DroneCompares Discusses Avoiding a Race to the Bottom in the Consumer Drone Market

​​​Last week was a hot one in the consumer drone market.

After months of  fanfare, smartphone maker Xiaomi on Wednesday finally unveiled its Mi Drone. It will come in two flavors: $380 for a 1080p version with one-kilometer range and $460 for a 4K version that has a range of two kilometers.

And, fortunately or unfortunately, Zerotech and Tencent chose the same day to release their 4K social/selfie drone, called Dobby for around $290.

Consumers have to be giddy with both choice and price. But it’s important to step back and ask the ultimate question of whether recent developments are a true boon for consumers and herald an impending mass adoption of drones, or are simply the start of a disastrous race to the bottom for manufacturers.

At least for the short-term, entry into the drone market has never been cheaper. And we’re talking serious drones with flight controllers, sensors, decent cameras and a range of automatic or semi-autonomous features, like return-to-home and auto-landing.

Prior to the launch of the Xiaomi and Zerotech drone, the low end of the consumer market was around $500, where Parrot has its Bebop 2 and DJI has its Phantom 3 Standard. But neither offers a 4K camera at that price point. To get 4K, you’d have had to spend around $800 on a Phantom 3 4K or a Yuneec Q500 4K.

For many consumers, the cheaper, entry-level drones will be just fine if they are as easy, safe and reliable to operate as the advertising and marketing materials claim. Though they don’t spec out impressively, many new flyers will be focused on a single function – like selfie mode – and not pay attention to the rest.

Safety and reliability are the wildcards here. It’s very hard to mass-produce hundreds of thousands or millions of drones and ensure even quality throughout every batch.

So, you’re getting a drone for $300, but how long will its motors last? How long will the gimbal and camera work? How much damage can the craft take? All questions nobody can answer until the drones have tens of thousands of hours of flight time under their belt.

On the other side of things, the margin-squeeze could end up being very bad for manufacturers. And that will have a bad knock-on effect for consumers and market development. In a scenario not exclusive to the drone sector, when you see margins dropping to unsustainably low levels, investment in innovation stops, commoditization sets in, and the market is flooded with low-priced, low-performance products with very little to differentiate them.

Short-term, at least, the winners in the race to the bottom are the OEM manufacturers whose factories dot all of southern China and survive on churning out mass volumes of cheap product. And, of course, the chip manufacturers, like Intel and Qualcomm, which have been looking to branch out into growing, new consumer sectors, like drones, as their core product areas mature.

Both companies have not only been supplying chipsets to drone companies, but they’ve also used some of their cash piles to invest in fledgling companies, hoping to pick or back a winner that creates a new pipeline for their silicon brains.

It’s interesting, though not unexpected, to see the opening battle for the hearts and wallets of drone buyers play out in China. Most of the world’s consumer drones are made there, and with incomes relatively low and drones selling for around $1,000, drones have been largely out of reach for the masses.

The China market is, in many ways, special. It’s fast-moving, highly competitive and very unforgiving in a way U.S. and European markets are. So, assuming what happens there is exactly what will happen elsewhere is a bit risky.

But drone technology is global, and the most-developed economies in the world are also the ones with the most money to spend and drones flying around. That means that what started in China won’t necessarily just stay in China.

The one hope is that some drone companies are confident enough in the sector’s future to stay out of a price war.

DJI recently displayed that sort of confidence, pricing its Phantom 4 at $1,399 – $140 more than the launch price of the Phantom 3 Professional a year earlier. The rationale must have been that the generational leap in technology – adding dual forward-facing optical sensors and an onboard processor that enabled basic machine learning — is worth the upgrade. The positioning of the upgrade to its flagship product as more expensive signals stronger differentiation within the market.

It may seem like Yuneec followed a similar path with the new Typhoon H.

At CES 2016, the Typhoon H with ultrasonic avoidance onboard was priced at a premium $1,799 at announcement, with the intention of taking on the then-$3,000 DJI Inspire 1. When the specs of the platform clearly underperformed the features of the Inspire 1, they dropped the price to $1,299, well above the $899 of its previous Q500 model, to try to compete with the DJI Phantom 4. It’s a bit hard to tell – at least technologically – what justifies the sharp price rise. If the craft delivers on the sense-and-avoid technology it promised when it displayed at CES 2016, it may well be worth it. But it won’t be at $1,299.

To get it to function the same way, it will need an add-on RealSense array that costs extra. And, if the buzz is correct, you’d also need to tack on a multimillion–dollar VICON system to get the Typhoon H to do exactly what it  did at CES. In many ways it appears that Yuneec is likewise trying to push prices to the bottom without making the investment into next-generation technology.

Whatever the reason for price rises in the latest generation of craft, there’s at least the hope that drone technology gets to develop further and that margins stay high enough to allow companies to invest and innovate.

If not, the future we have to look forward to is one similar to what the current naysayers and doubters portray: skies filled with cheap toys that tarnish the reputation of this promising young industry.

Source: DroneCompares.com

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DroneCompares was created to provide impartial advice to help drone buyers filter facts from fiction in today's rapidly growing drone market.

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