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LESSONS FROM DJI IN
THE DRONE INDUSTRY
Insights for Small Robotics, Autonomous Vehicles, New
Generation Sensor Platforms, and Related Artificial Intelligence
MAY 24, 2017
DAVE LITWILLER
Notice: All images, designs and trademarks are the property of their respective owners
HISTORICAL
VTOL SUAS, 2012
Price
Pe
rfo
rma
nce
Consumer
• Total Global Market: ~US$150M
• ASP generally <US$500
Professional, Military & First Responder
• Total Global Market: ~US$30M
• ASP generally >US$25K
SUAS MARKET SIZE
AND GROWTH
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
sVTOL
sFixedWingUS$M
TIMELINE
• 2006: Da-Jiang Innovations founded by Frank (Tao) Wang
• 2010: Sales just over US$1M , mainly selling flight controllers, 50 y/e staff
• 2012: $26M sales, y/e 330 employees, launched Flamewheel protean drone
• 2013: Launched Phantom 1 consumer drone in Jan., sales $131M, 1,240 y/e employees
• 2014: Sales $480M, 2,800 y/e employees
• 2015: Accel Partners Investment of $75M, 4,000 y/e employees
• 2016: Sales $1.47B, merchant value nearly US$2B, 6000 y/e employees
• 2017: 8,000 employees (Apr), 2,000 of them in R&D
• Total Capitalization prior to 2015: <US$200K
• Comparable first decade of growth and capital efficiency to the historical fast start stand-outs of ICT: nVidia, Cisco, Apple and DEC
MARKET SHARE
2016 Global:
• Consumer VTOL sUASs: >80%, by units and $
• Professional VTOL sUASs: >60%, by units and $
NOTABLE ACHIEVEMENTS
• Impressive concentration of product offerings
• Global innovation from Shenzhen, not imitation
• No significant government financial support
• Absence of accusations of misappropriating technologies
developed elsewhere
QUESTIONS TO ANSWER
• How did DJI largely create the mass drone market
spanning consumer, prosumer, enterprise and
professional applications?
• How did it consistently exceed the innovation output of
both Chinese and international competitors to become
dominant?
• What lessons can be learned about the changing
character of innovation in robotics and related
technologies?
• How can the distinctive traits of the new wave of Chinese
innovation be leveraged for global advantage by domestic
and international technology producers?
BEYOND DJI AND DRONES
Inside China’s Plans for World Robot DominationBloomberg News April 24, 2017, 5:00 PM EDT
• Some 800 robot makers seek scale as Chinese industry automates
OVERVIEW
Individual Contributions
Emergent and Combined Effects
Looking to the Future
Inferences for Western Technology Companies
VOLUME FOCUS TO
SET THE FOUNDATION
• Conviction view that:
1. sUAS could move from a niche to a mass, consumer-led market
2. Consumers would pay the price of an entry level DSLR for a high quality drone
3. VTOL would predominate over fixed wing
• Early adopters, tinkerers, DIY’ers -> mainstream consumer and professional market
• Technical requirements:
• Robust
• Simple to use; fast time to value and “wow factor”
• Turn-key
• Regulatory:
• Significant early priority on consumer uses and weight class with the least regulatory impediments
• Applications:
• Remote piloting novelty quickly gave way to: photography, videography, broadcast and cinematography early emphases, with simplest re-use of existing workflows and infrastructures
• Performance:
• World class. Not second rate.
