Consumer drone business stumbles, but commercial markets beckon

DSC06619The fledgling drone industry is in the throes of change as weak consumer demand and falling prices drive startups to shift their focus to specialized business applications.

3D Robotics – an early drone startup that raised more than$125 million from investors – has seen its consumer business all but crash. This week, it unveiled a new commercial strategy, announcing a camera-equipped drone with imaging software designed for construction companies.

GoPro Inc this week announced a recall of about 2,500 drones for a refund after just a couple of weeks on the market – some units had sudden power outages – and didn’t say when it would offer a replacement product. Europe’s Zano, which made mini-drones for consumers, shut down last year.

While many drone-makers overestimated demand from hobbyists, they now see big opportunities selling to businesses under newly relaxed US regulations. Beyond flying robots, investors and entrepreneurs see especially strong prospects in software and services that can make aerial imaging useful for industries including insurance, construction, agriculture and entertainment.

Companies including Amazon.com Inc and Zipline, a drone startup, are also aggressively developing drones for delivery.

Most startups vying to sell consumer drones, often used for racing or photography, have been stung by China-based DJI. The company has dominated by slashing prices. DJI discounted its popular Phantom 3 drone, for instance, to about $300 from nearly $1,000 at the beginning of the year.

3D Robotics took a beating after releasing its Solo consumer drone last year for about $1,500, said co-founder and CEO Chris Anderson.

“It’s no fun watching prices fall by 70 percent in 9 months,” Anderson said, referring to DJI’s price-cutting.

After shuttering warehouses and factories and laying off scores of employees, Berkeley-based 3D Robotics has all but scrapped its consumer business, Anderson said, despite having a backlog of drones sitting on Best Buy stores shelves. They now sell for one-third of their original price.

The chill is being felt widely. Venture capital financing for drone companies fell 59 percent in the third quarter, to $55 million from $134 million in the previous year, according to data research firm CB Insights. The drop reflects a widespread funding slump across the tech sector but also heightened caution about drone companies.

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