Drone Makers Have Eyes for Asia’s Skies
Region seen as a new frontier for sales as U.S. competition intensifies
By Juro Osawa
The Wall Street Journal
March 6, 2016 3:30 p.m. ET
DJI’s Phantom 4, which can dodge obstacles and track people, shown during a media event in Tokyo earlier this month. As competition increases in the world’s biggest drone market in the U.S., some companies are turning to Asia. Photo: Zuma Press
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In the Chinese city of Xi’an, Han Luyi runs a small store inside a shopping mall that sells drones made by the world’s biggest consumer drone maker.
Shoppers stop by and ask questions: Why is this toy so expensive? Can a drone lift me up and make me fly? “Most Chinese people don’t know anything about drones,” said the 22-year-old Ms. Han, who opened the shop in August. Her store is one of the distribution partners of Chinese drone maker SZ DJI Technology Co., which controls roughly two-thirds of the world’s consumer drone market, according to analysts.
From splashy flagship store openings to flying lessons and rental services, some drone companies are vying for new customers in Asia as competition intensifies in the U.S., the world’s biggest market.
“It’s fair to say Asia is a new frontier,” said Derrick Xiong, co-founder of Guangzhou-based drone maker Ehang which makes the “Ghost” line of drones. Ehang is starting to expand its business in China by offering drone-flying lessons at universities and renting drones to tourists through local travel agencies, he said.
The new Phantom 4 drone from DJI keeps pilots from getting into crashes with computer vision that can sense and avoid obstacles including trees, buildings and people. WSJ Personal Tech columnist Geoffrey A. Fowler takes it for a test flight, including a head-on game of chicken.
Ehang was among companies unveiling new products at the Consumer Electronics Show in Las Vegas in January, along with France’s Parrot SA, while Intel Corp. showed a new drone that uses its 3-D camera technology.
As competition increases, the likes of DJI are racing to increase staff in Asia to build sales channels and educate consumers who aren’t so familiar with drone capabilities. DJI is opening a flagship store in Seoul this month with an event featuring breakdancers, local bands and photography sessions for the public.
The launch comes hot on the heels of its first-ever flagship store in the southern Chinese city of Shenzhen, where the company is based. Visitors to the futuristic spacecraft-like building in the city’s waterfront shopping area can watch DJI drones flying inside a giant cage-like flight area in the middle of the shop floor, while drone-shot videos play in-store. DJI and its local dealers also hold weekend drone-flying lessons to train pilots.
“The U.S. is our largest market, and we are really just starting to increase our exposure in China,” said DJI founder and Chief Executive Frank Wang in December, when the company opened the Shenzhen store. “Because of income levels, drones are not an impulse buy in China,” he said.
Drone market data is relatively scarce, but China’s market for camera-equipped drones is still tiny with roughly 40,000 units shipped in the third quarter, according to research firm IDC. By comparison, the Consumer Electronics Association last year estimated that 700,000 drones would be sold in the U.S. in 2015.
But China’s annual drone shipments are expected to rise sharply to 3.1 million units by 2019, as distribution channels expand and drones find industrial applications such as mineral exploration, law enforcement and agriculture, IDC said.
Having focused mainly on the U.S. and other western markets by building retail networks and working with entertainment and advertising industries, companies such as DJI are hoping to increase traction with consumers in Asia. Analysts say it is important for DJI to move quickly in less developed drone markets like Asia before competitors also increase their presence.
DJI built its business primarily in the U.S. several years ago, because there were few other markets in the world where demand and applications for drones existed. When the Chinese company developed its first Phantom four-propeller drone in 2012, it immediately took the new product to California and showed it to Hollywood producers and Silicon Valley executives.
Chinese drone maker SZ DJI Technology opened its first flagship store in Shenzhen in December. Photo: SZ DJI Technology
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Since then, its drones -- from the roughly $1,000 Phantom models to professional devices that cost more than $4,000—have won over U.S. filmmakers, celebrities and consumers. This month it unveiled the new Phantom 4, the first consumer drone that can automatically avoid obstacles like trees, buildings and people.
By making its drones easier to fly and aerial photography far more accessible, DJI has helped to open up a new market in the U.S. beyond the military and a small group of hobbyists, said Philip Finnegan, director of corporate analysis at U.S. aerospace market researcher Teal Group.
The Ehang Ghost Drone 2.0 on display during the 2016 Consumer Electronics Show (CES) in Las Vegas. Photo: Bloomberg News
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In doing so it has become one of the world’s most valuable tech startups, valued at roughly $8 billion in its latest $75 million fundraising in May from Silicon Valley venture-capital firm Accel Partners. With 1,500 engineers working on hardware and software technologies for its drones, it has recruited former engineers from Apple and Tesla Motors and built a new research and development office in Palo Alto, which the company says will eventually employ several dozen people.
Last year, its revenue stood at roughly $1 billion, according to a person familiar with the matter. The U.S. accounted for more than 40% of its sales, while Asia took up roughly 20%, according to the person.
But it is now facing new challenges from competitors backed by prominent investors, often offering cheaper devices. Intel in January acquired German drone startup Ascending Technologies, after investing more than $60 million last year in Hong Kong-based drone maker Yuneec Holding Ltd. A spokesman for Yuneec said the company plans to soon open a new office in Japan, in addition to existing ones in China and Hong Kong. It also opened a sales outlet inside a Bangkok shopping mall in December.
A Yuneec Typhoon H drone is flown at CES 2016. Photo: Getty Images
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Ehang is backed by venture capitalists such as GGV Capital. While DJI may appeal to professional drone users, Ehang is focusing on ordinary consumers by providing easy-to-use apps and fun features like virtual-reality goggles, said Mr. Xiong.
Other major international competitors include California-based 3-D Robotics and Paris-based Parrot.
DJI is still ahead of its rivals, but the industry landscape could change rapidly over the next few years, analysts say.
Write to Juro Osawa at juro.osawa@wsj.com
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