What is going on?
From nano drones that could feature as the potential supporting cast in futuristic Bond movies to autonomous ones that could fly a 200 kg payload like a superman buddy without a sweat, are all already here. Good enough to impress a bond girl! The question is if drones have been around for almost a century, why don’t we encounter their presence often? This is a simple question that’s easier to answer but harder to realise and find a turnaround for if you were building a drone startup and maybe pitching to a VC.
Over the past decade, the use of drones has become increasingly popular in various industries, including construction, agriculture, law enforcement, defence, telecom, logistics, et cetera, you name it. To offer some context, Statista estimated that the global helicopter market as of 2021 was worth US$48.2 billion. The drone industry is projected to reach the same valuation in less than a decade. This Fast Company article says the drone market revenue figure could reach over $500 billion by 2030. Who could say? Now with the advent of affordable drone technology, its widespread availability, and progressive government regulations across the globe, a surge of new startups has emerged in the market, competing to offer innovative and cost-effective solutions for various applications. However, this bandwagon effect has led to a lot of Me Too drone startups - those that replicate existing technologies or business models without offering any substantial improvements or differentiation.
What does it mean?
The rise of Me Too drone startups has both positive and negative implications for the global market. On the one hand, it reflects the democratization of technology and entrepreneurship, allowing more people to start businesses and create jobs. By January, 2022, the USA had 340,000 commercial and 500,000 recreational drones. In the coming years, India would need nearly 100,000 drone pilots. Apart from creating these jobs, this Me too rise also fosters competition, which can drive innovation and improve existing technologies. However, the proliferation of Me Too companies can also stifle innovation, saturate the market, and create confusion for customers who have difficulty distinguishing between similar offerings. Additionally, these startups may not have the financial resources or expertise to sustain their operations over the long term, leading to a high failure rate. A report by CB Insights analyzed 70 drone startups that raised over $1M in funding between 2014 and 2019, around 61% of them failed or exited the market, while only 5% of them achieved unicorn status (i.e. Zipline, Shield AI, Skydio and Epirus). Besides, irrespective of how convincing your storytelling sounds or how exciting the fantasy world one promises to create, the complete shutdown or bankruptcy of Lily Robotics, Airware, 3D Robotics and GoPro Karma could not compensate for the nightmares of people employed, invested and customers who paid in advance to buy the product.
Why does it matter?
- 💸For markets: Foresight prevents bubble bursts.
The surge of Me Too drone startups has significant implications for both developing and developed nations. In developing nations, where access to technology and capital is limited, the rise of these startups can provide opportunities for local entrepreneurs to enter new markets and leverage existing technologies. However, these startups must also contend with challenges such as regulatory barriers, lack of infrastructure, and competition from established players. In India, Reliance Industries has put together an aggressive plan to become a key player in the expected $5 billion market in India by the end of the decade. In developed nations, where the drone industry is more mature, the emergence of Me Too drone companies can exacerbate the challenges faced by existing players, who may struggle to differentiate themselves from competitors and maintain market share. In the past 10 years, drone-delivery companies in the major markets have received over $1 billion in funding, resulting in a fiercely competitive segment with more than 100 players, all of whom have been able to enter the market with relatively low barriers. This has led to a race to the bottom, with companies engaging in price wars to gain market share, which can erode profitability and sustainability over the long term.
- 🧑🏿🤝🧑🏻For society: Public acceptance & low-cost accessibility.
In terms of public acceptance, in a survey of over 4,500 people across six countries, most viewed drone delivery in a highly favourable light, with a ratio of 3.5 adopters for every non-adopter. This does not imply drone accidents don’t happen, they might not be just properly communicated or reported. In terms of accessibility, if all other factors are equal, consumers favour deliveries with the lowest cost option when compared to electric cars, autonomous cars, and ground robots, which are continuously decreasing in cost as they mature.
- 🔮What’s next? Speed and sound judgment are key.
To address the challenges posed by Me Too drone startups, stakeholders must take a collaborative approach to foster innovation and sustainable growth in the industry. Governments can play a role in developing regulatory frameworks that promote competition and innovation while ensuring safety and privacy. Investors and incubators can support startups that offer unique and differentiated solutions rather than simply replicating existing technologies. Established players can focus on building brand loyalty and developing long-term partnerships with customers based on quality and value rather than price. Consumers can educate themselves on the different offerings in the market and make informed decisions based on their needs and preferences.
In conclusion, the rise of Me Too drone startups presents both opportunities and challenges for the global market, particularly in the context of developing and developed nations. To ensure sustainable growth and innovation, stakeholders must take a collaborative and forward-thinking approach that prioritizes differentiation, value, and quality over short-term gains.
