future watch: china's drone ecosystem update

OTSIKKOALAOTSIKKO, KUUKAUSI VUOSI

CHINA’S DIGITAL LANDSCAPE AND RISING DISRUPTORSMODULE 2.8 DRONE

AUTHORS

Dr. Edward TseFounder and CEO

Team Finland Future Watch Report, November 20172

Mr. Bill RussoManaging Director and Auto Practice Lead

Mr. Alan ChanAssociate

DRONE

TOPICS


1. WHAT IS DRONE? WHY NOW?2. CHINA’S DRONE INDUSTRY AND INNOVATORS3. FUTURE OPPORTUNITIES AND IMPLICATIONS FOR TEAM FINLAND

DRONE


WHAT IS A DRONE? WHAT ARE THE TYPES OF DRONE USAGE?

Source: Literature research, Gao Feng analysis

A drone is a remote-controlled vehicle that rolls or flies

Technically referred as unmanned aerial vehicle (UAV) or unmanned aircraft system (UAS)

Three core components:- Flight control system- Application processor- Gimbal

Physical characteristics:- Micro/small multi-rotor drones- Large multi-rotor and

helicopter drones- Small fixed wing drones- Large fixed wing drones

Definition of DroneType of Drone Usage

Civilian Uses Military Uses

Consumer Commercial

DRONE


AS OF TODAY, THERE IS ALREADY A LONG LIST OF EMERGING DRONE-BASED SERVICES


Construction & Surveying Emergency Services

Grid/pipeline inspection Public and private security

3D terrain mapping Mapping of real estate

construction sites Science & research

Automated parcel last-mile delivery

Aerial fire fighting Life-saving ambulance

drone Disaster relief

A sport where pilots fly drones around a race-course using a first-person view

Flying drone taxi services

Precision farming Soil and field analysis;

Planting; Crop spraying; Irrigation; etc.

Drone Racing Agriculture

Aerial cinematography Live broadcasting

Package Delivery Photography & Filming TransportationSurveillance

Drones + X

DRONE

THE DRONE INDUSTRY HAS EVOLVED OVER THE PAST DECADES AND ITS RECENT DEVELOPMENT HAS CREATED TREMENDOUS OPPORTUNITIES

Key Milestones of Drone Historical Development

Team Finland Future Watch Report, November 20176 Source: Literature research, Gao Feng analysis

1898Inventor Nikola Tesla patented a drone

1995General Atomics MQ-1 Predator UAV, the first major military drone

2013Amazon announced testing of drone parcel delivery service2015Chinese companies account for 50% of all drone companies in CES 2015

Driving Factors of the Recent Growth

1951Ryan Firebee, the world’s first jet-propelled drones

2010Parrot AR.Drone, first drone for consumer applications announced at CES Las Vegas 2010

Technology development:- Falling cost of processor chips and

sensors- Computer vision technologies and

aerial control systems that enable drone services

- Dronecode Project: open-source platform for unmanned aerial system (UAS) developers

Proliferation of drone start-ups and a thriving VC ecosystem

Gradual liberation of drone-related regulations

Consumption upgrade Growing demand from hobbyists

DRONE


THE GLOBAL DRONE MARKET IS EXPECTED TO HAVE EXPLOSIVE GROWTH

Source: IDC, FAA, Macquarie Research, Literature research, Gao Feng analysis

Global Drone Market Size2017E-2021E, USD M

Global Drone Shipments China Drone Shipments

Comments

The global drone market size will exceed USD 78Bn in 2021E

Commercial drones will be the growth driver given their widespread applications

China will see the strongest market growth

DRONE

Users


THERE IS AN EXPANSIVE ECOSYSTEM ACROSS THE VALUE CHAIN OF THE DRONE INDUSTRY


Drone R&D

Spare Parts Manufacturing

Systems Development

Spare parts R&D Product design

Flight control systems Body materials Mechanical systems Communications systems

AssemblySales & Distribution

Drone Services Provider

Maintenance Pilot training Financing Insurance Surveying

Filming Agricultural services Etc.

