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Drones: Reshaping Industries and Big Business

Drones: Reshaping Industries and Big Business

Introduction

There are no drones in the sky right now, and that is so weird…when you talk about a blue-sky opportunity, we really are looking at one” – Chris Anderson, CEO of drone innovations company, 3D Robotics.

Unmanned aerial vehicles (UAVs), more commonly known as drones, are becoming an increasingly lucrative, innovative and expansive industry. In an age of rapid technological change, continued research and consistent interest into the possibility of drone uses have resulted in the development of sophisticated drone innovations; these have the potential to reshape industries and big business.

Originally designed for military purposes, drones have evolved into mainstream recreational devices. Additionally, innovators have recognised their potential in industries such as agriculture, medicine, retail and transport. Significant controversies have arisen with increased drone use, and legal authority on privacy issues remain ambiguous. Nonetheless, industry pioneers continue to brainstorm and develop drones undeterred by what many view as a temporary lack of clear legal authority. This research paper will discuss the above with a focus on implications for boards and big business.

Current Mainstream Uses

To the mainstream public, drones are predominantly still viewed as recreational devices. In Australia and abroad, drones have emerged as popular tools for hobbyists such as photographers and videographers. The devices are also popular amongst amateur aviation enthusiasts, and the simplest drones are even regarded as toys for older children. The Australian Civil Aviation Authority (CASA) recognises the ‘Flying for fun and recreation’ drone user, and has a stringent set of guidelines for safe recreational flying.

Whilst recreational drone use has not reached a point of market saturation, their popularity and sales are increasing rapidly. Businesses can consider strategies to capitalise on consumers’ current interest in drones. Recreational drones are reported to be the fastest growing area of the drone market, with sales expected to increase from 2 million drones in 2017 to 2.8 million in 2018.

Military Uses

Military purpose drones constitute the oldest and most established drone market. Where recreational drones may be the fastest growing sector, defence drones remain the largest market sector. The industry will be worth $70 billion at the end of a five-year period from 2016-2020.

Historically, military drone use can be traced back to the early 20th century, when France and the United States were both developing automatic, unmanned aircraft during World War I.

Some reasons and uses of deploying drones rather than human missions:

  • Risks associated with bomb detection and deployment
  • Covert surveillance missions
  • Drones are generally safer, cheaper and more efficient than manned aircraft.

Drone use has stemmed from the fact that there are many military operations where it would be exceedingly dangerous to send human troops in, and drones provide a cost-effective alternative where human lives are not endangered.

Drones are a common feature in many government defence departments. In 2012, President Obama confirmed that drone strikes were regularly undertaken on suspected hostile militants in Pakistan, using drones flown remotely from a US base.

There are several types of small, medium and large tactical drones operated by various governments.

Regulations and Legal Issues

The main reason why drones are still a relatively niche, albeit growing, industry is due to sometimes strict and unclear regulations regarding their use. Currently, there are no universal standards for drone flight, and individual countries are still amending domestic drone use rules and regulations. The legal implications created by malfunctions or misuse also need to be considered by boards in holistically assessing drones.

Australian Regulations

CASA is the main regulatory body responsible for safe drone use. There are stringent measures imposed on mainstream recreational drone users, but businesses can apply to be exempted from these rules. Flying outside of the standard operating conditions requires a remote pilot license and an RPA operator’s certificate, which boards and businesses will have to consider.


The regulations are in line with the Civil Aviation Safety Regulations 1998 and were updated recently on 20th October 2017.


These regulations include:

  • No flying above 120 metres in all locations
  • No flying near emergency operations, such as bushfire or flooding situations
  • No flying within 30 metres of any person not involved in flying the drone
  • No flying in a manner that may disrupt manned aircraft
  • No flying at night or in unfavourable weather conditions
  • The drone must always be in the flier’s eyesight
  • No flying over people
  • No flying in designated restricted areas
  • Various other regulations found on the CASA website.

Some experts have interpreted the new regulations as a precautionary and restrictive shift in Australia’s drone policy, and critics fear that Australia may be passing up opportunities if over-regulation were to occur. On the other end of the spectrum, some fear that drones present dangerous privacy invasion opportunities, and will also ruin the aesthetic value of drone-free skies. 

International Regulations

As mentioned above, there are currently no universal international regulations for drone use. Each country has their own set of usage rules, and legal authority is still developing. Multinational businesses looking to incorporate drones into their operations must be aware of the differing rules in each country.

For example, China’s drone regulations are significantly less stringent than Australia’s. Drones under 7kg do not need any certificates or licensing to be flown, and individuals are permitted to fly over people, provided that necessary caution is exercised. In Australia, it is forbidden to fly over people or within 30m of people. However, in the United States, drone regulations are very similar to that of Australia.

Controversies

Drones have also attracted significant controversy due to their invasive and relatively unpoliced nature. In 2014, security concerns were raised when a drone flew into the White House lawn, sparking panic from White House staff. DJI, the Chinese drone company that manufactured the offending drone, faced media backlash. 

There have also been other reports of drones being used to fly contraband such as cigarettes and contraband into prisons.

Legal Ambiguities and Safety Concerns

  • No consistent legal authority in privacy issues for drones
  • Particularly important for boards and their businesses. Restrictive regulations and lack of clear legal authority is preventing drones from developing further into the mainstream big business, although many drone innovators continue undeterred
  • Cybersecurity is an issue, especially for businesses using large-scale drone operations; huge ramifications if hackers were to target these operations.; safety breaches possible
  • Liabilities for crashes and other malfunctions
  • Businesses must consider the risk and consequent liabilities that result from drone use and potential drone malfunctioning
  • The potential for injury claims if drones were to injure people.

