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Chinese drone maker builds global lead

BEIJING/SHENZHEN -- While other electronics companies spend millions of dollars marketing their products, Dajiang Innovation Technology's gear has been capturing headlines around the world just while doing its own thing.

     Dajiang, better known as DJI Innovations, made the remote-controlled aircraft that landed last month on the roof of Japanese Prime Minister Shinzo Abe's office with a payload of radioactive soil from the area of the Fukushima nuclear accident. In January, another DJI Phantom drone crashed on the lawn of the White House in Washington D.C.

     While those incidents generated a fair amount of negative attention,others have hit a sweeter spot. In February, Chinese social media buzzed with pictures of movie star Zhang Ziyi receiving a diamond engagement ring delivered by a DJI Phantom controlled by boyfriend and musician Wang Feng.

     While many Chinese companies have dreamed of creating global consumer brands, DJI, based in the southern city of Shenzhen, is one of the few to have succeeded and claims to control around two-thirds of the world market for drones for private use. Investment bank Nomura put DJI's valuation at $10 billion in a February report.

     "Its sales are about 10 times the size of its nearest competitor," said Philip Finnegan, director of corporate analysis at U.S. aerospace research company Teal Group.

     DJI is working to extend its dominance despite signs that incidents like the Washington and Tokyo landings will lead to greater regulation of drones. On April 8, it rolled out a new generation of Phantom drones with more advanced cameras and controls at glitzy simultaneous launch events in New York, London and Munich. Three weeks later, it moved to boost its position in its home market with new partnerships with Internet services Youku Tudou, Alipay and Weibo. The company is expected to announce the results of a new fundraising round later this month.

     DJI's success has come from reconceiving aircraft that were originally developed for military purposes, to come up with lightweight models easily operated by consumers, firefighters, companies, aid organizations, farmers and filmmakers to shoot photos and video instead of missiles. While military drones usually resemble airplanes, DJI's drones are miniature helicopters with multiple rotors which can fly for around a half hour. Its cheapest models cost around $1,000. 

     DJI, whose Chinese name means "borderless," was founded in 2006 by Frank Wang Tao, a mainland Chinese who studied at Hong Kong University of Science and Technology, with support from Professor Li Zexiang and other instructors who joined the company's board.

     Wang's fascination with remote-controlled aircraft traces back to models he built from scratch as a child. In 2009, Wang showed off his success at combining robotics and avionics with a drone flight around Mount Everest.

     "The early days were very difficult," said Gan Jie, a company director and professor of finance at the Cheung Kong Graduate School of Business in Beijing, who has been advising the company since 2009. "Frank needed to develop all the core technologies bit by bit and fit them all into such a small aircraft."

     Starting with a handful of staff in Shenzhen, DJI went from making controllers for drones to building its own complete systems, eventually with its own cameras. The company now has more than 3,000 employees, including 800 in research and development as well as offices in Los Angeles, Tokyo and Germany. Last year, after reorganizing its shareholdings under a new British Virgin Islands parent company, the company is understood to have received a 200 million yuan ($32.2 million) investment from U.S. technology investment firm Sequoia Capital. Michael Moritz, Sequoia's chairman, last year called the Phantom 2 Vision drone the flying equivalent of the Apple II personal computer. 

     Indeed, drones are on the cusp of ubiquity, with companies such as Amazon and Google experimenting with delivering packages by drone, while Facebook is investing in using drones to provide Internet access to remote areas. WinterGreen Research, a U.S. consultancy firm, estimates the commercial drone market will grow to $922 million this year and nearly $4 billion by 2020.

     DJI alone had revenue of about $500 million last year, according to remarks by Wang, up from around $130 million a year earlier. North America and Europe accounted for some 80% of its sales.

     In the U.S. though, it faces new rivals such as 3D Robotics, which in February received $50 million from investors including chipmaker Qualcomm. One of its top executives, Colin Guinn, previously ran and co-owned DJI's North American sales affiliate but fell out with Wang in a bruising legal dispute.

     DJI has, however, faced some grumbling from buyers who have had difficulty getting after-sales customer service. As a result, last month the company launched a 24-hour technical support hotline for the new Phantom 3 drone line and is adding staff at its three global service centers.

     Regulation is another threat. The Singaporean government this month proposed a law to restrict drone use and Japan is developing new rules in the wake of the incident at Abe's office. The U.S. has also proposed regulations that would bar flights beyond an operator's direct sight and restrict urban use.

     DJI spokesman Michael Perry is optimistic the rules will leave room for growth as the company adapts its system controls to avoid sensitive sites like the White House. "Our hope is that we can start working together [with regulators] to find solutions so people can fly safely and follow the rules while also being able to do all the really interesting and exciting things that people have been doing with our products." 

     China is one market where DJI is working directly with regulators, as well as new allies as it seeks to reach $1 billion in global sales this year. Under the new partnership with video service Youku Tudou, DJI will sell drones on Youku's site, beginning with a cobranded model, and a dedicated channel will feature user videos and product information and tutorials. Users will also be able to share their photos and videos on Weibo's popular social network. Alipay, an affiliate of Alibaba Group, will provide instalment payment plans for drone purchases on Youku.

     Analysts generally agree that DJI is likely to ride out the rising regulatory tide and stay ahead of its competitors. Susan Eustis, president and co-founder of WinterGreen Research, pointed to DJI's technological lead in areas like positional stabilization and avoiding restricted airspace. Plus, she said, "the inherent fun in using the devices and their very useful approach to delivery will far overwhelm any government attempts to diminish the size of the market by regulation."

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