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3D Robotics’ Cautionary Tale: Losing The Hardware Game To China and Pivoting To Software for Survival

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In the seven years that they’ve been around, 3D Robotics, once a major player in the drone industry, has been through three major shifts in focus—that is, three distinct iterations of what their company does, and how they do it.

3DR Solo Drone

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When you think about it, three is a lot. Most companies try to do one thing, and when they can’t succeed at that, don’t survive long enough to pivot to something else. (And according to many sources, 3DR may not survive this second pivot, but we’ll get into that in a moment.)

For now, strap in for some story-telling, because the 3DR saga is fascinating, and—like so many great stories—shaping up to have a tragic ending.

In the Beginning

3DR got its start in the drone space as a collaboration between Chris Anderson, an NY Times best-selling author and the former Editor-in-Chief of Wired Magazine, and a nineteen year old DIY drone autodidact named Jordi Muñoz. Muñoz first garnered attention in the DIY community by creating a fully functioning autopilot using circuitry lifted from a Nintendo Wii remote (how cool is that?).

The two met through Anderson’s online website for DIY drone folks, DIYDrones.com (a site founded by Anderson in 2007, described on 3DR’s website as “the world’s largest open robotics development community”). As the story goes, when they first met, Anderson was so impressed by Muñoz’s self-made autopilot systems that he gave Muñoz $500 to help him continue his work.

In 2009 the two founded 3D Robotics, or 3DR, the name “alluding to the third axis, up, where consumer robots hadn’t yet traveled.” For the next several years they sold homemade drone kits and autopilot circuit boards, doing work limited solely to the DIY drone space.

Fast forward to 2012, and interest in drones was growing rapidly. No longer just a fringe hobbyist thing, Anderson saw that there was the potential to make real money and a big impact on the world in the budding drone industry. As he wrote in a Wired article that year called How I Accidentally Kickstarted the Domestic Drone Boom: “We’re entering the Drone Age.”

Here is an excerpt from that article, which is prescient in its description of how many different industries would be impacted (not to mention created) by the proliferation of drones in the years to come:

…as personal drones become more sophisticated and reliable, practical applications are emerging. The film industry is already full of remotely piloted copters serving as camera platforms, with a longer reach than booms as well as cheaper and safer operations than manned helicopters. Some farmers now use drones for crop management, creating aerial maps to optimize water and fertilizer distribution. And there are countless scientific uses for drones, from watching algal blooms in the ocean to low-altitude measurement of the solar reflectivity of the Amazon rain forest. Others are using the craft for wildlife management, tracking endangered species and quietly mapping out nesting areas that are in need of protection.

Anderson knew how important drones were going to be, and he wanted to be in on the ground floor.

The First Pivot

After deciding to make their first pivot into the consumer space in 2012, Anderson and Muñoz hit the ground running. By November of that year they’d raised $5 million in venture funds to help grow 3D Robotics and expand it’s work from DIY into the consumer space.

They would now go head-to-head with other drone companies in building Ready-to-Fly (RTF) drones for consumers to use recreationally and commercially. By 2013, they’d raised another $30 million, and things were looking—well, up, if you’ll pardon the pun.

But there is a rivalry in this story—and here is where the story gets juicy. Of course, we’re talking about DJI.

If you have any interest in drones, you’d have to be hiding under a rock not to have heard of DJI. Their recent simultaneous launch of the Inspire 2 and the Phantom Pro 4 were met with such fanfare that the reception alone could indicate that they’ve cornered the market.

At the same time that 3DR was breaking into the consumer space, DJI was aggressively creating and releasing consumer drones that were setting industry standards. To survive, 3DR would have to create a drone that could compete with DJI, and specifically with DJI’s Phantom series.

Enter 3DR’s Solo Quadcopter. When the Solo was first released in April of 2015  at the National Association of Broadcasters conference in Las Vegas, The Verge said it “may be the smartest drone ever.”

