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Analysis

DJI can be an Apple, if it adapts to changing market 

Jul 4, 2018 by A. Alfaro
DJI can be an Apple, if it adapts to changing market 

Frank Wang, founder and CEO of Da-Jiang Innovations Science and Technology Co. Ltd (DJI), the Shenzhen-based global leader in consumer drone manufacturing, will have to face new challenges, now that the company is the dominant player.

The company reached its leading position, thanks to its focus on technology, constant research and development. In the past decade, few Chinese companies have achieved such global dominance in a particular field. However, some analysts warn that DJI has peaked, and its future may not be that bright.

Frank Wang once described DJI as a “creativity Utopia” but it seems to have lost the spark for innovation. Its projects on autonomous and logistic drones have not been realized yet. Frank Wang’s story of entrepreneurship started in 2006, when he won the Asia-Pacific Robotics Tournament. Encouraged, he started innovating in a 20 sqm workshop in Shenzhen. He first focused on flight control systems, but didn't have a business model; he just wanted to design and sell his products. Gradually, Wang made a name for himself in model aircraft circles.

One of the keys to DJI’s success was the birth of the consumer drone market. According to consulting firm Frost & Sullivan, DJI had developed all the main parts of a drone by 2012: software, props, body and remote control. The first model of the Phantom series was released in 2013, and sales revenue touched $120 million. Only a year later, it rose to $450 million.

Hu Minglie, founder of Lighthouse Capital, an investment management firm, met Frank Wang in 2012. Impressed, he invested $1.5 million in DJI. Wang's advantage over other tech startups was that DJI did not struggle to find early investors and could focus on its products.

The company policy was to not allow investors to interfere with operations. Hu Minglie says Frank Wang has three personalities: scientist, engineer and businessman. An R&D engineer says Wang is extremely meticulous, hardworking and scientific. DJI employs 12,000 people, of whom one-fourth work in R&D.

In 1995, Steve Jobs spoke of Apple’s future decline. He said when a company reaches global dominance, it does not focus enough on its products. Bureaucracy and politics take away its innovative spirit, and it slowly weakens, as was the case with IBM and Microsoft. DJI is at this juncture.

GROWING DRONE MARKET

According to Chinese consulting firm iResearch Consulting Group, China's drone market will grow to $11 billion by 2025, and professional drones will represent half the market. Last June 19, Chinese ecommerce giant JD introduced its logistic drone, which can carry up to 5 tonnes. JD is developing another model, that could carry up to 50 tonnes, 6,000 km away.

The drone market’s future will be intertwined with that of logistics. Companies like Amazon, Suning, Yuantong, Zhongtong and others have already tested drone shipments. However, DJI has always been skeptical of the load carrying capacity of drones; its main advantage is simple structure, high consistency and low production cost. The company is reluctant to change this point of view.

In August 2016, DJI declared there is a long way to go in the logistics field, with legal and technical issues to be dealt with, and stepped away from the sector. In DJI, engineers have the last say. Also, Wang doesn't want DJI to be influenced by current trends.

A year ago, there were rumours that DJI was developing an autonomous car. Investors were optimistic: technology such as sensors and environment recognition could be applied to an autonomous car. But DJI declared that this technology was not yet mature. This cautious attitude disappoints investors, who would prefer expansion to other fields.

Some company insiders think DJI has missed some chances. Of its three main departments -- research and development, sales and production -- R&D has always been the priority. This causes some resentment in the sales department. By end-2017, DJI cut the salaries of some of its sales force by half, causing a controversy. Wang dismissed it, saying the sales department is in its early stages and needs to be more dynamic.

According to consulting firm IDC, the global drone market will reach $33 billion by 2023, but DJI’s development might have already peaked. DJI disagrees. During a meeting with investors in May, it predicted that the recreational drone market will grow, but also admitted that it would shift focus to industrial drones. It set up an industrial drone department in the second half of 2016. In the agricultural drone market, XAG is DJI’s main competitor, with revenue of USD 7 million in 2016, which zoomed to USD 45 million in 2017. DJI resorted to a price cut strategy, renouncing profitability in this field for the next two years.

DJI’s sales department thinks the company gives too much importance to the R&D department, to the point that it is difficult for the company to adapt to changes and consumer demand. It repeatedly recommended to R&D to develop logistic drones and improve load capacity, but R&D has done little progress in this area. DJI's researchers and engineers do not like to work on demand, which slows down the company’s adaptability to the market and could become a weakness.

Currently, DJI controls 85% of the world consumer drone market, which touched $2 billion in 2017, almost twice as much as the previous year. However, industrial drones only account for $398 million. According to Hu Minglie, DJI will find it difficult to shift to other drones. Investors are not too confident: some think it is still possible for someone with deep pockets to found a company which surpasses DJI. The company also suffered some setbacks lately: its new camera Rotin 2 was used to film famous Chinese actor Jiang Wen’s last movie. But after a month, the production team gave up after encountering some balance issues.

DJI has raised $ 1billion in a new financing round. An official statement said it will use this to improve liquidity and ensure investors low-risk returns, but denied rumours of an IPO.

Frank Wang has declared to Chinese portal Netease that DJI is similar to Apple in its early stages, but is not trying to copy Apple’s model; Apple is just an inspiration for its ecosystem and philosophy. Last May, DJI signed a strategic partnership with Microsoft. Users can utilize Microsoft’s developer software to access the drone’s functions such as autonomous flight and real-time data. This means DJI opens its technology to 700 million users of Windows10 globally, and users can develop new apps for DJI’s original product. DJI will have access to Azure IoT Edge, Microsoft’s cloud services, useful in the fields of construction, agriculture and public security. In the short term, DJI wants to dominate the drone and image industries. But in the long term, the company doesn't want to become just a big tech company, but an “ecosystem builder”. To become the Apple of drones, DJI will have to better adapt to a changing market.

A. Alfaro

A. Alfaro is a Beijing-based freelance reporter. He focuses on China's politics, culture and society. He can be reached at varofaro@gmail.com. 

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