An Update on Commercial Drones #AUVSI2017

If artificial intelligence is the brains, then robots are the brawn in the future of work.

Earlier this week, we attended the AUVSI XPOENTIAL trade show in Dallas, the largest global gathering of unmanned systems providers, robotic software developers, and industry experts.

We sat down with 13 executives from some of the leading commercial drone companies. Here are the takeaways from our meetings:

  • We’re Still in the Early Innings of Drones. Overall demand for drone hardware, software, and services continues to see strong momentum domestically and internationally. Industry leaders are confident that the market potential in core verticals remains deeply unsaturated. Increasing customer awareness around the efficiencies of drone technology represents a catalyst for accelerating industry growth.
  • Ground Robots and Drones are Complementary. Terrestrial robots and aerial robots (i.e., drones) should not be considered competitive offerings. Some of our favorite strategies in the space couple ground robots with drones for autonomous services.
  • Drone Delivery is Real. Throughout our meetings, robotic delivery of packages was identified as one of the largest untapped markets. Most industry leaders do not expect regular drone delivery to be viable for 5+ years; however, that’s a meaningful uptick from last year, when a similar group did not expect drone delivery to be realistic for 10+ years. Amazon is leading the way in the drone delivery space, but will likely acquire enabling technologies to make it a reality.

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Tesla is the Next Apple

This note was originally published on Business Insider.

Apple is the world’s largest company with a market cap of nearly $770 billion as of this writing. Tesla is one of the world’s largest automakers with a market cap of close to $55 billion, although we think the Tesla story is just getting started.

There are many parallels between Apple about a decade ago and Tesla today, market cap being one of them.  In Q4 2005, Apple’s market cap was close to where Tesla’s is today ($54 billion). A decade from now, we think we’ll look back at Tesla and realize it was the next Apple.

There are five major similarities to Tesla today and Apple in the mid-2000s:

  1. Brand
  2. Visionary leadership
  3. Integrated hardware and software
  4. Halo effect
  5. Reshaping a market

Brand

Tesla’s brand is to the car industry what Apple’s brand is to consumer electronics. Tesla owners love their Teslas.

According to a Consumer Reports survey, 91% of Tesla owners state they would “definitely” buy their cars again, the highest rating of any automaker. The next two closest automakers were Porsche at 84% and Audi at 77%. By comparison, Tim Cook stated on Apple’s Dec-16 earnings call that iPhone had a 97% satisfaction rate.

Beyond tangible customer satisfaction metrics, we believe there is a less tangible cool factor to the Tesla brand, much like Apple in the late 1990s and early 2000s. In many ways, Tesla has the same “think different” attitude that Apple popularized.

Tesla has built a brand around being a different kind of automaker. Not only because its vehicles are powered entirely by electric, but also because they don’t use model year numbers and treat software updates more similar to updating an iPhone app than a car. The company has done this all while squarely placing itself in the conversation with BMW as one of the best-engineered cars in the world. Tesla has established itself as an aspirational brand by taking a new approach to the car market.

Visionary Leader

Elon Musk and Steve Jobs share similarities in that they are visionary entrepreneurs that simultaneously operated multiple groundbreaking companies.  Musk with Tesla and SpaceX and Jobs with Apple and Pixar.  However, both seem to have different guiding lights.

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Apple’s Dream Car: Hardware + Software

Friday’s news of Apple’s permit to test self-driving cars in California should not have come as much of a surprise given the poorly kept secret of Project Titan. But the permit begs the question of whether Apple is building a car or just building software for a car.

Apple’s overarching philosophy has been to own both the hardware and software to create superior product experiences. Typically, this means owning the technology stack from end to end for a given product; for example, Mac + macOS, iPod + iTunes, and iPhone + iOS; however, sometimes the company stops short of owning the entire experience. The Apple TV requires a third-party television panel, although we would argue that is the equivalent of plugging your Mac into a third-party monitor. Once the Apple TV is engaged, the experience is all Apple. Unlike a television, a car is not just a dumb panel. Modern vehicles require a tremendous amount of sensors and other electronics that monitor the exterior and interior. In an ideal world, Apple’s car project would involve the company building the actual automobile, combining hardware and software. In reality, the complexity of designing and manufacturing a vehicle may push the company to integrate deeply with an automotive partner or partners in an effort more similar to the Apple TV  — plugging Apple’s technology into an existing product.