Social sharing Fan

communities Renting

User Services

Consumers

Commercial Drones

AftersalesServices

Consumer Drones

Flagships E-commerce Offline dealers

Typical Value Chain of Civilian Drone Market

DRONE


GOVERNMENTS AROUND THE WORLD ARE WORKING ON ESTABLISHING A REGULATORY FRAMEWORK FOR DRONES


Four key areas of restrictions, regardless of country

Drone weight: heavy drones require approval for flying

Drone application: commercial drones face stricter regulation compared to consumer drones

User certification: pilot training and examination are required for drone operators

Flying zone: drone flights over populated urban areas may be prohibited

Low-altitude traffic control

Develop an air-traffic control system to prevent collisions in the skies

To manage the traffic of small, low-altitude drones with the coordination of manned aircraft to ensure overall airspace safety

Drone data privacy

protection

To address concerns over confidential information and civilian privacy

To establish laws that protects the usage of drone-collected data

Key Concerns (Examples)

DRONE

TOPICS



DRONE

Wingsland

Shenzhen Smart Drone UAV

Xaircraft Technology


CHINA HAS A FAST-GROWING AND DIVERSE DRONE START-UP ECOSYSTEM

Source: Gao Feng analysis

Drone OEM

Agriculture

Logistics

Others

Hubei Ewatt Aerospace

Hangzhou Hikvision Digital Technology

Wuxi Hanhe Aviation

Technology

Dajiang Innovation

EHang

Yuneec International Beijing TTA Technology

Surveillance/Security

Leading Chinese companies in each segment

Utilities

ZeroTech

PowerVision Robot China RS

DRONE


About the Company:Founded in 2006 by Frank Wang based in ShenzhenDominates nearly 70% of the global consumer drone market Valued at USD 10BnFlagship Phantom seriesPremium distribution partnership with AppleWith 1,500 R&D workforce pushing the rate of new product launchesLatest hero products:

- $999 Mavic Pro drone: obstacle avoidance feature and folding arms and propellers

- $499 Spark: fits in the palm of a hand, weighs less than a soda can, and can be controlled with hand gestures

CASE EXAMPLE

DJI flagship stores in Shenzhen, Seoul, Hong Kong and Shanghai

10.0

6.5

3.0

0.80.2

CAGR: +181%

201620152012 20142013

DJI Sales Revenue 2012 – 2016, Unit: RMB Bn

Offline workshopsFan events

“It doesn’t come off as a Chinese company. From the design of the aircraft, to their packaging, even down to their website.”

- Wall Street Journal

DJI IS A CHINESE “UNICORN” AND THE GLOBAL MARKET LEADER IN CONSUMER DRONES

Source: DJI, SCMP, Literature research, Gao Feng analysis

DRONE


JD.COM, CHINA’S SECOND LARGEST E-COMMERCE PLATFORM, IS PIONEERING DRONE-BASED PARCEL DELIVERY SERVICE IN CHINA

Source: JD.com, SCMP, Literature research, Gao Feng analysis

About the Initiative:

An efficient drone delivery network to support JD.com’s rural expansion strategyTo reduce operational costs and enhance the accessibility of JD.com’s E-commerce services in remote areas in ChinaTo fly packages from its regional distribution centers to its network of local couriers throughout China’s villages and smaller cities

Developing drones that can fly up to 100km per hour, delivering packages weighing as much as 1,000kg

Battery cost is a major barrier to operationalize the drone program

Timeline of DevelopmentDec 2015: Establishment of the drone business unitMay 2016: Establishment of the “JDX” innovation lab, which covers the R&D of drones, autonomous cars and automated warehousesJune 2016: JD.com’s first parcel delivery in Jiangsu Province, targeting rural villagesNov 2016: Trail operations in Beijing, Xi’an and Chengdu during the “Double 11” Shopping FestivalFeb 2017: Collaboration with Shaanxi provincial government to build “the world’s first low-altitude drone logistics network”June 2017: Announced to build 185 drone airports in Sichuan and 100 in Shaanxi

CASE EXAMPLE

DRONE


FARMFRIEND IS AN AGRI-DRONE SHARING PLATFORM

Augmented Reality (AR)

Source: Shunwei Capital, Medium, Gao Feng analysis

About the Company:FarmFriend ( 田管家农 ) is the “Airbnb of drone services” – an agricultural drone sharing platform connecting agricultural drone operators with farmers that need the drone's serviceRaised RMB 50M Series A investment from Gobi Partners in April 2017Investors include GGV Capital, Gobi Partners, Shunwei Capital Partners, Yunqi Partners, ZhenFundWith over 1,000 drone operation teams registered on its platform, and over 5,000 agricultural drones availableOperates in more than 10 provinces, including the major agricultural regions of Heilongjiang, Hubei, Hunan, Shandong and Jiangsu

Business Model

Target pain points:A worker spraying pesticide on the fields manually can cover around 1.3 hectares of land in a day; today, with an agricultural drone, 20 to 27 hectares of land can be treated in a dayAgricultural drone services are of high-density and low-frequency in nature

