Published December 17, 2016

Weekend Edition: This Could Be a $10 Billion Industry in 10 Years

Editor's note: Today, we have a new essay to share with you from Extraordinary Technology editor Chris Wood. Below, Chris breaks down the industry that's set to take off in the coming years...and shares why it should be on your radar right now...


By Chris Wood, editor, Extraordinary Technology

The drone industry is going to make smart investors a lot of money.

But before I get into why, we need to pin down what “drones” are… And we’re going to stop calling them “drones.” The word is just a popular culture term that politicians and journalists often use to scare people and doesn’t really mean anything specific.

Unmanned Aerial Vehicle (UAV) is closer to the truth. A UAV is a flying vehicle that an operator controls remotely, operates autonomously, or some combination of the two. It includes fixed-wing aircraft (like a plane) and quadcopters (helicopters with four blades), as well as hexacopters (helicopters with six blades) and other machines with varying numbers of blades.

Still, I prefer the term Unmanned Aircraft System (UAS) because it’s more precise. It accounts for the ground and communication support that runs these vehicles in addition to the vehicle itself.

The type of UAS I’m most interested in are called Small Unmanned Aircraft Systems or sUAS. These are unmanned aircraft that weigh less than 55 pounds.

This type of aircraft offers the largest economic opportunity in the space. sUAS can be equipped with cameras as well as small, light sensor components. Thanks to advances in robotics and smartphones, these components are becoming cheaper and more capable every day. In fact, when it comes to sUAS, insiders frequently throw around the term “flying smartphone.”

Jesse Kallman, director of business development and regulatory affairs at Airware, a company making operating systems for sUAS, says that, “the idea is to use the aircraft as the workhorse or platform, and put whatever sensor you need on it.”

This idea has entrepreneurs chomping at the bit because the applications are endless.

Here are just a few things these aircraft can be used for commercially:

Package Delivery

You’ve probably heard of Amazon’s Prime Air initiative. The company wants to use sUAS to deliver packages under five pounds to customers within 10 miles of an Amazon fulfillment center. Conservative estimates suggest that at least 100 million packages a year would be eligible for shipment in the U.S. via sUAS under these conditions. That’s just one potential use from one company.

UPS and FedEx are both running their own internal experiments with sUAS delivery as well. Meanwhile, Google’s parent company Alphabet says its Project Wing will be delivering to our doorsteps via sUAS by 2017.

The first government-approved sUAS delivery in the U.S. already happened. In July 2015, an unmanned hexacopter, made by the startup Flirtey, delivered 10 pounds of medicine in three trips to a remote clinic in rural Virginia.

First, a larger aircraft took the medicine to a small airport. Then, Flirtey’s sUAS ferried it the last mile to the clinic.

Meanwhile, Chinese e-commerce company JD.com unveiled its pilot program for drone deliveries to rural retail customers in Jiangsu Province in July 2016. Current deliveries are up to 33 pounds each and run over a maximum distance of about 12.5 miles at a top speed of nearly 34 mph.

Farming/Agriculture

Agriculture sales account for nearly $400 billion in annual revenue, according to the USDA. But farmers can always improve crop yields. Considering that a mere 1% increase in yield would create an additional $4 billion in annual revenue, the agricultural industry would likely be open to any kind of help from technology.

Using various sensors and cameras, sUAS can make it much easier and cheaper to monitor the condition of crops and livestock. They can identify areas that need to be watered or sprayed with pesticides or fertilizers and better target the use of those scarce resources to improve a farm’s crop yield and profitability.

Japan has been using helicopter-style UAS made by Yamaha Motor to reduce labor and operational costs on farms since the early 1990s.

Filmmaking

sUAS make it much cheaper and easier to get those amazing action shots we all want to watch. The Hollywood arms race to deliver the most eye-popping shots possible will continue in full force. That’s good news for the sUAS industry (and for us as viewers).

Real Estate Appraisals and Sales

Residential and commercial real estate companies generate over $200 billion per year in revenue. But closing a sale or successfully brokering a deal is never a sure thing. sUAS can help showcase homes and commercial properties cost-effectively by capturing pictures people wouldn’t otherwise see.

Construction

Conducting site surveys and performing structural analysis usually requires a lot of manpower. Plus, the work can be dangerous. Using sUAS to cut costs and minimize the risk of injury makes sense.

Monitoring Everything Under the Sun

sUAS can fly places people just can’t go. sUAS can also use laser scanning, multispectral imaging, thermal imaging, and an array of other sensors to monitor just about anything at a relatively low cost. Examples include bridges, roads, gas and oil pipelines, mining operations, power lines, wind farms, solar farms, and wildlife.

In short, the commercial sUAS industry is going to create a lot of wealth in the years ahead. It’s going to be big. The question is, “How big?”

Quite frankly, no one knows. This is a brand-new industry. Today, the commercial sUAS market only generates about $1 billion in revenue annually worldwide.

But I think the commercial sUAS compound annual growth rate should easily be north of 20% over the next decade. And the commercial sUAS industry overall could generate $6 to $7 billion a year in revenue by 2025. Add in consumer (or recreational) sUAS and it could be a $10-billion-a-year industry in 10 years.

This offers a huge opportunity for investors. If the sUAS market isn’t on your radar yet, it should be.

P.S. I recently put together a report detailing three of the most promising sUAS companies. These companies will benefit from growth in the UAS market… Each of these stocks has at least 50% upside potential over the next two years. And much more upside potential than that a little further out. You can learn more about getting this report right here.