From a software standpoint, building an automotive product beyond CarPlay is a no-brainer.  Apple has one of the better stacks of necessary components to build a great car OS:

  • Entertainment: iTunes/Apple Music
  • Assistance/Voice: Siri
  • Navigation/Local: Apple Maps
  • Image Processing/Recognition (Autonomous Driving): iPhone Camera
  • Security: Touch ID
  • Third-party Software: App Store (potential for OTA software updates)

Despite the obvious software advantages, the auto market poses challenges that Apple may not be able to overcome on the hardware side, i.e. building the car end-to-end. First and foremost, Apple would likely need to find a manufacturing partner because it is not a manufacturing company, but a design company. Foxconn and other manufacturing partners build iPhones, iPads, and Macs to Apple’s specs. A company like Magna Steyr may be a capable of building a car to Apple’s design specs. Aside from finding a partner, we note that the typical automotive design process takes 5-7 years. Even on an accelerated time table, Apple is likely multiple years away from a completed hardware design for a car. Finally, Tesla and Google have a multi-year lead on Apple in developing autonomous vehicle capabilities, including the associated testing mileage. We see autonomous driving capabilities as a key factor in auto desirability over the next five years.

Apple is almost certainly exploring how it could build an entire car, but as we learned the hard way with an Apple television, exploration does not mean a product comes to market. Apple is the best connected device maker in the world and the car is the biggest connected device in the world. There is a natural fit in the self-driving car market if Apple can figure out how to get past the challenges of making the hardware.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Would You Let a Robot Do These 12 Jobs?

This week we attended Automate, a robotics trade show in Chicago focused on manufacturing and fulfillment. As we explored the show floor, we saw a number of robots able to work next to humans for an affordable cost of $30-$40k each. Most vendors claimed less than a 12 month payback period. Automation is now in reach for many businesses, and they are slowly becoming comfortable implementing robots, in part for the cost advantage and part out of necessity to find labor.

We left the show with two questions. First, are we too conservative to believe it will take 30 years for 70% of human jobs to be replaced by robots?  Short answer: we’re optimistic and should have a better idea of how quickly automation will come over the next few years.  Second, how comfortable are consumers allowing robots to do certain jobs? To address this question, we surveyed 500 average consumers in the US and asked them to rate their comfort level with robots performing 12 specific tasks.

Survey methodology. We asked survey takers across a mix of age and income demographics to rate their comfort level with robots performing various tasks on a scale of 1-5: 1 being extremely uncomfortable, 3 being neutral, and 5 being extremely comfortable. We surveyed jobs in four categories: time-consuming chores, transportation, personal/family livelihood, and professional services.

Time-consuming chores. We found general acceptance in robots performing daily, relatively safe, time-consuming chores such as vacuuming, mowing the lawn, or preparing food.  Of all of the four categories of jobs we surveyed, the time-consuming chore category was the most positively viewed. This may be because these tasks have low downside if a robot fails to do them well; you just end up with a poorly vacuumed house, a butchered lawn, or a bad meal. The 30-44 age bracket, or loosely late millennials, consistently indicated the highest levels of comfort with this category (and most categories), while the 18-29 demo, or early millennials, surprisingly saw less benefit to robot vacuums or meal-makers – perhaps because many in this demo don’t perform the tasks themselves (see tables below).

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Feedback Loup: College Panel

We recently hosted a panel of 8 college students from the University of Minnesota. The goal was to better understand how millennials think about social media, communications, video, VR, AR, the selfie generation, the future of work, and privacy. Here’s a summary of what we learned:

Text Is Dying

  • Quote: “Texting replaced email, and photos have replaced text messages”.
  • Message: Text is being used less frequently by each of our panelists. They view text as a formal way to communicate. Snap, Facebook and Instagram are the preferred communication platforms, with Facebook settings being switched to photos only. The panelists mentioned tech platforms promoting messaging within games as a way to maintain usage.
  • Takeaway: Text is slowly going away, replaced by video and photos. Text is viewed more as a formal way to communicate.

Fake News

  • Quote: “I like Snap for news.”
  • Message: Our panelists get their news from a wide variety of sources. 7 of 8 panelists are not concerned about fake news. Snap was the most popular way to aggregate news from traditional sources (3 of 8), followed by mainstream news outlets; e.g., CNN and WSJ.
  • Takeaway: Professional news is still respected but not paid for by these college students.

The Future of Work

  • Quote: “It’s scary. If we can’t have cashiers, truckers and fast food jobs. . . how will people live?”
  • Message: College students know they are entering a workforce that will have dramatic changes over the next 30 years. They have concerns about who’s going to control everything as resources become more concentrated. The University of Minnesota offers a class titled “Size of the Future” that addresses the risk of job loss to automation. The group did consider these changes when thinking about a career, with an increased interest in a more technical education that feels more defensible. Ultimately these students believe that the negative impact of lost jobs will be partially offset by the positive impact of new industries being formed.
  • Takeaway: College students understand that the workforce is changing. They envision social challenges emerging from displacement of workers with lower levels of education. But they believe a college education will ensure that their futures are safe.

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