A great war is coming, and it cannot be stopped.
Opposing armies of autonomous drones will take to the skies and battle it out to determine the victor. The impact of these events will be momentous and far-reaching… but fortunately not catastrophic.
This, of course, is because the war I’m referring to will be fought not between conflicting nations with guns and missiles, but rather between competing corporations with news headlines and quarterly earnings reports. This is a war over an emerging industry in the United States — a war over commercial drones.
Amazon (NASDAQ: AMZN) was the first to strike last December when the company revealed it was testing drones for a potential delivery service called Prime Air. The story was picked up by countless media outlets and even earned CEO Jeff Bezos a slot on 60 Minutes.
Many were quick to criticize the company’s ambitious vision and blew it off as nothing more than a publicity stunt, but four months later, Amazon doesn’t seem to be backing down. In his annual letter to shareholders last week, Bezos shared the following:
“The Prime Air team is already flight testing our 5th and 6th generation aerial vehicles, and we are in the design phase on generations 7 and 8.”
The statement comes at an exciting time. Just last month, a $10,000 FAA fine levied against drone operator Raphael Pirker was shot down by the National Transportation Safety Board. In short, the decision established that before the government poses restrictions on new technologies such as commercial model drones, it must first consult with and obtain comments from the public.
In other words, the FAA doesn’t have the authority to enforce regulations that don’t yet exist.
Of course, Amazon won’t immediately begin launching Prime Air, even if the technology was already in place. The FAA is currently operating under congressional order to formally enact rules governing commercial drone use by September 30, 2015.
These rules likely won’t be open for public debate until year-end, so it would be unwise for Amazon to undergo a premature launch. The company will need to wait for official legislation before making final adjustments to Prime Air.
Putting aside any natural disdain for red tape, these incoming regulations are actually excellent news for the drone industry. Congress has made it clear through its deadline that it wants to open U.S. airspace to commercial drones as soon as possible.
Like any other form of government regulation, this legislation won’t be perfect, but it will undoubtedly remove the paralyzing uncertainty surrounding drone use in a commercial setting. Once the rules are on paper, drone makers will start coming out of the woodworks.
Humanitarian Capitalism
Of course, we know by now that Amazon isn’t the only technology giant making preemptive moves to establish air superiority. Many were surprised by Facebook’s (NASDAQ: FB) $20 million purchase of U.K.-based aerospace company Ascenta in March, as well as Google’s (NASDAQ: GOOG) $60 million buyout of drone-maker Titan Aerospace just last week.
The willingness of these players to throw around that kind of weight certainly shows strong bullish sentiment in the commercial drone industry — but what could a social media site and a search engine possibly want with drones?
Admittedly, this all sounds pretty intrusive at first glance, but unlike Amazon’s in-your-face delivery strategy, Google and Facebook will be operating primarily out of sight.
Both companies plan to use high-altitude drones to expand Internet access to developing nations — a plan with both charitable effects and capitalist incentives.
Facebook calls its initiative the Connectivity Lab, while Google is said to be implementing Titan Aerospace into its previously announced Project Loon. Both plans operate under a similar concept: using a network of low-orbiting drones/satellites to relay signals down to earth.
If successful, Google and Facebook could connect billions of additional users to the Internet. Surprisingly, 5 billion people still remain unconnected to the web, meaning there are plenty of eyes left for tech companies to capture.
Estimates have Project Loon increasing Google’s user base by as much as 200%. With the vast majority of the company’s revenue coming from Internet advertisements, increased worldwide Internet access would have a substantial impact on the bottom line.
As for the safety and privacy concerns that naturally surround drone use, commercial applications hardly seem to be of any real threat right now. Neither Google nor Facebook will be peeking into your backyard, and Amazon’s Prime Air will be no less obtrusive than a deliveryman at your doorstep.
Of course, there is also the concern of drones losing control and getting into accidents. Many are worried these objects could potentially damage property or even injure a person standing in the wrong spot.
However, drones have become far more physically adept than many people realize and can operate with a significant margin of safety.
In a recent TED talk, Raffaello D’Andrea showed off the athletic prowess of quad helicopters. The talk featured drones equipped with algorithms that allowed them to perform multiple back-flips, balance glasses of water, and even play a game of catch with a human participant.
If you have any doubts about how proficient drones have become, check out this video:
With the FAA predicting as many as 30,000 drones in American skies by 2020, it will be much better to embrace this technology rather than to fear it.
As for where to look in the market, manufacturers Boeing Co. (NYSE: BA) and Textron Inc. (NYSE: TXT) are already testing drone-based agriculture non-commercially.
For a pure play, continue looking to AeroVironment (NASDAQ: AVAV), a leading producer focused specifically on small drones. The company is up 75% since our initial recommendation last June, and we expect it to continue outperforming the market leading up to the September 30, 2015 FAA regulations.
Turning progress to profits,
Jason Stutman
Check us out on YouTube!
