The Teal Group has released its new market profile and forecast for World civil Unmanned Aerial Systems (UAS). The Fairfax, Virginia-based consultancy is bullish and predicts “worldwide civil drone production will soar over the next decade” and “promise to be the most dynamic growth sector of the world aerospace industry this decade”.
Key trends stand out: a record of venture capital and explosive growth. Even if drones, or unmanned aerial vehicles (UAVs) are most commonly associated with military aircraft or entertainment platforms, for The Teal Group experts the, future of this industry belongs to its commercial applications. “The groundwork is being laid for explosive growth in the civil UAS market,” declared Philip Finnegan, Teal Group’s director of corporate analysis and author of the study. “The prospect for strong growth […] is attracting record levels of investment and the involvement of technology giants. New hardware, software and services are enabling businesses to begin to incorporate unmanned systems in their operations.”
As the report underlines, non-military UAS production will reach $88.3bn in the next decade while it was $13.1bn in 2017 and $4.4bn in 2018. According to the study, the “commercial use will surpass the consumer drone market in 2024”, becoming the more important segment in the civil market. It will reach about $7.3bn in 2027, representing an eight-fold growth over the decade. The commercial market is composed of energy, construction, insurance, delivery, communication, photography, or mining sectors. Fleets of drones will also be deployed for large corporations over the decade.
Agriculture is currently the more important market for commercial UAS, due to the added-value of this system in that sector. Nevertheless, Teal Group expects the growth to be less sustained in the coming years due to the current lack of profitability of this area and due to “the diffuse nature of decision-making”. “Cargo” delivery is also an encouraging market for UAS but it will first develop in narrow niches such as delivery for island or ships and for time-sensitive products like medicines. This commercial market is very sensitive to price and is based on professional consumers buying “inexpensive mini UAVs”. Price remains indeed a key variable, even for sizeable corporations However, the drones market is a booming sector that concentrates a lot of investment.
Record venture capital funding goes to the civil UAS industry with $511mn in 2017, while it was $504mn in 2016. This record will soon be broken as DJI innovation, the China-based world leading leisure drones manufacturer, is planning to seek $500mn to $1bn in one investment “to prepare for an initial public offering”… Moreover, technology companies invested $500mn into start-ups in 2017, for a total of $2bn since 2012. US-based start-ups received about 76% of the funding, permitting them to take the leadership in development of drone analytics. China’s start-ups received about 4% of this funding allowing them to continue leading in hardware and shifting their position from consumer to commercial systems. Investment still goes primarily into new drones development but also goes more and more into software to improve drone efficiency. According to the study, this record in venture capital funding combined with technological giants’ involvements in research and applications are laying the groundwork for explosive growth “as regulations worldwide are relaxed to allow easier access to airspace”.
Para-public drones are also developing for border monitoring, urban surveillance and maritime security use. Drones are also wanted for UN peacekeeping operations, law enforcement and forest fire control. The market will grow, but nevertheless, even Governments are very sensitive to price…. Hopefully, as the study underlines, “drone service prices are falling rapidly to accommodate the large influx of providers, particularly in providing simple services such as real estate photography”. Consumer needs are also evolving: they want to be able to “buy a system that meets all their needs or to be able to turn to a service provider that can do so”. As a result, companies are shifting from only hardware or software sales, to one-stop shopping to provide complete systems and services. To meet this demand, they are expanding their product and service line or teaming with another company through M&A or alliances. Therefore, Teal Group anticipates that “80% of the companies now involved in commercial drones will be out of the market in five years.” Some companies are already bankrupt, and more will follow in coming years. Others will be sold.
Teal Group experts also studied national strengths regarding the drone market. Each country has a different focus and specialty within the market. China and Japan are trying to convert their industry into major players in the commercial drones market. China is leader in hardware and especially in consumer and prosumer systems through DJI (the company detains 70% of the consumer market). DJI wants to shift this advantage into a leader position in the hardware needed for commercial market (infrastructure building, delivery, insurance…). Other Chinese companies want to mass-product industrial inspection and agricultural drones. Government is subsidizing all of them and is implementing a supportive regulation for the UAV development. Japan is leader in civil UAS development, it will continue developing in specific niches such as construction and spraying. The US are leaders in analytics and development of service offerings thanks to its large range of technology companies (Google, Sony, Verizon…).
Although a sizeable market as a whole, European landscape remains atomized due to many different legislations and certifications processes. According to Teal expert Phil Finnegan, that combined with a political environment less favourable to innovation and entrepreneurship impairs European companies to grow as they should. That also explains, he adds, why some of them have opted to cross the Atlantic…
Written by ADIT – The Bulletin and republished with permission.