Solution:A scheduling system that efficiently matches farmers needing spraying services with drone pilotsBased on geographical and customer data collected, FarmFriend aspires to offer customized and specialized farming services

CASE EXAMPLE

DRONE


ZERO ROBOTICS IS A FORWARD-LOOKING ROBOTICS START-UP BUILDING PORTABLE AUTONOMOUS FLYING CAMERA


About the Company:Established in 2014 in BeijingHover Camera is the flagship flying camera developed by the company80 employees, with offices in Beijing, Hangzhou, Shenzhen, and San FranciscoClosed USD 25M funding in 2016

Meng Qiu Wang, CEO and Founder

- PHD in Computer Science from Stanford’s Artificial Intelligence Lab

- Masters from Carnegie Mellon University

- Former software engineer at Twitter building AI-based recommendation algorithm

CASE EXAMPLE

Hover Camera Passport - the first Embedded AI-powered mass-consumer “throw-and-fly” camera

USD 599 with 4K video shooting capability

Can orbit around the user and spin 360 degrees to capture a panoramic photograph

The device lifts off the user’s fingertips and follows the user around

The propellers are fully enclosed in carbon fiber, allowing users to grab the device in mid-air

DRONE


GOING FORWARD, CHINA’S DRONE INDUSTRY WILL SEE THE FOLLOWING MAJOR KEY TRENDS OF DEVELOPMENT


Key future trends1. Technological advancementArtificial intelligence to strengthen drone capabilities in flight control, computer vision, data processing, and predictive analyticsSmart drones with advanced features like object detection, gesture control, optical tracking, contextual awareness, and obstacle avoidanceLonger flight time due to improved lithium-based battery and solar power capabilitiesLighter material and improved protection2. New products for consumer dronesPortable compact selfie drones to take off due to convenience and less regulation3. New business models for industrial dronesMore specialized drone products for niche use casesLeading brands will continue to expand their product portfoliosLarge-scale roll-out of drone delivery services that revolutionize the logistics industry4. Continuously evolving legal frameworkPolicymakers will be more proactive in developing legal guidelines on the requirements and responsibilities of drone uses

DRONE

TOPICS



DRONE

Campaigns Events


FINLAND HAS BEEN AN EARLY MOVER IN SUPPORTING THE DEVELOPMENT OF ITS LOCAL DRONE START-UP ECOSYSTEM


The “Drones – speed up innovation campaign” in 2015 was aimed to accelerate the booming drone-ecosystem

Tekes’ mission was also to get the big corporations to cooperate in novel drone-innovations

The key European annual UAS event, High Level Conference on Drones 2017, was held in Helsinki this year

Organized by the Finnish Transport Safety Agency (Trafi) and the European Aviation Safety Agency (EASA)

Testing & Research Platforms

In Nov 2015, Tekes opened an UAV testing center in Mikkeli that aims to network UAV-experts, authorities and educators

In May 2017, The DroneKnowledge project received significant Challenge Finland funding from Tekes

DRONE


FOR EXAMPLE, SHARPER SHAPE IS A LEADING FINNISH DRONE SERVICE SOLUTION PROVIDER FOR UTILITIES INSPECTION

Source: Sharper Shape, Gao Feng analysis

About the Company:

Sharper Shape is a “Drone Software as a Service™” (DSaaS) company driven to automate the entire process of drone-based utilities inspections

It develops advanced aerial sensor systems and technologies that powers the automatic collection and analysis of unmanned aerial inspection data

With US offices in North Dakota and Maryland; international projects in India, France, Mexico and Belgium

Pain Points:Utility firms have had to conduct extensive manual land surveys to ascertain where to lay power lines as efficiently as possibleInvolved using helicopters to collect data, which is then analyzed by a team of workers Some areas are accessible

Solution:Uses a Octocopter drone fitted with eight rotors and a LIDAR (light detection and ranging) laser to recreate 3D digital models of the scanned objects

Example: Exporting Finnish UAV technologies to IndiaFormed a partnership with Sterlite Grid, India’s largest private developer of independent transmission systems in Feb 2016To provide Sterlite Grid UAV-based business solutions to reduce the delivery time of projects and increase the uptime of power systems

CASE EXAMPLE

DRONE


POWERVISION, A CHINESE UAV TECHNOLOGY COMPANY, HAS EXPANDED THEIR R&D BASE INTO FINLAND


About the Company:PowerVision is a worldwide leader in UAV technologies, products, and services, covering multiple use cases including agriculture, energy, the police and rescue servicesFounded in 2009, with 500 employees across China, the U.S., Canada, Australia, Germany, and Finland.Sold its first consumer drone, PowerEgg, in North America, Europe and China in 2016

About the R&D base in Finland:PowerVision opened a new R&D unit in Tampere in Oct 2016With help of Finpro and Tampere Region Economic Development Agency TredeaAttracted by the local ICT expertise as well as the Finnish university research

“Finland has amazingly strong R&D resources in the technology areas that PowerVision need for researching and developing world class drones and consumer robots. And Finnish experts are very credible and loyal to company. That’s also a plus.”

