Drone space consolidation is about to become a reality.

This spring has been a period of overall bad news across most tech and logistics industries, but analysis from a multiple team think-tank consisting of Guinn Partners, Scott Lumish and Woodside Partners has observed three trends that may be a promising sign for the drone industry.

1 - Federal, state, and local governments, as well as large enterprises, are accelerating the use of unmanned systems on a global basis. 

We first saw this trend emerging in China with JD.com and their use of a drone fleet that has successfully completed over 20,000 flights and delivered over 70 tons of goods. This drone fleet operates from designated drone ports with over 20 landing sites, and in some cases, with over eight drones in the air at a singular time being operated by a single operator. We have found that while companies must still abide by federal regulations for safe drone operations, the extreme nature of the COVID-19 pandemic has placed higher priority on utilizing drones to assist emergency responders during this time. 

Similar examples can be found across the United States where companies like Planck Aerosystems and DJI have created programs aimed at assisting federal agencies and local governments. Residents in Daytona Beach, for example, have become accustomed to DJI drones fitted with loud-speakers flying overhead, assisting police in announcing the closure of parks. Planck Aerosystems is working in tandem with the United States Air Force Research Lab to create solutions, guidance and navigation systems and protocols for sUAS vehicles so they may operate better in harsh environments. The company was awarded a contract to craft what they refer to as a “visual company” for sUAS vehicles so they may better operate in existing commercial environments. 

Google Wing has completed over 1000 deliveries of essentials in a single rural area in Virginia in only 2 weeks. With the ability to deliver everything from toilet paper to medications, the delivery program allows many elderly people to stay home and still get the critical items they need. With the increase in both demand and successful flights completed, we expect to see the upward trend of drone use continue.

Delivery has long been a future-focused concept that is one of the drone applications with the highest likelihood of radically expanding the adoption curve of aerial robotics. But rather than the leisurely, experimental rollout of the late 2010’s, we’re now seeing significant upticks in adoption that are likely here to stay.    To take advantage of this opportunity, large technology and logistics companies will be looking to smaller tech innovators in the drone space as potential partners and acquisitions to accelerate these expanding programs. 

“After a period of experimentation and advancement in both the technology, commercial model and regulatory guidelines, the autonomous aerial Drone industry already stood on the precipice of a commercially material deployments. Woodside Capital Partners expect the current situation to bring significant added impetus for some specific use cases around logistics, contactless operation and emergency humanitarian assistance. To effectively meet this market demand, in a period of constricted funding for more speculative projects, the industry likely needs to consolidate to bring scale in a timely manner. Woodside Capital Partners therefore envisions a significant shrinking of the number of players and in so doing creating more investable situations.”  Mark Bagley - Woodside Capital Partners

2 - Regulations limiting at-scale drone delivery are quickly relaxing resulting in a mass influx of money and technology. 

Our second observation is in reference to current regulation outlines that normally limit at-scale drone delivery. Regulations have quickly relaxed, subsequently resulting in the mass influx of both money and technology aimed at developing drone delivery systems.   This is an unexpected opportunity for adoption and experimental innovation that would unlikely to have ever been seen without current global events.

In December 2019, the FAA announced its plans to introduce a new regulation policy, known as Remote ID, that would require most UAVs to include real-time tracking capabilities made available to local police and government security agencies in an effort to manage air traffic environments, a regulation crucial for drone delivery trailblazers. UPS is one example of a company that plans to capitalize on the drone delivery trend. UPS’ drone delivery department, UPS Fight Forward (UPSDD), announced its partnership with Wingcopter aimed at developing what they call the “next generation of package delivery drones.” Under normal circumstances, drone delivery companies like UPSDD and Wingcopter must work toward certification from the FAA to complete beyond visual line of sight (BVLOS) deliveries, however, due to the current environment COVID-19 has created, we are seeing a call for expedited certifications for companies so that they may assist in bringing urgent supplies to areas in need. 

Last week, Senator John Hoven of North Dakota contacted Stephen Dickinson, Administer of the FAA, to request permission to use small-load drone deliveries packed with urgently needed supplies within controlled flight areas such as campus hospitals in an effort to minimize contact and increase operational speed. This is merely one example of many where state and local governments are working in tandem with the FAA to streamline the obtainment of the proper paperwork and certifications so that they may continue to operate in low risk high reward situations.  

This regulatory environment will allow for better proof of commercial concept for new autonomous robotics technologies, and for drone companies waiting for laxing regulations to test their market hypothesis at a larger scale. 

3 - While money remains available, an increasing number of companies are reporting difficulties securing financing. 

The sudden shift of the fundraising landscape has left many businesses scrambling. As more and more companies are reporting difficulty securing money, companies are looking for any way possible to stay afloat. 

It seems as though there is plenty of capital allocated for late-stage companies, however, an uncertain future makes valuation substantially more difficult. The overall projected decline in private market funding in Q1 2020 is the second most drastic quarterly decline in the past ten years, projected to be down 16% according to CBInsights.

The prospect of a long-term funding slowdown is leading some of the smaller companies down the path of mergers and acquisitions which are expected to continue. While more complex than pre-COVID-19, it is likely that there will be even more M&A activity in the industry due to the increase in adoption of drone technology across the country. The decrease in previous record-high valuations and access to low-interest capital will likely drive M&A in the medium and long term.

As larger companies look to acquire smaller companies who are trying to survive, the long overdue consolidation of the drone ecosystem is in sight. Fewer, but stronger companies will deliver industry relevant use-cases, enterprise specific work-flows, and deeper integrations that add value across the technology stack.

While times are uncertain, the adoption, advancement, and consolidation of the drone industry will prove beneficial for society as a whole.

guinnpartners.com