Here’s Why The Drone Services Industry is in Trouble

There is a major shakeup happening in the drone industry. I started to see it late in 2016 but didn’t have enough data points to really confirm my suspicions. Now, as we’re one month into 2018, it’s clear as day: Drone market places and “drone service” companies are in trouble. Big trouble. Those that aren’t bought or folded into larger companies face an ever more difficult uphill battle.

These businesses were, at one time, an attractive way to capitalize on the “drone trend” but are now a doomed business model. In 2015, there were a lot of barriers to successfully getting data from your drone. The first and most significant hurdle was that of regulation. Even operating a drone program with some semblance of compliance was a challenge fraught with peril. In order to fly for any reason besides leisure, you had to go through an arduous FAA application process for a commercial operation exemption called a 333 exemption. Operating without a 333 could bring expensive civil penalties.

There was a lot of value to having a 333 exemption because of the complexity and amount of time it took to receive one. Now, an FAA Drone Pilots Certificate called Part 107 is widely available, easy to acquire, and comparatively inexpensive. Operators take a 2 hour exam at any one of hundreds of testing centers around the country, then are authorized to fly in a wide variety of commercial settings.

Besides the regulatory hurdle, there were hardware limitations as well. For example, drones manufactured by DJI didn’t feature collision avoidance systems until the release of the Phantom 4 in 2016. The sophistication of the hardware had not reached the point where it was extremely easy for an operator with little experience to pilot that aircraft safely. The last three years have seen a renaissance of hardware that’s safely and easily operated by folks without significant amounts of flight time. The minimum skill set has gone through the floor, and hardware quality has gone through the roof.

We saw the first canary in the coal mine for drone service providers when instead of getting calls from drone services companies, we started getting calls from employees in very large companies forming small “Tiger Teams”. These large organizations had outsourced their initial drone operations to drone service providers to evaluate if they could derive value from the data. Once they had established the value proposition, they created their own little drone startups in-house.

We talked with a lot of these folks and saw the rising tide of drones in the enterprise. They all had nearly identical mandates: They needed to create a drone program that could scale into their organization amongst existing employees. I remember the second time someone told me that sentence almost verbatim. The two companies had nothing in common except for wanting to bring drones in house across their workforces.

When you combine these changing currents with the existing challenges of drone service companies, the outlook isn’t very good. Double-sided marketplaces like, American Express, and yes even drone services, are notoriously difficult to get started and proliferate. In fact, in many ways they’re inherently self-defeating. Their success can actually contribute to failure: People find a partner, find out their favorite store doesn’t take American Express or companies that used to purchase services like the data so much they decide they want to start their own drone program.

It’s not all doom and gloom for drone service providers. There is still a service-based business model that can be had. It’s just not going to sustain the high-flying valuations and influx of VC money that comes when companies have a chance to capture a giant market. The market is moving in-house and the influx of newly minted commercial pilots, almost 70,000 of them, are putting undue downward pressure on prices. A recent study by SkyLogic LLC found that the most lucrative spot for drone service providers were the niche spaces, not the mainstream ones which makes running a marketplace that much harder.

It’s going to be an interesting year. The existing drone service providers are going to have to find more scalable paths to revenue. In fact, you can see some initial movement toward this: things like apps to support or abstract the marketplace and various other recurring revenue opportunities like subscriptions or “Drone In A Box” models. Whatever their solutions are, they’re going to need to execute sooner rather than later if they want to avoid being sucked into the vacuum of a rapidly shrinking market.


About the Author

Joshua is the Co-Founder and Chief Pilot of venture-backed Kittyhawk, a founding member of the FAA Unmanned Aviation Safety Team, and an FAA Part 107 certificate holder.

He has been flying all manner unmanned aircraft for over 15 years. As an accomplished drone pilot, Josh has flown professionally for the NHL, ABC Television and various manned-aviation airshows.

Joshua regularly writes about drone related topics and eagerly shares his love of aviation and often-polarizing opinions on where it’s headed at industry conference presentations and panel discussions. A self-taught software programmer and entrepreneur, Joshua holds a bachelor’s degree in poetry from Arizona State University.

14 Responses

  1. ckwrites2

    Good one Josh – worth pointing out that rather than simply putting downward pressure on pricing, it also appears that an ever-increasing number of the 70,000 Part 107s you referenced are going to in-house people, since a Part 107 is required regardless of the contractual arrangement between the RPIC and the end user (eg employee or contractor.) 107 will again be a key metric to watch in 2018.

