And few large research firms cover the sector extensively. But measuring the drone market is turning into a bit of a cottage industry, and better data should eventually emerge.

Sizing the drone industry

One thing people seem to agree on is that the market is growing. But how big it is — and how fast it’s growing — depends in part on how you define a drone.

Globally, drone unit sales grew an estimated 60 percent last year to 2.2 million, and revenue grew 36 percent to $4.5 billion, according to research firm Gartner.

A different data point, via the Consumer Technology Association: In the U.S. alone, last year people bought 2.4 million hobbyist drones, more than double the 1.1 million sold in 2015.

Why the discrepancy? Different ideas of what firms consider to be a drone, according to Gerald Van Hoy, a senior analyst at Gartner, who used a conservative definition, focusing on aircraft that are able to connect to the internet. The CTA, on the other hand, included very small drones weighing under 250 grams, which don’t necessarily process data or even have to be registered with the Federal Aviation Administration. When excluding drones under 250 grams, the CTA estimates 825,000 drones were sold in the U.S. in 2016.

NPD Group, another research firm, recently estimated that U.S. sales of drones more than doubled in the 12-month period ending this February, increasing 117 percent year over year.

The rise of DJI

DJI, known for its Phantom drones and increasingly for its newer Mavic Pro — both popular for aerial photography — has established itself as the market leader in many price categories.

For example, for drones that cost between $500 and $1,000 — primarily used for camera work — DJI represented 36 percent of the market by units sold in North America last year, according to Colin Snow, founder of Skylogic Research, a firm tracking the drone industry.

In a testament to DJI’s dominance, the second-place firm — 3D Robotics, which had 19 percent of the market in that price range — stopped making drones altogether in 2016 and moved to focus only on software.

Other drone manufacturers are also having trouble keeping up. France-based Parrot and China’s Yuneec each captured 7 percent of the market in the $500-$1,000 price range, according to Snow, and both have announced layoffs this year. Another attempt to build an inexpensive consumer camera drone, a startup called Lily, recently imploded. And camera company GoPro had to recall its Karma drone only weeks after it was launched, following reports of malfunctions that caused it to lose power and fall from the sky. (The Karma is now back on sale.)

DJI also fetched 66 percent of the North American market for drones priced between $1,000 and $2,000, and 67 percent of the market in the $2,000-$4,000 range, according to Snow.

Across all prices in North America, DJI represented 50 percent of the market, Snow says. The price range where DJI is not dominant is drones under $500, which are mostly toys, and where there are hundreds of companies competing.

Understanding DJI’s success

DJI’s dominance of the consumer drone market has a lot to do with the rate at which it has been able to bring new, advanced products to market, Van Hoy said.

“DJI has 1,500 people working on research and development,” said Snow. “Nobody else has that.”

(Both Intel and Qualcomm are building drone hardware for advanced onboard processing, machine learning and 4G data, which could potentially help others catch up.)

DJI’s partnerships, such as one with Sony for camera components, have also helped, according to Mike Blades, a senior analyst at Frost and Sullivan. And also for premium distribution: “Getting into the Apple stores was a stroke of genius,” he said.

For manufacturing, DJI has an advantage over American companies that have to travel to the other side of the world to build their products. DJI has its own manufacturing facilities in Shenzhen, and its engineers are able to iterate and test prototypes in neighboring facilities, allowing for a rapid pace from ideation to creation of its products.

DJI has also aggressively cut its prices, making it hard for others to compete. Chris Anderson, CEO of 3D Robotics, estimates DJI dropped its prices as much as 70 percent in less than a year, which he cited as a primary reason 3DR stopped making drones in an October 2016 interview with Recode.

“DJI is the best company I have ever encountered,” Anderson said.

The drone forecast

Growth is expected to continue, though it is decelerating.

Globally, the market for drones is projected to grow to almost three million units and more than $6 billion in revenue this year, according to a February forecast from Gartner. That represents 39 percent unit growth and 34 percent revenue growth over 2016. (Snow, meanwhile, thinks $4.7 billion is a better global revenue forecast for 2017.)

Gartner expects “personal” drone unit sales — mostly for photography, where DJI is strongest so far — to grow roughly 40 percent this year to 2.8 million, while it predicts “commercial” drone sales — with uses ranging from mapping to delivery — to grow about 60 percent to 174,000 in 2017.

While personal drones dominate unit sales — 94 percent of the market — they only represent about 40 percent of the market’s revenue share. The much-smaller number of commercial drones — about 6 percent of the market, with price tags up to and beyond $100,000 — is projected to represent 60 percent of its revenue. (That’s where companies like Aeryon Labs and Insitu, a subsidiary of Boeing, are competing.)

One question, then, is whether and how consumer-oriented drone companies like DJI will end up serving a variety of commercial markets. For its part, DJI has a small line of bigger, pricier drones that it markets for things like power line inspection and crop spraying. The company hosted a conference last December in San Francisco, Airworks, to try to engage deeper with its commercial customers. That will be something to watch.

By 2020, Gartner predicts the drone market will almost double again to surpass $11 billion.

The FAA, meanwhile, expects the total U.S. fleet of hobbyist drones to more than triple to about 3.4 million by 2020, up from 1.1 million last year, with the most rapid growth over the next two years. And it expects the smaller fleet of commercial drones to grow by 10 times over that span.

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