COST DOWN,
PERFORMANCE UP
• Internalized design of traditional high cost components to greatly reduce cost, at same time as improving application-matched performance and quality
• Masters of lean value in technical design
• Applied to:
• Flight controllers
• Wireless datacom links
• Propulsion motors
• Payload gimbals
• Propellers
• Cameras
• And lately, antennas
TECHNOLOGY
LEADERSHIP
• Technology leadership intrinsically related to cost
reduction; two sides of the same coin
• First or early to market with new capabilities which deliver
high value for customers
• Active efforts to reduce cost through sophisticated design,
not just relying on cost improvements as a passive
byproduct of volume or experience curves
• Company is far enough ahead of the curve technologically
that even if its launch timelines slip somewhat, it is still
ahead of the rest of the pack
COMPLETE
PORTFOLIO
Phantom
Inspire
Mavic
Spark
Matrice 100/200
S900/1000-Matrice 600
• Price-Performance Breadth
• <$500 to >$50K system price (w/ camera)
• Similar span of payloads and other options
• Few gaps for competitors to gain a good, uncontested foothold
Time
Pe
rfo
rma
nce
INDUSTRY
PACESETTING
• Faster pace of advancement than any competitor can sustainably match
• Annual generational model change for consumer flagship Phantom
• Bi-annual generational model change for professional flagship Inspire
• Sub-generational enhancements more frequently
• Periodic price reductions
• Simply better performing next generation safety and autonomy features
• No Fear of Cannibalization
• “We’ve never been a company that worries about cannibalization….We are the innovation company and we don’t care if a new product makes an old one [of DJI’s] look outdated.” – Adam Lisberg of DJI, Techcrunch, Nov. 11/’16
Shenzhen Speed
SHENZHEN SPEED
• Designated Special Economic Zone in 1980
• Premised upon embrace of global markets and competition
• In 36 years, population grew from <500K to >20M, annual GDP growth ~30%
• City of migrants, both blue and white collar; valorization of migrant workers; ongoing ingress of workers
• Little social safety net -> High work ethic
• Ethos of personal betterment through subservience as key to upward mobility, personal transformation, and freedom of livelihood
• Embodiment of “To Get Rich is Glorious” – Deng Xiaoping
• Time is $, efficiency is life; economic values shape nearly all other values
• High technology is 60% of industrial output
ENERGETIC DEFENSE OF
THE HIGH VOLUME PART
OF THE MARKET
• Lowered prices for mature products
• "It's no fun watching prices fall by 70 percent in 9 months," [Chris] Anderson [3D Robotics CEO] said, referring to DJI's price-cutting. – Reuters,
Nov. 15, 2016
•
• Recent introduction of Mavic and soon Spark
FAST ISSUE
RESOLUTION
• DJI has not been immune to the complexities of volume
production and usage of small robotic aircraft:
• Flyaways, airframe cracking, software incidents and the
emergent need for geofencing among them
• The company is notable for how quickly it conceives,
develops, tests and releases fixes and enhancements to
both hardware and software, usually in just days or weeks
• Competitors struggle to match this speed of issue
resolution, particularly for hardware shortcomings
COMPANY FIRST
• Individual goals of employees and managers are
subordinate to the enterprise
• Work life is all consuming to achieve speed, and
integration of activities across the organization
• Integration is particularly demanding in what is necessarily
such a tightly technically coupled product as a small UAS
• Success is measured by milestone attainment, volume
sales and customer success
• Little cool engineering or technical elegance for their own
sakes
RELENTLESS R&D
• Competitive internal development teams
• "Pitting teams against each other and having one win is
how product development works inside of DJI." - Frank Wang,
DJI CEO, The Verge, Sept. 27, 2016
• Intense work environment
• “Individual competition to be the best employee is fierce” –Eric Cheng, formerly of DJI, Oct. ’15
• "We work six days a week…10am to 10pm.” – DJI Product
Manager Paul Pan, Wired, Mar. 9, 2016
• "Very aggressive people are concentrated here” - Frank Wang,
DJI CEO, The Verge, Sept. 27, 2016
PUT CASH TO WORK
• Buy, not build, some technology
• Hasselblad Investment – high performance digital still photography
• Transaction history:
• Minority stake and board seat for DJI Nov. ’15
• Control transaction reported Jan. ’17 – Luminous Landscape
• Technologies:
