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From toys to tools: the co-evolution of technological and entrepreneurial developments in the drone industry - Giones and Brem

Business Horizons (2017) 60, 875—884
Available online at www.sciencedirect.com
From toys to tools: The co-evolution of
technological and entrepreneurial
developments in the drone industry
Ferran Giones a,*, Alexander Brem a,b
Mads Clausen Institute, University of Southern Denmark, Alsion 2, Sønderborg 6400, Denmark
Friedrich-Alexander-Universität Erlangen-Nürnberg, Nuremberg, Germany
Technological progress;
Drone industry;
Emerging industries;
Unmanned aircraft
Unmanned aerial
Drone development
Abstract There is undoubtedly hype around drones and their applications for
private and professional users. Based on a brief overview of the development of
the drone industry in recent years, this article examines the co-evolution of drone
technology and the entrepreneurial activity linked to it. Our results highlight the
industry emergence described as concept validation, including product as well as
market growth with different phases of technological meaning change. We argue that
further steps are needed to develop drones from nice toys to professional tools–—from
photography and filming applications to inspection services and large cargo logistics.
For innovation managers and entrepreneurs, we describe what triggers the emergence of a technology and attracts the needed actors to unleash its transformative
potential. Our research is based on industry reports, news, and market studies as well
as interviews with four industry actors.
# 2017 Kelley School of Business, Indiana University. Published by Elsevier Inc. All
rights reserved.
1. Drone technology: A new
Technological innovations open opportunities for
new entrants to transform and recreate industries,
creating disruption known as ‘innovation shocks.’
This term is used by Argyres, Bigelow, and Nickerson
(2015, p. 219) “as the introduction by a firm of a
* Corresponding author
E-mail addresses: fgiones@mci.sdu.dk (F. Giones),
alexander.brem@fau.de (A. Brem)
new product that stimulates a substantial surge and
acceleration in demand for that product–—a surge
that was generally unexpected by market participants.” However, understanding and predicting the
evolution of such emerging technologies is a challenge for new entrants as well as for incumbents
(Dedehayir & Steinert, 2016). In any case, actors
have to deal with it, prepared or not.
In recent years, hype has developed around
drone technologies. The global drone market is
estimated to grow from $2 billion in 2016 to nearly
$127 billion in 2020 (Moskwa, 2016). The emerging
drone technology promises to foster innovations
0007-6813/$ — see front matter # 2017 Kelley School of Business, Indiana University. Published by Elsevier Inc. All rights reserved.
F. Giones, A. Brem
that will disrupt existing industries. It is expected
that drones will be part of our everyday life, just as
smartphones are today; not a day goes by without a
new product announcement introducing new ways
drones can be used in different contexts.
We view drone technology as an example of an
emergent technology that has had a long evolutionary path. Advances in artificial intelligence, image
processing, and robotics have equipped drones with
autonomous functions and have stepped up their
transformative potential. Our analysis of drone
startups provides the insight to illustrate the
co-evolution between entrepreneurial activity
and technological developments in the drone
industry. We explore the intertwined relationship
between technological components evolution and
the emergence of new meanings and applications
(Norman & Verganti, 2014).
We summarize our research findings in a model
visualizing industry and technological emergence.
The model describes the drivers for innovation and
entrepreneurial activity in the initial moments of a
new technological wave and, moreover, presents
the indirect effects of entrepreneurial activity in a
given emerging technology. We describe for innovation managers and entrepreneurs what events
trigger the emergence of a technology and attract
the needed actors to unleash its transformative
The article is organized as follows. First, we give
a brief overview of the development in the drone
industries in recent years. Then, we describe the
technological and entrepreneurial co-evolution
in this sector, based on industry reports, news,
and market studies as well as interviews with four
actors in the drone industry. This finally leads
to a discussion of entrepreneurial opportunities
and an outlook on the coherence of industrial and
technological evolutions.
Figure 1.
2. Roots of the hype: The emergence
of the drone industry
Drones have made headlines quite often in recent
years. In late 2016, Amazon’s first drone delivery
was highlighted to mark “a milestone in the race to
use unmanned vehicles to transform how customers
buy and receive goods” (Levin & Soper, 2016). But,
in some cases, drones have made negative headlines (Forrest, 2015), either because they crashed in
a notorious place (like the White House or a hot
spring in Yellowstone National Park) or because they
have been used in restricted spaces like airports or
sports stadiums.
Although the actual notoriety is linked to the
popularization of consumer drones, the technology
behind this type of drone is an outcome of a complex evolutionary process. First, a clarifying note:
the use of the term drone is to describe an unmanned aerial vehicle (UAV) with a certain degree
of autonomy (Hazel & Aoude, 2015). As the term has
been popularized, it is often assigned to almost any
type of UAV, even those that require constant attention by the remote pilot, like radio-controlled
planes; this is an important difference in the
military context (Villasenor, 2012) and also when
it comes to identifying existing regulations that
have an impact on the drone industry.
