March 11, 2015

Now’s the Time to Invest in UAVs

The commercial potential of UAVs is ready for take off

 

Unmanned Aerial Vehicles, or UAVs, are no longer the stuff of science fiction. Whether a drone is crashing on the White House lawn, headed to Mars, or protecting rhinos from poachers, UAVs of all sorts are making headlines nearly every day. Of course, there are still many questions about the regulations and compliance frameworks needed to turn UAVs into commonplace consumer and commercial devices. But from an investor standpoint, now is the time to back emerging UAV companies -- because in the near future they will become part of our everyday lives and spur massive transformations in industries such as media, agriculture, security, mining, real estate, commerce, logistics, and more.  

Investors will pile into UAVs in 2015 as everyone looks to grab a piece of this fast-growing sector. Startups such as Roboflight, Ehang, Drone Deploy, Precision Hawk, Airware, and more raised money in the last few months alone. And, of course, large companies such as Amazon, Google, Facebook, FedEx, and UPS have all publicly discussed UAV plans and are committing R&D spending to drone technology. Even cloud companies like Box are making moves into the drone space; the company’s CEO announced plans to automatically upload data collected from UAVs directly into Box enterprise accounts.

From a regulatory standpoint, it’s about to get far easier to put drones in flight. The Federal Aviation Administration (FAA) and the US Department of Transport (DOT) just announced a new set of proposed rules that would spur commercial operation of UAVs. The proposed rules The proposed rules allow for commercial operation of UAVs under 55 pounds traveling at less than 100 miles per hour and below 500 feet. The UAVs must be operated between sunrise and sunset and be within the line of sight visible with the naked eye. Operators will not need manned pilot’s licenses, but will need to obtain an FAA Operator Certificate by passing a knowledge test. More importantly, both the DOT and FAA gave strong endorsements for the economic and safety benefits of UAVS. 

Cheap, Fast, and Connected

People have been talking about UAVs for years, so why is now the time to begin funding UAV companies in earnest? First there’s Moore’s Law and what Chris Anderson of 3DR calls the “peace dividend of the smartphone wars.” Rapid advancements in computer processing speeds, chips, and sensors driven by Moore’s Law, as well as fierce competition in the smartphone market over the past decade, have made the basic UAV building blocks cheap, light, and powerful. A fully autonomous, highly maneuverable, ruggedized UAV capable of capturing high-definition images and video costs around $1000. Innovations in airframes, autopilots, and sensors will continue to drive those prices down, putting more flying robots within reach of more people. Already, consumers own hundreds of thousands of UAVs from makers such as DJI, 3DR, and Parrot and have created amazing aerial videos with these devices.

Second, wide area wireless technologies, like LTE, have made it possible for drones to transmit vast amounts of data at farther ranges and faster speeds. One of the most promising commercial aspects of UAVs remains their capacity to collect, store, analyze, and transmit vast amounts of valuable data. A typical flight can generate more than 500MB of raw visual and sensor data, often from entirely unique perspectives that would have been otherwise unobtainable. UAVs range too far to rely on Wi-Fi, and transmit too much data to use 3G networks, but LTE solves both the range and capacity challenges. Not only can UAV devices use LTE networks to deliver sensor data for processing, analysis and decision-making mid-flight, but they can also use LTE to receive command-and-control inputs in real-time as well. Flight coordinates could be delivered over the network to dynamically update flight plans, reroute missions, and clear airspace when necessary. LTE connectivity gives UAV operators real-time visibility beyond the line of sight, allowing them to better manage their fleets, track aircraft, and run more efficient operations. Simply put, UAVs connected to an LTE network will be safer, more reliable stewards of shared airspace.

Third, the FAA is finally getting ready to announce rules for commercial UAV operation. The agency will soon release a Notice of Public Rulemaking (NPRM) that will outline regulatory and compliance guidelines for UAVs. The FAA has recently granted permission to a handful of companies and has a backlog of more than 200 applicants awaiting approvals. Though this is just a first step in creating a comprehensive UAV regulatory framework, it won’t be long before more companies receive permission to sell and operate UAVs -- because the US government sees the economic opportunity drones represent. The UAV industry will generate $13.6 billion in economic activity and create 70,000 jobs in the three years after commercial use restrictions are lifted, according to the Association for Unmanned Vehicle Systems International. 

First Bits, Then Atoms

Drones may seem far-fetched, but not when you consider the economic implications of their commercial use. UAVs will deliver value first by “delivering bits” -- video, imagery, sensor data, etc. Already, the media, entertainment, agriculture, mining, construction, cinematography, and surveillance industries are using drones for this type of data collection and transmission. UAVs will then shift to “delivering atoms” -- actual goods such as packages, vaccines, electronics, food supplies, and more. Along these lines, Verizon is proud to support our 2014 Powerful Answers Award winner Matternet (link), a UAV company with the bold ambition to enable the world’s next transportation system. Third-party logistics, or 3PL, is a already a $1.4 trillion market in the US, representing nearly 10% of GDP, and companies like FedEx and UPS will seek new ways to improve delivery times, prices, and offers. Consumers and retailers alike want faster deliveries -- same day or even same hour -- and that cannot be accomplished with fleets of slow, gas-burning, traffic-causing vans.

The biggest barrier to wide-scale UAV adoption will be regulatory hurdles, but these will be solved over time. UAVs will need to be certified, registered, and properly provisioned for commercial operation. They will need to meet yet-undetermined regulations managing airspace, data collection, privacy, and use of existing communications networks. Insurance companies will need access to masses of data to properly insure UAV operators. Commercial UAVs will each need a unique registration number that can be tracked wirelessly, so each and every flight can be logged. Airspace will need be managed and de-conflicted in real-time to avoid drone accidents. In a sense, UAVs are essentially flying cell phones, and they will likely be regulated on similar terms.

For example, one vision for small UAV airspace management looks similar to how how licensed wireless spectrum is managed. For example, government regulators could auction off popular airspace corridors for UAVs, turning management, scheduling, and maintenance of these public-private routes over to commercial operators in much the same way they have done with cellular networks. Already there are companies mapping UAV “no-fly zones”, and one can see how valuable some commercial routes, such New York City to the Newark Port, or San Francisco to Oakland, could become.  I’m particularly excited about the Urban Skyways project being organized by SkyWard (http://skyward.io/urbanskyways/).  In partnership with NASA, other UAV companies,  and the cities of Portland, London, Las Vegas and Vancouver,  Skyward is orchestrating the first end-to-end demonstration of a commercial UAV network operated with full regulatory compliance. 

When you think of all the compliance issues that must be ironed out for drones to “take off” commercially, it may seem we’ll never get to full commercial deployment. But one look at the incredibly fast growth of the cell phone industry in the last 10 years shows just how quickly these types of regulatory hurdles can be addressed when government bodies and for-profit companies work together toward solutions. The dawn of commercial drones is closer than you think.

Tags: investing , David Famolari , UAV , Drone , Aviation