  2. Paul Huish

    I’d love to see references to real data here. As a Drone Service provider, DroneHive has seen a consistent increase in operational revenue MOM…and projections are very positive through 2019 with RR opportunities.

    I’ll admit it’s tough sledding out there….and LAANC can’t come online fast enough.

  3. Shaun

    I think this is a very valid assessment, for which I saw the writing on the wall as soon as the 107 was released. It maybe wishful thinking, but I think as time goes on it may flatten out a little. Many people who are not equipped to really run a sustainable business, will probably find frustrations in the time and energy that is really needed to do this. I fell there is a little naive attitude on what makes one successful. I think many people are under the impression that simply owning a system and setting up a website is good enough to go rangle in clients. Most find out that there is more to it. Many people do not really know how to use a camera on the ground let alone in the air. They think they should be offering professional photography services. Many people think simple data gathering is all that it takes. I think as people come to realize that this is more challenging than they thought, we will see some of the people getting out of the market.

    As for internal integration, there has not been enough data points to really determine if the cost benefit makes sense to do it. It may seem on the outset that vertical integration would be cheaper. That maybe the case in some respects, but long term it may actually cost more. Now you are talking about purchasing and maintaining equipment which comes at a cost. The company will be responsible for repairs and upkeep as well as upgrading when the current systems become obsolete. Also a large scale operation, will come at a cost of getting everyone trained and keeping them current. You will need someone to manage it all. Will that be an additional duty, to current supervisor? What happens if that person leaves their job or goes to a different department. Now you need to replace that person. That person will have to get their name on all FAA waivers as the new responsible person. Plus there will be insurance requirements for each pilot, so that will incur additional costs. At the end of the day once you add all of the numbers up, it may end up being more in the long run to effectively run a up scaled operation.

    It will be a few years, but in a decade we could see a paradigm shift back to the service provider, maybe not all facets. It is possible some doors will reopen. The problem is for the near term, the outcome is pretty bleak for those wanting to merge in.

  4. Annemarie Fredericks

    Shaun is 100% correct. Vertical integration, as the process is called in business circles, almost never works, especially where technology is rapidly advancing. Think of Coke & Pepsi owning their own can plants, thinking they’d “save money”. In fact, the opposite was true. The real longterm challenge for the drone setvices provider after scouting for and serving a dependable customer base is to ensure that the most competitive combination of value & price is always offered, which means up to date cost effective technology & service that doesn’t strap the provider for the cash needed to run the business. Managing that balance is the trick. Those who charge high prices using COTS equipment & software will encourage their customers to vertically integrate, & won’t be around for long.

  5. Mzuri Products

    The technology is advancing at a very fast rate. Measures should be put in place on how to govern the drones… i see them becoming a means of transportation or delivery in most parts of the world

  6. Rezan @ ABJ Drones

    Joshua, a lot of great points here. I think the drone market can definitely be a challenging one and the ones who know how to work around it will actually win. Especially if you’re focusing on a specific niche market and innovating within that market.

  7. David Oakes

    Good article. Providing services to niche markets that have no interest in starting or scaling a drone operation, and mixing it with related and needed services, is key to the long-term growth of an independent drone / imaging / data collection service provider.

  8. Samuel

    First rule of business is – That the market place is never wrong! The service industry is a spinout and the market place is calling it off.

  9. Thomas

    Hi Josh, very insightful article. I fully share your thoughts on drone marketplaces being a doomed business model. We at AIRTEAM also started off as drone service marketplace and quickly realized that a drone marketplace does not offer enough value for the customers. We pivoted to an integrated drone software & service solution for roofers ( to offer more value (drone roof measurements) to a specific customer. We operate our drone service network to facilitate the data acquisition, but also offer the opportunity for our customers to gather the data themselves. So it is up to the roofers to either take the aerial imagery themselves or let a professional drone operator take them. We do this in Germany currently and always look for partners to expand our offering. Would be great to get your opinion on this. Best Thomas

  10. PP

    This is very true. I had a drone service contact my company soliciting their drone service for $375.00 and I said to myself: “You know what? That’s a lot for a few photos I need. Heck! It will cost me a lot if I need photos 3 times a week. I think I will buy one, get certified and do the surveys myself” .

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