Did DJI Bamboozle You Too?
Don’t just think I am beating up on DJI; they call it the news, and it is our job to keep tabs on the industry and ecosystem. As always, DJI makes a great product at a fantastic price point, and in this piece, we are trying to shed a little light on the possible reasons why.
The best and brightest–heck, even the past head of the FAA UASIO (now heading up FAA aircraft certification)–is a firm believer that the Chinese manufacturing process is the reason behind DJI’s monopolistic success. We are in disagreement since I thought that an arbitrarily imposed ten-year technology prohibition by the FAA was, more than likely, a key factor. We are seeing another round of drone “firsts” that were actually firsts ten, fifteen, and twenty years ago. However, we may both be wrong.
Taken at face value, one could argue that Chinese manufacturing, lower wages, lax environmental laws, and labor laws all play into cheaper production costs, and that faster development cycles are a factor. However, there is the government-investment wildcard. A former employee told me that there was no PRC investment in DJI; I responded that that isn’t what other Chinese manufacturers contend. Later, the notion was reiterated, and there was investment confirmation, but I was assured that the investment was akin to the US government’s investment in Boeing.
Last year, when I was in China, representatives from other drone companies openly admitted that they had a hard time competing with DJI on price point. The reason for this was purported to be government-subsidized support–i.e., engineers, facilities, tax breaks, and reimbursement for tradeshows and other marketing expenses. Not one mentioned of any direct investment, and we are left to imagine a Chinese Cinderella story with Frank Wang toiling away in the dorm room like old Mark Zuckerberg. Anything is possible; right?
The image is crafted into a representation of a recipe that was all hard work and a little luck. I am not trying to discount the hard work, because I do believe there was some success, in the billions, and it wasn’t just crafted out of thin air.
So, while everyone else was making and selling flying mousetraps by hook or by crook, the DJI was just building a better one. We were told 3DR had about $145 million in investment at the time of the Solo debacle and its ultimate demise as a hardware company. Golly, $145 million sounds like a lot of scratch to lose, to us work-a-day bums who only lost market share and the equipment investment, waiting a decade for commonsense regulation out of the lumbering FAA.
Parrot is purportedly down several hundred million, according to the sacre bleu graphs Chris Anderson had compiled to show the suffering of the French company that didn’t fall victim to hardware shortcomings. Does anyone know the French phrase for “Just fly your drone around for six months until your gimbal gets delivered”? I’ve got to hand it to pitchman Colin Quinn: he dutifully went far out on the limb to pet the pooch, even though he knew it was going to snap.
There is much hand-wringing outside of China over not being able to find the right combo to be king of the AUVSI forecasted 82 billion dollar industry. Notice, I didn’t even mention GoPro, since that footnote was doomed from the get-go. They jumped in to sell what amounted to Florsheim clown shoes, just as the circus train was leaving the station. The only other outlier was Yunnec, who took the 60 million in funding, and well, who knows, they could have spent that money on a new jet or something else?
So, if you remember, DJI was going to do an IPO a few years back. However, it never came to fruition. Maybe that was because they were making so much money in consumer drones that they didn’t need more than the 75 million they got in VC funding from Sequoia and Accel, but hadn’t heard about the 500 million dollar round that included the New China Life Insurance Company–the New China Life Insurance Company whose majority stakeholder (47.36%) is the State Council of the People’s Republic of China.
By the way, New Horizon Capital’s co-founder was Winston Wen, son of ex-Premier Wen Jiabao. It pays to have connections, or so I am told.
More on the New China Life Insurance Company:
Whatever happened to the big 2018 IPO?
“Initially, the financing amount was rumored to be $500 million, then it increased to $700 million, $800 million, to now $1 billion. This rumor has been circling for nearly a month.”
More info about loopholes and whatnot:
I don’t know whom to call in China to get the lowdown on who is doing what with the Maojamins. However, the other “big” drone players have invested peanuts, relatively speaking, besides Parrot, who isn’t going down without a fight. We have to realize that some of the other high-flyers didn’t even really hit a $100 million of actual cash investment. Most of this valuation stuff is wind and smoke–aka debt-equity swap, in-kind donations, loose change, and some bad checks.
A billion dollars is a lot of bread, any way you slice it. We recently had a fresh call for patriotic US VC investors to start throwing some lettuce into the domestic drone company-funding kitty. At least now we have an idea of what numbers we have to hit in order to compete with the toy company.
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