Future Industry Uses

Savvy boards may be able to not only integrate drones into their own business models and invest in new drone technology in other areas that could reshape certain industries.

  • Agriculture
  • Remote precision crop mapping, monitoring and management
  • Farms are often expansive and sprawling areas of land, and thus it is difficult for farmers to manually check and monitor every plant’s health and nutritional needs
  • Using precision crop monitoring, farmers can remotely assess their crops’ health and needs, and adjust operations as appropriate
  • Precision agriculture is an emerging farming management concept that uses drones to not only measure and observe crops, but also respond to variability without needing any action from farmers
  • New technological development called normalised difference vegetation index (NDVI), and infrared mapping device powered by start-ups.
  • Remote Irrigation
  • Rather than manually watering or using inefficient stationery overhead sprinklers, farmers may be able to water using remote-piloted drones to target areas that need attention.
  • Monitoring for natural disasters
  • Drones can monitor farm areas prone to natural disasters such as flooding and bushfires.
  • Medicine
  • Drones are being explored as a potential delivery tool for remote, hard to reach areas.
  • Delivering medical supplies to areas in need via drone.
  • Zipline launches blood-carrying drones in Tanzania, Rwanda; serving 12 million and 55 million people respectively.
  • Chilled human blood flown in Arizona over 250km in hot desert trials.
  • Results were successful
  • The blood transported by car was a few degrees warmer than the blood transported by drone, suggesting that drone flight can keep the blood at a stable temperature.
  • Retail
  • One of the biggest potential industries for the possible implementation of drones
  • There is a huge shipping and delivery potential for drones.
  • Unmanned cargo transport a possibility
  • Amazon has initiated drone delivery trials, as has Alibaba. Other e-businesses may follow suit, especially if large-scale drone delivery programs can work within regulations
  • As discussed, a major roadblock to the normalisation of drones into company business models is the regulations surrounding drone flight. Another problem is the capabilities of the drones themselves, such as weight load and refueling. Boards and businesses would have to work closely with drone manufacturers to ensure that the designed drones could cope with their workload
  • Safety is another concern. Drones carrying large cargo sizes high above ground could be dangerous if they malfunctioned or were tampered with.
  • Transport
  • Drones vary in size, and one of the largest drone is bigger than a commercial jet.
  • Drone transportation is a possibility
  • At the 2016 CES, Ehang revealed a personal transportation drone that looks similar to a helicopter. Whilst the company is still running trials, this could be a game-changer in the years to come.
  • Other Uses
  • Geographic tracking and mapping
  • Law enforcement surveillance, border control (immigration – could be used by governments to monitor and control borders remotely)
  • Shipping essential supplies in disaster situations
  • Thermal sensors for search and rescue operations
  • Building safety inspections
  • Storm tracking e.g. hurricanes, storms, weather warnings
  • Asset inventory, monitoring investments and need for maintenance.

Implications for Boards and Business

Drones in Big Business

PwC recently published a thought piece outlining questions that boards and businesses should be asking themselves to understand any potential benefits of integrating drones into strategy and business plans.

These questions and issues were:

  • Are there manually laborious/time-consuming/expensive/dangerous tasks that could be replaced by drones? This is the base logic which is applied to drone use in the military, whereby drones are used in situations where human intervention is undesirable for various reasons.
  • Can drones be used for data/information collection that may be useful for future business?
  • Could drones be used alongside current technology investments to maximise efficiency and minimise costs?
  • Legal, regulatory and cyber-safety risks, as previously discussed.

Drone technologies are becoming a fast-growing industry in their own right, with companies DJI (Hong Kong, Shenzhen), Parrot (France), 3D Robotics (America) leading the market. Despite restrictive regulations, these firms continue to grow and innovate new ways for businesses to utilise drones. Although fast-growing, the market not fully saturated, and there are potential investments to be made. Boards could take advantage of a growing industry where profit margins are still relatively high.

Chinese Shenzhen based company, DJI, can be partially credited for popularising drones and is one of the global leaders in drone technology. However, CEO Frank Wang has said that whilst profit margins are high now, low budget copy-cat drones infiltrating the market may drive down profits for the whole industry. Frank Wang is the first drone technology billionaire.

  • The drones market is a growing market, not fully established.
  • Boards and investment; could take advantage of a growing industry where profit margins are still relatively high.
  • The market is far from saturated; whilst popularity is rising, they have not reached a state of ubiquity
  • DJI; can be credited with popularising drones and is arguably the global leader in drone technology; profit margins are high now, but as more low-budget copycat drones enter the Chinese markets, profits may be driven down for the entire industry.
  • DJI CEO is the first drone technology billionaire, and the youngest Asian billionaire on the Forbes rich list.
  • PwC; advising boards on how it can collaborate with management to look at how drones may be able to fit into a company’s strategy and growth plans.

Conclusion

The drone industry is poised to continue gaining momentum, and drones may become powerful business tools for boards that can integrate the technology efficiently into their current business models. There is also the possibility for hybrid technology use, as drones are integrated with and used alongside other technologies.

Author(s)

Holly Yuan
Holly Yuan
John Colvin, Holly Yuan

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