• High dynamic range image capture and digital image reconstruction
• Precision optics and mechanics
• Optionality:
• Drones
• Terrestrial Cameras
METICULOUS
APPLICATION FOCUS
• Apply as much effort uncovering value drivers and pain
points for users, in each targeted application, as in
component and manufacturing innovation
• Consumer: DJI has nailed it, and continues to do so
• Professional: Application-specific solutions which are
practical, and with ever-present concurrent priority for low
cost and high performance
• Search and Rescue and First Responder public examples
• Less publicized work in power line inspection,
construction, roof inspections, policing, fire fighting, and
other industrial applications
• Considering services business model
RISK MANAGEMENT
• Example: Consumer or Regulatory Backlash Scenario
• Publicized investments and success stories in public safety
applications, to pre-emptively show public good from
drones
• Rapid response to potential misuse through geofencing
• Lobbying and direct participation in regulatory dialog
• Stakes in terrestrial photography
• Growing portfolio of lighter, inherently safer, sUASs
• Upcoming: geographic registration and enforced
jurisdictional flight safety limits
ORIGINAL AND PROTECTED
INTELLECTUAL PROPERTY
Leader, Not Follower
• DJI did not invent the multi-rotor UAS, but has led technologically in the recent advancement of the art
• Commanding body of patent-protected IP, both utility and design
• At Oct. ’16:• 400 patents granted globally
• 1,500 patent applications
• At May ’17: • 91 US patents granted, 33 US patent applications laid open (www.uspto.gov,
Assignee SZ DJI)
• 3,458 total global patent applications to date (http://news.qq.com/a/20170426/037328.htm?t=1493707169590)
• DJI patenting at approximately 10* the rate of their nearest competitor
• Financial resources to be flexible for both offensive and defensive use of its patent portfolio
• IP infringement actions initiated against alleged transgressors in China and the US
CONSTRUCTIVE
PARANOIA
• Unwavering pursuit of driving down cost, while driving up performance, reliability, and application diversity, to expand market share, win customer and partner allegiance, and reduce competitor opportunity
• Cultural drive to win and execute. Any complacency is expunged.
• CEO providing cultural engine, forestalling institutional hubris
• Competitive intensity of domestic setting, particularly in Shenzhen, provides a constant reminder of how quickly adept imitators can catch up if there are any slips
• As many as 20,000 drone R&D staff in Shenzhen presently, among hundreds of companies
• Precedent of prolific imitation of consumer R/C helicopter companies in Shenzhen in late 2000’s, among other industries
DISCRETE BECOMES
QUALITATIVE
• Competitors are struggling to keep up, both on cost and performance
• More difficult is for competitors to try to get ahead, especially with so many fronts of rapid progress both technologically and in market development
• DJI is now shaping the expectations of the market, putting competitors in an increasingly untenable position of having to try to out-anticipate DJI, but from a position generally of slower product development cycles and less market penetration and insight
• Many competitors are finding themselves in rearguard actions as DJI’s cycles of decision and action are decisively faster than others
STEADY MARCHING BUILDING
INSTITUTIONAL RESILIENCE
• Even as DJI has widely outstripped its nearest
competitors, it has internalized and retained a relentless
pace of product development
• Such execution tempo at scale gives the company a
greater likelihood of exploiting future opportunity, and
recovering from any setbacks
TECHNOLOGY LEADERSHIP
REINFORCING CYCLE
• DJI’s next generation sUASs are of such advanced price-performance as to create a time window of nearly competition-free operation
• Many of DJI’s new products become must-haves for customers
• Recently launched offerings become de facto industry standards
• Higher pricing and profits are derived from these products in their early lives
• As products get older, prices are lowered to build volume, lower unit costs, and fend off later arriving competitors, to capture the majority of the life cycle profits
• These profits are reinvested in the next generation of sUASs to create the next competition-free zone
CONSUMER SECTOR DOMINANCE
AS THE BASIS FOR ENTERPRISE
SUCCESS
Consumer
Success:• Volume
• Performance
• Cost reductions
• Mfg.