Given it’s warm initial reception by industry leaders, 3DR planned to build LOTS of them, so they could start making a return on all of the money investors had sunk into R&D and production. Toward that end, they committed to building 60,000 Solos, and then, with only one month of sales data guiding the decision, added 40,000 more to what was already a tall order.

Since it cost $750 to manufacture a singe Solo and ship it to retailers, you don’t have to be a math genius to see that creating 100,000 of them was a big, and expensive, gamble. (3DR was able to raise $64 million more in funding in 2015, but the majority of it was sunk into manufacturing costs.)

In 2015, 3DR was betting that they would sell their 100,000 drones and corner the U.S. market, and start to corner the international market. What company leaders may not have realized, or failed to take seriously, was that if they lost this bet they would have trouble surviving.

The Second, and Possibly Last, Pivot

Fast forward again, to today.

After pivoting from a DIY company to a “mass-production company,” 3DR is now pivoting again by abandoning hardware altogether and shifting their messaging and business strategy toward providing easy-to-use solutions and software to the construction industry.

So now the company that was first DIY-focused, and then in a race to beat DJI, Parrot, and other big competitors in creating consumer-focused drones, is going into the commercial business, and providing surveying services to construction companies.

This newest iteration of 3DR is called Site Scan, and is “an aerial analytics platform… [that enables] anyone to perform physical asset management and analysis at the worksite.”

Site Scan is focused primarily on supporting the construction industry, but is also aimed at supporting other sectors: insurance, surveying & mapping, agriculture, utilities & telecom, and public safety. In short, Site Scan offers these industries a way to collect data using drones, and  also to store, manage, and analyze that data once it has been collected.

Site Scan definitely serves a need these industries have, especially as the use of drones grows and the data collected becomes overwhelming to process and analyze. But the jury’s still out on whether 3DR has gotten there in time.

We wrote last April about how 3DR had been granted FAA exemptions for their drones and effectively opened the door for industry collaboration. But the company has changed so much, and lost so much, since we wrote that post that in many ways this new manifestation is almost unrecognizable when compared to the company we wrote about last spring.

Though we hate to say it, it feels like the only conclusion you can make is that this new pivot is a Hail Mary. Right? I mean, when Forbes writes an article about you called Behind the Crash of [Your Company’s Name], well, it might be time to call it a day.

So What Went Wrong?

To put it simply, 3DR failed as a consumer business.

One of the biggest challenges 3DR faced with their Solo drone was stiff competition, primarily from Chinese-based DJI.

The real war between 3DR and DJI (and Parrot too, to some extent) was around pricing. As 3DR’s President Jeevan Kalanithi put it back in June, and as we’ve already described in greater detail above, “We got knocked down for a really simple reason: We made too many Solos, especially given how fast our competitors dropped prices and flooded the market.”

Forbes put it succinctly in their recent article on the topic:

In 12 months [from November 2015 to 2016], 3D Robotics has gone from an industry leading U.S. drone startup to an organization struggling to survive—the result of mismanagement, ill-advised projections and a failed strategy that relied on a doomed flagship drone. 

In the last year 3DR has laid off more than 150 people, burned through almost $100 million in venture capital funding, and completely changed its business strategy.

To put it in 3DR’s own words, via the voice of Colin Guinn, 3D Robotics’ former chief revenue officer: “What we realized is that it’s just going to be inherently much more difficult for a Silicon Valley-based, software-focused company to compete against vertically integrated powerhouse manufacturing company in China.” 

What’s Next, and What Can We Learn from This Story?

The 3DR story should be seen as a cautionary tale for those drone companies looking to scale quickly, and sinking money into production without additional supporting revenue streams in place to balance out the funds being depleted by production costs.

But it is also a cautionary tale about the incredibly persuasive power of ideas. Chris Anderson is a visionary, and a thought leader in the drone movement. There is no doubt about that. But turning a vision into a viable company—well, that may be a lot trickier than it seems, if the 3DR story is any indication.


The post 3D Robotics’ Cautionary Tale: Losing The Hardware Game To China and Pivoting To Software for Survival appeared first on UAV Coach.


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