By JACK NICAS
BERLIN—In four years, Service-drone.de GmbH has emerged as a promising player here in the rapidly expanding commercial-drone industry. The 20-employee startup has sold more than 400 unmanned aircraft to private-sector companies and now is pitching its fourth-generation device.
Over the same period, Seattle-based Applewhite Aero has struggled to get permission from the Federal Aviation Administration just to fly its drones, which are designed for crop monitoring. The company, founded the same year as Service-drone, has test-flown only one of its four aircraft, and is now moving some operations to Canada, where getting flight clearance is easier.
“We had to petition the FAA to not carry the aircraft manual onboard,” said Applewhite founder Paul Applewhite. “I mean, who’s supposed to read it?” Mr. Applewhite, like many of his U.S. peers, fears the drone industry “is moving past the U.S., and we’re just getting left behind.”
The U.S. introduced drones to the world as machines of war. But as unmanned aircraft enter private industry—for purposes as varied as filming movies, inspecting wind farms and herding cattle—many U.S. drone entrepreneurs are finding it hard to get off the ground, even as rivals in Europe, Canada, Australia and China are taking off.
The reason, according to interviews with two-dozen drone makers, sellers and users across the world: regulation.
The FAA has banned all but a handful of private-sector drones in the U.S. while it completes rules for them, expected in the next several years.
That policy has stifled the U.S. drone market and driven operators underground, where it is difficult to find funding, insurance and customers.
Outside the U.S., relatively accommodating policies have fueled a commercial-drone boom. Foreign drone makers have fed those markets, while U.S. export rules have generally kept many American manufacturers from serving them.
The FAA said its drone policy reflects concern for the safety of people in the air and on the ground. It rejected any comparison to foreign regulators, saying the U.S. has far more low-flying private planes that are at most risk from drones.
In September the FAA authorized six film making companies to use drones, bringing to eight the number of approved U.S. commercial-drone operators. In Europe, there are thousands, including a thriving network of drone middlemen and contractors who use the devices to gather data for clients.
The U.S. is home to at least one commercial-drone success: California-based 3D Robotics Inc. The 200-employee company has emerged as one of three industry giants, along with Parrot SA PARRO.FR -0.80% of Paris and SZ DJI Technology Co. of Shenzhen, China. These companies have captured the vast majority of the global nonmilitary-drone market by selling easy-to-fly devices for less than $2,000.
DJI, which many in the industry consider the world’s biggest consumer-drone maker, has flooded the U.S. and over 100 other countries with its 2-pound, camera-equipped Phantom drones. The four-rotor miniature helicopters cost around $1,000.
Meanwhile, 3D Robotics, the smallest of the trio, can’t test-fly its drones in the U.S., where export rules also have blocked it from shipping its similar devices to many countries, including China, Brazil and Russia.
FAA regulations prompted Google Inc. GOOGL +0.13% and Amazon.com Inc.AMZN -0.15% to test their delivery-drone prototypes in Australia and Canada, respectively. In September, Deutsche Post DHL AG of Germany said it would start commercial deliveries of medicine to a North Sea island in a month-long test, aided by cooperation among German agencies that are restricting airspace for drones.
Google, Amazon, 3D Robotics, DJI and several other companies this month unveiled a political-action committee to lobby federal, state and local governments in the U.S. for policies to nurture the nation’s drone market.
Amazon and Google recently drew attention with talk of delivery drones but companies using drones today are more like Wasser-und Verkehrs-Kontor GmbH, an engineering firm in Neumünster, Germany, a city of 77,000 people about 55 miles south of Denmark.
In June, WVK bought an eight-rotor $50,000 Service-drone octocopter that resembles a spider, and began using it to make 3-D models of roads, buildings and a powdered-milk factory.
The firm says the drone is transforming its engineering. Before, workers took ground-based measurements for two days to yield a two-dimensional map of a flood-prone intersection with an accuracy of 1.5 meters, or roughly 1.6 yards. The drone required just three 10-minute flights to produce a 3-D model of the intersection with 1-centimeter, or about 0.4-inch, accuracy.
The model looks like a high-definition photo, but it is actually a mosaic of millions of data points, allowing engineers for the first time to accurately simulate how water would collect.
“You can’t compare,” said Manfred Greve, a champion model-aircraft pilot who flies WVK’s drone. “It’s like you’re racing a race car and a bicycle.” He landed the surveying work partly because his company makes the octocopter’s carbon-fiber propellers.
In Europe, Germany has the biggest cluster of drone makers, who say they are generally profitable and operate on cash from sales, not startup money. Most U.S. drone makers and service providers are still embryonic, scraping by on venture-capital funding and customers who use the devices against FAA policy.
“The advantage in Europe is you can actually make money using these platforms, whereas in the U.S., it is the Wild, Wild West,” said Michael Blades, an aerospace analyst or market researcher Frost & Sullivan. “Many U.S. companies are hanging on by a thread right now.”
One of the most successful U.S. drone companies, Trimble Navigation Ltd.TRMB +0.53% , doesn’t make or sell a single drone in the U.S. The California-based firm acquired a Belgian drone maker in 2012 and has since expanded sales to most of the developed world—outside the U.S.
The U.S. drone business does have some bright signs. Flourishing are drone entrepreneurs focused on aerial video, where consumer demand is high and business can be conducted outside the FAA’s view. And some startups are making promising innovations, such as Skycatch Inc., whose drones collect data about a work site autonomously, even swapping out their own batteries.
Industry players also predict the FAA’s recent drone approvals for filmmakers will be the first of many exemptions over coming months from its virtual ban. Widespread use, however, will wait until the agency issues comprehensive rules for the devices.
U.S. export rules are also hampering the nation’s drone makers. AeroVironment Inc.,AVAV -1.43% which sells more drones to the U.S. military than any other firm, is now targeting the commercial market. But arms-export restrictions have limited the company to North America, where it has secured just one commercial contract: flying drones in Alaska for oil giant BP BP.LN +0.25% PLC.
Export rules prompted 3D Robotics to temporarily halt shipments to 44 countries this spring. It has since secured a new classification from the U.S. Commerce Department, in part because it manufactures its drones in Mexico, allowing it to resume foreign sales.
Chris Anderson, the former editor of Wired magazine, founded 3D Robotics in 2009 with a gifted young engineer from Tijuana he met online. Mr. Anderson said the inexpensive drones sold by his firm and its peers will overtake the commercial-drone market and push out the higher-priced devices popular now. “The Germans have excellent technology,” he said, but pricing pressure will rise. “The days of a drone costing $50,000 won’t last.”
DJI sells an black octocopter for less than $5,000 that rivals the far pricier devices made by German companies like Service-drone.
The 2,500-employee company had about $130 million in revenue last year, a DJI spokesman said, and it expects to make three to five times as much this year. With most of its drones priced around $1,000, industry watchers say the company has sold hundreds of thousands of devices.
Steve Klindworth, head of a DJI drone retailer in Liberty Hill, Texas, said many of his customers are entrepreneurs who violate FAA policy or hobbyists, who are allowed to use drones. Revenue has nearly tripled over the past several months to more than $25,000 a day, he said. If rules for U.S. drones don’t arrive soon, he said “It’ll reach a point of no return where American companies won’t ever be able to catch up.”