• Supply chain
• R&D depth
• Brand equity
• Usage familiarity
• Wide distribution
Early Enterprise
Success:• Simple and pre-existing
workflows
• Prosumer• Wedding and event
photography
• Real estate photography
• Emergency first
response
• Insurance claim roof
inspections
• Cinematography
• Broadcast news
• Small scale experiments
in drone usage in large
enterprises and
government• Informational
advantages from early
application access
Large Scale Enterprise:
• Strong start
• Vibrant and growing
ecosystem of
complementary 3rd
party SaaS providers
and drone services
providers
• Time will tell• Agriculture imaging
• Electric Utilities
• Petro-chemical
• Surveying
• Security
• Construction
• Architecture
• Building inspections
• Mining
• Wireless Telecom/Data
• Wide body aircraft
inspection
CONSUMER LEADERSHIP ->
ENTERPRISE CROSSOVER
Apr. ’17: 84% of drone mapping and modeling is occurring on drone models that cost $1500 or less - DroneDeploy
CONSUMER LEADERSHIP ->
ENTERPRISE CROSSOVER
77%
12%
3%
3%1%
1% 1% 1% 1%1%
Announced or Completed US Law Enforcement sUAS Deployments from Jan 1 to Dec 15 2016,
N=138
DJI Manufacturer not Disclosed
Competitor A Competitor B
Competitor C Competitor D
Competitor E Competitor F
Competitor G Competitor H
Dec. ’16: 77% of US law enforcement agency 2016 drone deployments won by DJI
Source:
FAA, agency
media releases
SIMULTANEOUS PURSUIT OF MASS MARKET,
AND, HIGHER COST PERFORMANCE-DRIVEN
SECTORS
Technology View:
• Bracket both the high volume consumer segment, and, performance-driven professional applications
• Volume applications drive lean value design, yield engineering, reliability, and economies of scale and scope
• Performance-driven applications drive insights into next generation technical capabilities to proliferate throughout product line
• Being predominant at both ends of the performance spectrum makes it difficult for competitors
• Smaller players struggle to equal the unit economics at the low end
• With advancing requirements for compulsory system capabilities, smaller players from all parts of the performance spectrum are being increasingly challenged
• Performance leadership of traditional high end players is being increasingly threatened by DJI
PREPARING FOR THE MATURATION
OF CONSUMER APPLICATIONS
• As growth of the consumer sector is
expected to slow down…
• …on to enterprise and government
applications
API, SDK, AND 3RD
PARTY SOFTWARE
• Accel Partners investment in 2015, in part to build ecosystem
• Hired Darren Liccardo in 2015, formerly of Tesla’s autopilot
project and BMW’s, to build Si-Valley team
• A partial sample of enterprise software partners to date:
Strategic Issue for 3rd Party Developers: • We haven’t seen the degree of foundation technology concentration DJI has built
for H/W & OS since the heyday of the desktop PC era for Intel and Microsoft
BVLOS
Human Labour Cost Hurdle for much wider scale Commercial
Operations
Requirements for BVLoS Operation:
• Longer flight times – power source and aircraft
architecture
• Longer distance base station to aircraft communication
links
• Greater vehicle autonomy
• Regulatory access
LONGER FLIGHT
TIMES
• Up 30 minutes for latest Phantom, and 35 minutes for
Matrice 200
• But,
• Considerable scale advantages to work on power sources
other than Li-Po batteries
• Ability to work on alternative airframe architectures to
pure VTOL, such as hybrid fixed wing-VTOL
GREATER VEHICLE
AUTONOMY
Today:
• 5 outward looking cameras plus ultrasound (radar on ag device)
• Ability to operate in GPS-impaired environments
• Camera-based object detection out to 30m
• Automatic braking, hover, or avoidance within 15m
Tomorrow – Possibilities:
• Learning high skill piloting and trouble avoidance techniques
• Database of complex and near-miss flight situations to train machine learners
• Application of Chinese R&D style to the labour-intensivecoding for exceptions as a crux issue in machine learning
IF THERE’S A MASS
MARKET, GO GET IT
• The days when high performance technology leaders were separated from mass market are increasingly breaking down
• With high performance demands in mass markets, the winners in high volume segments have a strong technology-, manufacturing and distribution base to alter and likely diminish the formerly segregated high end
• The stakes are highest where the total cost of ownership is dominated by the cost of the up front device purchase
