American drone companies aren’t built to compete

GoPro’s announcement this week that it would exit the drone business was greeted by many observers as a foregone conclusion. Karma, the company’s first foray into drones, had sold poorly after an embarrassing recall in 2016. Under pressure to cut costs amid slowing sales in its core action-camera business, GoPro’s hand was forced. Viewed in that light, Karma was just one more tech company side hustle that didn’t pay off.

But to shrug off GoPro’s drone is to ignore a larger question: why have American efforts to build a popular consumer drone failed? After all, the GoPro announcement follows the collapse of a similar effort from 3D Robotics, which similarly abandoned the consumer market in 2016 after the failure of its inaugural drone product, called Solo. While it is still relatively early in the history of consumer drones, the failures have left Chinese drone manufacturer DJI in a dominant position.

As it turns out, both GoPro and 3DR weren’t built to compete, observers say: they relied on contract manufacturers at a time when DJI, the dominant player, was designing and manufacturing every product itself. Making things worse, the American companies announced their products far in advance, giving DJI ample opportunity to catch up to any advertised features. When the American drones did arrive, they did so broken (in the case of Solo), or late and broken (in the case of Karma).

“DON’T TELEGRAPH YOUR MOVES TO THE INDUSTRY — ESPECIALLY IF YOU’RE NOT A BIG PLAYER.”
“The business lesson here is, don’t telegraph your moves to the industry — especially if you’re not a big player,” says Gerald Van Hoy, an independent consultant and analyst who covers the drone industry. “DJI is positioned well. They take advantage of everything that’s given to them, and they run with it — that’s why it’s hard to compete with them toe to toe. The only way you beat those guys is you come in quiet.”

Instead, American companies have sought to make a splash. For 3DR, that meant hiring Colin Guinn, the former head of DJI America, who helped lead design and marketing efforts for DJI’s popular Phantom drone. Guinn, who had become prominent in the drone community by posting videos about the Phantom to YouTube, had the credibility to promote Solo as the next evolution in consumer drones.

3dr solo images
3DR’s Solo.
Solo was the first drone with integrated controls for GoPro cameras, the first with programmable flight paths, and the first to offer high-end customer service that included a no-questions-asked, 30-day money-back guarantee. When I saw it in 2015, I said it may have been the smartest drone ever.

But while Solo arrived on time, the separately sold gimbal — which stabilizes the camera, and is necessary for high-quality photo and video — was late. The combined package was expensive at $1,700. And early buyers found a wide range of bugs. 3DR sold only about half the units it projected, according to Forbes. Along the way, DJI — which owns its own factories — managed to slash prices for a combined drone and gimbal to about $1,000. Having spent most of the $200 million it raised, 3DR abandoned the hardware business.

“WE HAD A DRAMATICALLY BAD LAUNCH.”
GoPro began teasing the existence of Karma in May 2015, but it didn’t arrive until the end of 2016. Among its selling points was the fact that you could use its gimbal as a handheld stabilizer for the Hero line of action cameras, expanding its utility. Unfortunately, the $799 Karma shipped with a defect that could cause it to randomly lose power while it was in the sky. GoPro recalled all 2,500 units it had sold. The company lost $373 million for the year, largely because of the high cost of developing the drone.

In an interview this week, GoPro CEO Nick Woodman disputed the idea that Karma had been a failure. “Karma has been a commercial success for GoPro,” he said. “We had a dramatically bad launch. And the fact that in February of 2017 we were able to relaunch it, and have it become the second-best selling drone in the thousand-dollar-and-up category, is testament to the terrific concept of the versatile drone.”

GoPro Karma drone and handheld stabilizer
GoPro’s Karma drone.
But the market for consumer drones turned out to be smaller than GoPro expected, Woodman said. And ultimately, it didn’t have pockets deep enough to compete with DJI.

“We looked at how much we were spending on our drone program, relative to the number of units we were selling, and most importantly relative to the profit that we were making on the whole program,” he said. “It just became clear that the drone category is going to continue to be a thin-margin category. There’s incredibly stiff competition.”

After Solo collapsed, 3DR’s Guinn told Forbes that DJI’s vertical integration — the fact that it both designed and manufactured its own hardware — had represented an insurmountable obstacle. “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,” he told Forbes.

DJI’S DESIGN-AND-BUILD MODEL HAS CREATED A TOUGH OBSTACLE
This week, Woodman echoed that sentiment. “In the drone space specifically to be competitive, and make money doing it, I think a company would need to be vertically integrated,” he said. “Because that’s what DJI is. That’s what you’re up against. And they’re going to be able to make a profit at lower retail price points than anybody who isn’t vertically integrated.”

Van Hoy says the future of drones lies in finding uses that go beyond elaborate selfie-taking: drones that can sniff gas leaks, for example, or analyze your home to see where heat is leaking out of it. You might buy your next drone not at Best Buy, he says, but Home Depot.

“There has to be some application that’s going to bring more consumers to the market on drones,” Van Hoy says. “Otherwise you’re going to get the Christmas crowd. They’re going to play with it for 10 minutes, and then it’s going to the attic.”

Sean O’Kane contributed to this report.

From- https://www.theverge.com/2018/1/11/16871848/gopro-drone-failure-3dr-dji-american-market