Low-Cost Drone Maker Takes On Rivals

By JACK NICAS

Meet the maker of the $100 drone.

Paris-based Parrot SA has quickly captured the lower end of the consumer-drone market, selling more than 1.5 million camera-equipped copters for between $100 and $500 each since 2010. With shelf space at Best Buy Co., Toys “R” Us Inc. and Apple Inc. stores, Parrot drones have become so recognizable that Toyota Motor Corp. recently used a look-alike in a commercial.

Parrot is one of a trio of companies, including SZ DJI Technology Co. of China and Berkeley, Calif.-based 3D Robotics Inc., that are the early leaders in the race to be the world’s top consumer drone firm. Each is staking out different parts of the market and trying to avoid the declines of other consumer-technology pioneers in industries like personal computers and cellphones.

Parrot and its rivals face a wave of new competition. GoPro Inc., which made wearable cameras mainstream, selling 5.2 million of them last year, now plans to launch a flying camera for under $1,000 next year. Helen Greiner, co-creator of the Roomba robotic vacuum—effectively the first consumer robot—is leading a company behind a $500 six-rotor drone that she says users can fly without training. And three startups have plans for drones that can’t even be piloted; they just follow users as they, say, ski down a mountain.

To stay ahead, Parrot is diversifying with a series of devices whose target customers range from filmmakers to farmers to grandparents shopping before Christmas.

“This is the strategy, of course: to be flexible and to pioneer,” said Henri Seydoux, Parrot’s founder and chief executive. “There are plenty of things to pioneer in the drone space.”

Parrot’s products include the $100 Rolling Spider, a 2-ounce quadcopter that snaps photos, flips in the air and drives up walls; the $500 Bebop, its flagship drone that costs half as much as the competitors from DJI and 3D Robotics; and the $25,000 eBee, a glider that’s among the best-selling unmanned aircraft for monitoring crops and surveying construction sites.

Parrot’s strategy risks spreading it too thin, especially while it still develops other products like headphones, said Bilal Zuberi, a partner at venture firm Lux Capital, which invests in drones. “Parrot is a formidable competitor, but if they don’t stay focused, they do risk losing that,” he said.

Competition already is fierce. DJI’s roughly $1,000 Phantom drones have helped it become the world’s largest consumer-drone maker by revenue, with an expected $1 billion in sales this year, according to people familiar with its finances. Parrot doesn’t give a forecast, but its drone sales over the past four quarters totaled about a tenth of that. DJI recently raised $75 million in funding that valued the company at $8 billion.

3D Robotics, a 6-year-old startup, has attained success selling $1,000 drones. But it is focused on software it lets other drone firms use free in hopes it will become a dominant platform that 3D Robotics can leverage to sell software and services.

“I think people have wrongly dismissed Parrot [drones] as toys,” said Chris Anderson, the former editor of Wired magazine who heads 3D Robotics. “People are going to have to reconsider Parrot as a serious player.”

The drone companies also face potential regulatory and other hurdles. A collision with a jetliner or a terrorist attack involving drones, for example, could spook the public and derail growth.

For Parrot, drones are the latest of several pivots. Mr. Seydoux, the scion of a prominent French business family—his grandfather, Marcel Schlumberger, co-founded oil-field-services giant Schlumberger Ltd.—started Parrot in 1994 to develop voice-recognition software.

The first product, an electronic Rolodex operated by voice command, failed. But Parrot had better luck in the late 1990s with hands-free technology for cars. Those sales have been falling lately: Parrot’s €31.9 million ($35.3 million) in automotive revenue for the first quarter of 2015 was 25% lower than two years ago. That slumping business contributed to a €2.6 million loss on €244 million in revenue last year, Parrot’s first annual loss in at least 11 years.

Mr. Seydoux, whose wife is a model and whose daughter is a well-known French actress, also has proved his entrepreneurial chops in the fashion world, as co-founder of Christian Louboutin, the footwear company famous for its red-soled shoes.

The 55-year-old says he fell into drones almost by accident. He got the idea of a toy quadcopter—a four-rotor helicopter—at Paris’s industrial-design museum, where he spotted a model of the Breguet-Richet Gyroplane designed by French inventors in 1907.

He envisioned using cellphones to control the toy and view its camera’s images, ultimately creating the AR.Drone—short for augmented reality, a technology that inserts virtual objects into a camera’s view. Parrot wanted to enable users to fly through virtual rings, but customers instead began snapping aerial photos of their homes. Then sales soared.

“The drone turned out to be a flying video camera, and that was not our idea,” Mr. Seydoux said.

Annual drone sales over the past two years increased by four times to €34.6 million, becoming its biggest business. The company is moving many engineers to drones from its automotive business. “Drones are the priority of Parrot today,” Mr. Seydoux said.

Investors approve. Parrot shares are up 125% over the past three months, including a spike last month on news that Parrot bought two more drone firms.

Looming over the early drone success stories is the fate of other technology forerunners. The Commodore 64 was among the best-selling personal computers after its 1982 debut, but its maker filed for bankruptcy in 1994. Nokia Corp., once the world’s largest supplier of cellphones, left that market in 2013 after it was late in adopting touchscreens like its rivals.

Mr. Seydoux bristles at the notion that Parrot could follow a similar trajectory. “My obsession is to not be Nokia,” he said. “We are much more understanding of the evolution of the market.”

http://www.wsj.com/articles/maker-of-100-drone-faces-soaring-competition-1436211965