- Huber Hu, CEO of Powervision Oy (Nov 2017)

CASE EXAMPLE

DRONE


FINNISH POLICYMAKERS ARE AWARE OF THE NEED TO CREATE A MORE FRIENDLY ENVIRONMENT FOR DRONE INNOVATIONS

Source: CGTN, Literature research, Gao Feng analysis

“Drones could create a huge amount of new services. Rules for the operations would only have to be developed”

- Pekka Henttu, Aviation Director at Trafi (Nov 2017)

“From the perspective of streamlining the regulations, it is important that the requirements are carried out in a way that keeps the burden on administration as light as possible, and makes the threshold for entering the field as low as possible”

- Anne Berner, Minister for Transport and

Communication(Nov 2017)

“Our brand-new regulation on the use of unmanned aircraft is the most liberal in Europe, if not in the whole world…. The regulation leaves room for experiments and allows for the development of new business activities”

- Kari Wihlman, Director General at Trafi (Oct 2015)

Finland to create friendly environment for drones, DailyFinland, Nov 2017

DRONE


TO UNLOCK THE FULL POTENTIAL IN DRONE, FINLAND HAS EXISTING COMPETITIVE ADVANTAGES TO LEVERAGE AS WELL AS GAPS TO CLOSE


Competitive Advantages in Finland

A sparsely populated country with plenty of free airspace which makes testing easierTrafi has set liberal and business-friendly legislations allowing experimental drone projects.Nearly 2,000 professionals in the field of UAV in Finland and countless enthusiastsLong national tradition in the R&D of wireless technologies, imaging, sensors and location technologies and corporate cooperation of the Finnish universities

Competitive Advantages in Finland

A sparsely populated country with plenty of free airspace which makes testing easierTrafi has set liberal and business-friendly legislations allowing experimental drone projects.Nearly 2,000 professionals in the field of UAV in Finland and countless enthusiastsLong national tradition in the R&D of wireless technologies, imaging, sensors and location technologies and corporate cooperation of the Finnish universities

Gaps to Close

Safety regulations: Ensuring secure supervision of recreational and commercial drone operations, while not limiting the boundary for drone innovationsData privacy issues: Guidelines on the processing and management of confidential or sensitive private data collected by dronesCross-border collaborations: Gain a better understanding of the overseas demand for both consumer and industrial drone applications, as well as the international standards

Gaps to Close

Safety regulations: Ensuring secure supervision of recreational and commercial drone operations, while not limiting the boundary for drone innovationsData privacy issues: Guidelines on the processing and management of confidential or sensitive private data collected by dronesCross-border collaborations: Gain a better understanding of the overseas demand for both consumer and industrial drone applications, as well as the international standards

DRONE


FINLAND SHOULD FURTHER LEVERAGE CHINA TO CAPTURE THE EXPOLSIVE OPPORTUNITIES IN DRONE

Augmented Reality (AR)


Tech giants are entering the drone marketTech giants such as Tencent and Xiaomi are entering the consumer drone market to compete with professional drone makers

Globalization of Chinese drone playersOverseas expansion for R&D capabilitiesMarket expansion targeting Western consumers

More specialized commercial drone applicationsIncreasing demand for sophisticated technologies and applications

More advanced fundamental research on drone technologiesMore financial incentives and preferential policies to promote ground-breaking research

From Finland to China From China to Finland

Opportunities for niche Finnish drone start-ups to export relevant technologies to ChinaE.g. Finnish clean-tech startup Aeromon is using drones to track industrial emissions

Opportunities for Finnish drone companies to partner with Chinese tech giantsCo-brand and co-launch new drone products

Opportunities for Finland to host their R&D centers and innovation labsPosition Finland as the global hub and test field for pioneering drone-related innovations

Opportunities for Finnish researchers to participate in cross-border research projectsE.g., Sino-Finnish collaborative research initiatives