DJI’s Success Spells Trouble for Startups
Visitors at last month’s CES in Las Vegas could easily be oblivious to the game-changing trends taking place in the global drone market. Drones have exploded in popularity over the past few years, and there was no shortage of niche products aimed at satisfying a whole array of needs and tastes. Whether you’re a fisherman looking for an extra eye on your catch, or an aspiring social media star hoping to get a better angle on your antics, the array of drones on show at the Consumer Electronics Show would have had plenty to grab your interest.
The market itself is still forecast to grow impressively; New York’s ABI Research – a leader in tech market intelligence – predicts that the value of the market will reach $32 billion over the next ten years, representing an average 32% year-on-year growth. But these figures alone don’t reveal the substantive changes taking place within the market itself.
Parrot SA, the Paris-based drone manufacturer, has risen to become the second-biggest non-military drone maker in the whole world. The company played a huge part in bringing drone technology to the mass market back in 2009 and has experienced impressive growth ever since. Until now, that is. The company recently announced massive cuts – laying off up to a third of its workforce – due to its consumer drones’ inability to “deliver profitable growth”. Its current products retail between $100 and $500 and are stocked in Apple stores across Europe and North America. It is estimate that these sales account for around 60% of the company’s total revenue.
The huge layoffs, however, are less surprising to market insiders. Those who have followed the fortunes of DJI – the Shenzhen startup-cum-tech-giant – will have seen this on the horizon for some time. The Chinese firm is now the world’s leading manufacturer of non-military drones, with applications ranging from construction to crop-harvesting, not to mention its range of hobbyist drones. DJI’s business model covers every step of bringing a product to market – from its initial design right through to production. This protects the company from the increased costs of outsourcing. Couple this with the company’s high-quality products, and it becomes clear that DJI’s success spells bad news for smaller manufacturers and startups. Furthermore, the Chinese giant has begun to implement an aggressive pricing strategy, based on mass production, that smaller outfits simply can’t compete with.
It is clear that the market has begun to enter a new phase, in which the winners will be those manufacturers who are able to sell large numbers at a low profit. Just as the markets for smartphones and flatscreen TVs have become dominated by low-profit-per-item manufacturers – at least aside from Apple and Samsung – the drone market appears to be heading the same way.
All of this means a shift in strategy for venture capitalists, too. Just a couple of years ago, startups could find the investment they needed with relatively little difficulty. It seems the times of looking for cash injections is over, and an era of mass layoffs has begun.