• Corollary: Where there’s a mass market, cannibalization of earlier generation products should be of little concern for the tempo of new product development
ACCESS THE VITALITY OF
SUPPLY BASE IN SHENZHEN
• To go from niche to mainstream requires radically lowering the cost of components and subsystems
• Redesign to reduce cost will only go part way
• Accessing the depth and competitive intensity of supply chains in China, especially Shenzhen, is often necessary to gain both low cost and increasingly high performance
• To do this well requires resident engineers at suppliers, and if not resident, then rotating visiting engineers
• Share in proprietary know-how
• Speed communication
• Tighten technical links between functional design, and design for manufacturing
• Better options for second sourcing if needed
• The good news: Foreigners are more accepted in China
REEXAMINE ASSUMPTIONS
ABOUT CUSTOMER CLOSENESS
• Leading Chinese companies are using the favourable cost
and scale of technical staffing to get close to customers
globally
• Detailed first hand observation is used to precisely
optimize product cost and performance
• Western companies will not be able to rely on their
proximity to customers as a source of lasting advantage
as much as in the past
LEAN VALUE NEEDS TO
RETURN TO THE FORE
• Vestiges of presumed technical superiority based on
better science and engineering will come under increasing
stress as further Chinese global champions emerge
• Lean value in design:
• Design simple products; avoid feature inflation
• Nail a very specific, widespread need
• Rededicate to deep, cross-functional technical expertise to
solve performance challenges most effectively
• Design out cost drivers which burden conventional
approaches
APPLICATION SOFTWARE AND
ARTIFICIAL INTELLIGENCE
• The retreat of many Western technology companies to
application software and AI may prove to be a false hope
as a defense against the competitiveness of Far East
robotics manufacturers
• The same scale R&D skills which China is mastering for
global innovation are applicable to creating and coding
large sale training sets, often the crucial technical
capability in unstructured data AI & machine learning
• Especially for coding and training the exceptions to the
exceptions which drive up the labour intensity of most AI
efforts, a leading issue in autonomous vehicle
development
FURTHER READING
Brandt and Thun, The Fight for the Middle: Upgrading, Competition and Industrial
Development in China, (World Development vo. 38 no. 11, Elsevier, 2010)
http://isapapers.pitt.edu/76/1/2009-04_Brandt.pdf
Yip and McKern, China’s Next Strategic Advantage: From Imitation to Innovation,
(MIT Press, Cambridge, 2015)
UPCOMING SEMINARS
Fall 2017
• Intellectual Property:
• Commercial Considerations in Patent Strategy and
Licensing for Growth Stage Technology Companies
• High Output R&D:
• Driving Up Productivity and Quality in Multi-Disciplinary
R&D at Scale
FURTHER
DISCUSSION
For arrange further private discussion of any of today’s
topics or related matters:
dave.litwiller@communitech.ca
VTOL UAV FOR PESTICIDE
APPLICATION IN AGRICULTURE
Issue: Rural labour shortage in China with exodus of young to cities
MG-1
• Unveiled late 2015, DJI’s first agricultural pesticide
application UAV
• Similar to flying camera UAVs
• DJI did not pioneer category
• DJI drove down cost, drove up quality & performance
• One difference: Optimized for Chinese domestic market
and other Asian mkts
• Commanded 2/3 of Chinese market in first year of sales,
representing US$40M revenue from this new line
• Challenged market share leading incumbent in agricultural
pesticide application UAVs in year 1, Yamaha
MG-1S
• No Fear of Cannibalization: Nine months after first volume shipments of MG-1, DJI announced successor MG-1S
• Cost Reduction: Marketed at less than half the price of the original
• Rapid Technology Advancement:
• Significant performance and reliability enhancements spanning many major subsystems.
• Clear evidence of meticulous understanding of the weak areas of the first generation
• Economies of Scope: Leverage of flight controller used in Matrice600 cinematography/industrial UAV
• Putting Cash to Work: Building out service and support network, as well as providing financing and insurance to further expand adoption
• Over time: Reverse innovation potential as the MG-1 family developed with a first view for China comes to have impact and export internationally?
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