Will Germany miss out on drone market opportunities?

The global drone market is dominated by three major players: the US, China and Israel. Do German companies even stand a chance?

On any given day at the Tempelhof Airport in Berlin, a drone hobbyist can be seen flying their machine over the fields. Sometimes it is a stark white DJI Phantom model, other times a matte Code Black Drone.

View of Berlin's Tempelhof Airport from a drone

View of Berlin's Tempelhof Airport from a drone

People young and old gaze upwards with a curious and hesitant look on their faces.

Germany first introduced a modern drone system into the Bundeswehr, the country’s armed forces, in 1971. Forty-five years later ordering a drone online is commonplace, but many Germans feel that drones made the switch from military use to commercial applications overnight.

Drones are still a highly debated topic in Germany, according to Ulrike Franke, a doctoral candidate at the University of Oxford. For two reasons: First, the German public largely sees drones as “killer robots,” after America’s targeted killings in Pakistan, and second, the country has a “historically motivated anti-militarist  attitude” following WW2.

Potential, potential, potential

Globally there has been a surge of investments in drones, across the civilian and military sectors: In 2016, over $367 million (€344 million) across 71 investments, as reported by CB Insights.

The US Consumer Electronics Association estimates the global market for drones will hit one billion by 2018.

Noah Poponak, an aerospace equity research analyst at Goldman Sachs, agrees: Drones are a new, powerful and relatively untapped business tool with the potential to evolve into a $100 billion market by 2020.

Poponak went on to say that governments and businesses have barely scratched the surface of possibilities associated with drones.

Germany’s piece of the drone-market pie

Franke is an expert on all things drones, especially when it comes to drone use in counter terrorism contexts.

There are really only three players in the German drone manufacturing market producing drones for the Bundeswehr, Franke explains: EMT Penzberg, Rheinmetall GmbH and AirRobot.

Either one of the companies could easily convert their military system into a civilian one.

“These aren’t armed systems, they are surveillance systems,” Franke says. “They are not so different from the drones you and I can buy off Amazon already.”

The reason German drone manufacturers haven’t started mass producing civilian drones, likely boils down to costs and a competitive market.

“The German manufacturers weren't really within the first wave and now the market is somewhat saturated,” Franke says.

When it comes to the civilian drones, Germany’s biggest competitors are in China, and these “incredibly cheap Chinese manufacturers” are “dominating the market.”

Approximately 80 per cent of hobbyist drones are Chinese and one of the world’s biggest producer of hobbyist drones is China’s DJI technologies.

Between 2017 and 2021, Goldman Sachs estimates that China’s consumer drone spending will reach $4.5 billion. More than three times higher than in Germany, which is estimated to be $1.3 billion. Both countries pale compared to the US’s $17.5 billion.

In Franke’s opinion, German manufacturers would need to find a niche to break into the civilian market: “It could possibly be for law enforcement or fire-fighting. Something very specific that can be a bit more expensive, but needs to be very good.”

Meanwhile, Israel and the US dominate when it comes to military drones.

New technology = New rules

Before the German market and German startups can take advantage of drone technology, two things need to happen. First, sense-and-avoid technology needs to be fully implemented.

Sense-and-avoid technology allows people and businesses to fly drones in the civilian airspace, or above 400 feet, in the same space as helicopters and airplanes.

As soon as that technological hurdle is crossed, the potential for drones is “gonna be huge,” Franke says. It could easily happen in 2017.

The second, and arguably the biggest, hurdle standing in the way of delivery drones or any other public service drones, are civil governments’ rules and regulations.

A cultural hesitancy to embrace drones

Germany is one of the most privacy-aware countries in Europe and possibly the world, Franke says, before recalling a story about how Germans insisted for the right to blur their homes from Google Street View, a month after the service launched.

And the NSA scandal didn’t help.

Deutsche Telekom, one of Germany’s biggest companies, announced the implementation of a drone defense shield in partnership with Dedrone in December 2016.

Words like “threat,” “abuse,” “risk” and “danger,” can all be found in the press release.

Philipp Kornstaedt, spokesman for Deutsche Telekom’s drone projects, says the Magenta program cannot “jam” private drones, but a range of sensors, which include video cameras, frequency scanners and microphones, are there to help detect drones and protect customers.

Dedrone, Telekom’s partner, calls of this the “aerial equivalence of a fence.” The company was established in 2014, a year after Germany’s Pirate Party crashed a drone in front of the country’s chancellor, Angela Merkel, during a campaign event in Dresden.

A year later, in 2015, a drone landed on the White House lawn.

This was the moment when “the whole world said, 'Gee, we may have a problem,'” Dedrone’s CEO says in an interview with The Heureka.

Ensuring security looks to be its own growing market as counter-drone systems are implemented around the world: Dedrone closed a €2.7 million seed round and a $10 million round in May 2016.

Where have Germany’s drone startups gone?

In mid-December 2016, Amazon CEO Jeff Bezos announced the company’s first delivery via drone on Twitter. A remarkable achievement three years in the making.

“One day, seeing Prime Air vehicles will be as normal as seeing mail trucks on the road,” Amazon said on their website.

Right now, Amazon is the exception and not the rule, but other multi-million dollar companies, like Google and WalMart, are experimenting with drone delivery and the US-based startup Flirtey successfully completed the “first federally-sanctioned drone delivery,” in 2016.

But it is quite hard to find German startups dabbling in drone delivery or even drone-related technologies.

Two of Germany’s most well-known drone startups, Ascending Technologies (asctec) and MAVinci, were acquired by Intel in 2016. Aibotix, another startup, was bought up by Hexagon in 2014.

Joerg Lamprecht, the founder of Aibotix and current CEO and co-founder of Dedrone, says this is because it is hard to get the venture capital needed to build a successful company in Germany.

“You need a lot of funding to run a company like that,” Lamprecht explains. “It is really hard to raise a Series A $10 million round if you do not have an absolutely substantial business model.”

That is one of the reasons Lamprecht purposefully headquartered Dedrone in San Francisco.

“There is nothing better than the combination of German engineering and American marketing and sales,” he says. But when looking at cities to headquarter his startup, San Francisco was a no brainer. Compared to Silicon Valley, there is “no Berlin” or “German tech,” the CEO says.

“A typical German startup is made up of 10 engineers and one sales person.”  The US approach is the exact opposite, he went on to say. “German companies fail at market execution.”

This US approach might account for Dedrone’s success. Lamprecht, who describes interest in the company as “unreal,” says the company receives up to 100 inquiries per day: requests to protect embassies in Chile, temples in Myanmar and coal mines in Australia.

Dedrone isn’t the only startup that left Germany for the US. Skycart, a drone shipping startup, setup in San Jose, California. Skycart's CEO, Lukas Wrede, tells The Heureka he left for the same reason as Lamprecht.

Making it all the more clear that if Germany wants to participate in this billion dollar industry, the country and its investors will need to make an effort to incentivise founders and dig deep into their pockets.

Photos via VisualHunt, Dedrone, Skycart

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