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Lessons from DJI in the Drone Industry - Dave Litwiller - May 24 2017
- 1. 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
- 2. HISTORICAL VTOL SUAS, 2012 Price Performance Consumer • Total Global Market: ~US$150M • ASP generally <US$500 Professional, Military & First Responder • Total Global Market: ~US$30M • ASP generally >US$25K
- 3. SUAS MARKET SIZE AND GROWTH $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 sVTOL sFixedWing US$M
- 4. 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
- 5. MARKET SHARE 2016 Global: • Consumer VTOL sUASs: >80%, by units and $ • Professional VTOL sUASs: >60%, by units and $
- 6. 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
- 7. 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?
- 8. BEYOND DJI AND DRONES Inside China’s Plans for World Robot Domination Bloomberg News April 24, 2017, 5:00 PM EDT • Some 800 robot makers seek scale as Chinese industry automates
- 9. OVERVIEW Individual Contributions Emergent and Combined Effects Looking to the Future Inferences for Western Technology Companies
- 11. 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.
- 12. 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
- 13. 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
- 14. 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 Performance
- 15. 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
- 16. 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
- 17. 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
- 18. 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
- 19. 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
- 20. 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
- 21. 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
- 22. 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
- 23. 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
- 24. 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
- 25. 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
- 27. 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
- 28. 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
- 29. 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
- 30. 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
- 31. CONSUMER LEADERSHIP -> ENTERPRISE CROSSOVER Apr. ’17: 84% of drone mapping and modeling is occurring on drone models that cost $1500 or less - DroneDeploy
- 32. 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
- 33. 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
- 34. PREPARING FOR THE MATURATION OF CONSUMER APPLICATIONS • As growth of the consumer sector is expected to slow down… • …on to enterprise and government applications
- 35. 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
- 36. 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
- 37. 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
- 38. LONG RANGE COMMUNICATIONS Tracktenna – Launched Apr. ’17 10Mbps up to 2km, with range out to 10km
- 39. 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-intensive coding for exceptions as a crux issue in machine learning
- 40. INFERENCES FOR WESTERN ROBOTICS COMPANIES
- 41. 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
- 42. 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
- 43. 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
- 44. 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
- 45. 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
- 46. VR -> AR ? ?
- 47. 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)
- 48. 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
- 49. FURTHER DISCUSSION For arrange further private discussion of any of today’s topics or related matters: dave.litwiller@communitech.ca
- 50. ADDITIONAL DJI TEST CASE
- 51. VTOL UAV FOR PESTICIDE APPLICATION IN AGRICULTURE Issue: Rural labour shortage in China with exodus of young to cities
- 52. 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
- 53. 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 Matrice 600 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?