In the following opinion piece Edmond M. Hennessy at PMGResults provides a different slant and perspective on the state of affairs within the Drone Industry – with an emphasis on challenges, uncertainties and key messages particularly for developing small-to-medium sized, drone providers.
Summary: Drones have rapidly transitioned to a significant growth market, which have demonstrated their value cross-Industry. Although the future outlook is strong – there are potential cracks in the bell, challenges and uncertainties that must be considered to assure continued success.
This article is classified as an Opinion piece although it is backed-up by real-world experience and supportive data to reinforce our viewpoint. This article is biased towards the Aerospace and Defense target segments, which reflects our history and decades of experience – and where we live in the food chain.
It’s clear that the drone industry is a hotbed of activity and has experienced rapid growth, although there are disturbing signposts that may be red flags.
A little history – our experience within the uncrewed vehicle industry goes back to the early 90’s representing technology companies working with DARPA (and other Agencies) and selected Defense Contractors on development programs that became notable platforms like Global Hawk, Predator, Shadow (and many others, global in-scope).
This set the tone for today’s drone industry – and the advent of drones being utilized for dual-use.
This experience has been translated into continuing to be active within the drone industry, seeing it evolve and witnessing its impact on changing the face of modern, military warfare.
We have authored articles about this topic – including an article that discussed the parallel between COTS Industry evolution and Drone Industry development.
Therein lies one reference item that is worth evaluating and determining, if the drone industry is on a similar path and facing comparable challenges.
We believe it is.
Now – to round this out with some market research projections, which reinforce industry growth and provide a comforting view:
The Military Drone Market Size is expected to reach a value worth USD 17.0 Billion by 2027, a rise from USD 12.0 Billion in 2022, with a CAGR of 7.3% from 2022 to 2027. Military drones equipped with sensors, advanced propulsion systems, innovative camera technologies, diverse communication systems, breakthrough battery technologies, on-board weapon systems, etc. will be guided autonomously, by operator remote control, or both.
Further, current estimates are that military uncrewed platforms will grow from several hundred (different types) to roughly 10,000 varieties with 90% of these vehicles falling into the miniaturization curve reinforcing the high demand for sUAS and drones.
Now that’s the good news, although one must do some extraction and interpretation to grasp the full picture.
First – take a look at the driving forces shaping the future of the drone industry.
70%+ of current revenue generated is dominated by a few.
In the Defense and Military target segment – big players like Northrop Grumman, General Atomics, AeroVironment, Raytheon Technologies, IAI, Teledyne – FLIR (and others) set the tone – with notable companies like Shield AI (Martin UAV), Blue Halo (Citadel Defense) – and many others – establishing their leadership position and gaining early-stage, market share.
Within the Commercial sector – clear that companies like Joby Aviation, Archer, Beta Technologies, SKYDIO, TEAL and others – are capturing position and establishing themselves, as the Big Guns that will lead and dominate.
Next – consider the “Valley of Death” chant by many small, innovative drone and enabling technology providers and their early-stage investors.
Will the Government/Military complex move fast enough to open the floodgates for this class of player?
Or, will this happen too late, which will cause some of these companies to redirect their efforts (to different market segments) or literally fall out of the market?
What impact will that have on National Security, protecting the War Fighter and perpetuating our Military superiority?
The Government/Military is not sitting idly – there are many examples cross-Agency that are providing access to SBIR/STTR projects, other funding sources and developmental opportunities.
If you poll these small, innovative providers – one will find that many are “positioning for the future” rather than generating revenue today. This is a matter of necessity, although the acceptance/adoption cure within the Defense and Military target segment is a long-haul proposition. The objective is to get designed-into a key program and ride it to full-production/deployment. That’s the stuff in this market that has turned innovative, technology companies from rags to riches.
It’s clear that the drone industry is evolving (similar to the dynamics of the COTS market) from general-purpose to special-purpose platforms – with an emphasis on problem-solutions and target application emphasis. Useful examples include ISR (Intelligence, Surveillance and Reconnaissance), Search and Rescue and many others with C-UAS becoming a hot ticket – with a variety of approaches to identify, neutralize or destroy an enemy threat.
This trend will continue and those that do not see the signs and adapt – will disappear.
There are many external factors that will influence-to-mandate how the market will function – with Regulations being a key driver. Similar to the COTS market, which did not take off, until the *Perry Initiative changed the rules by Law – mandating that COTS be given first right of consideration. This was articulated in the Acquisition process and flipped the Industry on its head.
Is it likely that it will be necessary for similar dynamics to be put in-place to support the drone Industry – particularly for small-to-medium sized players?
There is a significant difference between survival vs. success.
A critical element is the Investment-level that supports drone providers – meaning external infusion of funds.
Over the last few years, it has become evident that small-to-medium sized drone providers do not have the funds to “go the distance” – continue fueling their Product Roadmap and their organizational needs without reaching-out to Investment sources.
This is not a trivial task, as fund-raising is a tough journey and many drone providers have not done this before or lack the in-house expertise.
To further accentuate this – as we approach 2024 – the belt is tightening for Investment sources (globally) and they are becoming more selective.
Drone providers should take a hard look at their business demands and put emphasis on “what they will become vs. where they are at.” It is the future state that will separate the long-term winners from the also-rans and casualties.
This article is not designed to paint a dark picture – rather it highlights some potential “cracks in the bell,” challenges and uncertainties that this fast-paced, high-growth, exciting market faces.