Drones were first mentioned in the early 1900s
when they were introduced as targets for military
practice, mostly in the U.S. At that time, they had a
rather limited autonomy, different from modern
target drones. Using unmanned vehicles provided
several advantages for military operations. They
could be used to gather information on reconnaissance missions or other activities that involved a
high risk. From that moment onward, the number
of military uses has grown (see Figure 1). The
introduction of new technologies has provided
Timeline of the military and civilian uses of drones
Source: Bumiller & Shanker (2011); Holland Michel & Gettinger (2016); Villasenor (2012)
From toys to tools
Figure 2.
Key dimensions and related technologies in a drone
new capacities and functionalities to drones,
dramatically increasing their importance in armed
conflicts and military operations overall.
The introduction and adoption of drones for
civilian use has happened in a much shorter time
frame than for military use. The miniaturization of
electronic components, lighter advanced materials,
and the increasing computing power of processing
units, among other advancements, make smaller
drones more affordable in the market. When looking at the technological components that build a
typical civilian-use drone (see Figure 2), it is clear
that most of the components have benefited from
the last decade’s technological progress, including
the miniaturization of high-performing video cameras that have become a usual complement to the
quadcopter drones.
In the military context, we have observed that
technological progress and uses have worked in
parallel as a response to a demand pull for drones
with enhanced capabilities. In the civilian context,
we see an ongoing search for application for the
existing drone technology, describing a situation of
In the civilian context we observe the phenomenon described as the ‘rise of the drones’ (Allianz
Global Corporate & Specialty, 2016); in only a few
years, the number of applications and the industry
market size have exploded. Although there has
been entrepreneurial activity in the military use
of drones, it is in the civilian space that current and
future growth is expected (Moskwa, 2016). Meanwhile, the military drone industry is dominated
by players that already have strong positions in
the industry: Boeing, General Atomics, Lockheed
Martin, or Northrop Grumman (Harress, 2014), with
the exception of AeroVironment (Fisher, 2013). The
civilian drone industry is where we have seen new
entrants taking a major position. The cases of the
French company Parrot and the Chinese company
DJI are clear examples of new and very successful
players in this emerging industry. These two companies saw the opportunity to design, manufacture,
and commercialize consumer drones; their business
model is very similar to a product-based technology
company. In fact, Parrot just added drones to its
diverse technological products portfolio. For DJI,
the exclusive focus on drones paid off as it quickly
upgraded and innovated its products to become
a market leader. Compared to the providers of
military drones, civilian drone makers focus on
generating as many product sales as possible and
consumerizing the technology, even if this has
meant that they could not explore additional
revenues such as training, software services, or
maintenance as their counterparts did with the
military drones.
In the next sections, we aim to decipher the
interaction between technology evolution and
entrepreneurial activity to explain the emergence
of the civilian drone industry. To do so, we have
reviewed selected literature on industry emergence
and entrepreneurial activity; collected industry
reports, news, and market analysis; and conducted
interviews with representative profiles of the
different actors involved in the entrepreneurial
activity in the drone industry.
3. Industry emergence: Technological
and entrepreneurial co-evolution
The emergence of a new industry often goes unnoticed to academic researchers until it has fully
emerged and its actors become fully visible
(Woolley, 2014). If they miss the formation process,
researchers are not able to extract insights on the
evolution of the technology and how it relates to
the early economic activity of new entrants (Aldrich
& Fiol, 1994). We first review prior academic
literature on the emergence of new industries
and then describe the ongoing dynamics in the
drone industry.
The activation of a new industry requires shared
agreement across multiple actors concerning the
opportunity to exploit a new technological development. The opportunity recognition activation
needs to be combined with a shared perception
that there is potential demand and low entry barriers in the new nascent economic activity area.
This goes beyond the product itself, connecting
market pull and technology push activities (Brem
& Voigt, 2009). Prior research studying the early
movements in a new industry suggests that two
factors characterize the motivations of new entrants: knowledge proximity and complementary
assets (Woolley, 2010). Knowledge proximity refers
to the access that the actor–—an individual or an
organization–—has of the core components of the
new technology and its knowledge base. Similar to
the idea about the influence of knowledge spillovers
(Agarwal, Audretsch, & Sarkar, 2007), new entrants
activate knowledge investments prepared by existing firms that would otherwise have stayed unused.
The ownership or access to complementary assets
determines the entrant’s strategy and pace. In
contexts wherein distribution and commercialization are not required for specialized or hard-toacquire assets, more activity is expected than with
manufacturing or distributing assets that are difficult to replicate or not available in the market.
Similarly, if the key assets to enter the industry are
restricted–—for example, via patents–—the expected
entrepreneurial activity is much lower than if they
are available as a technological standard (Brem,
Nylund, & Schuster, 2016).
The resulting new entrants can be identified as
entrepreneurial startups or as diversifying firms
that enter from other industries. These classifications are used by researchers to explain the emerging dynamics of a new industry (Agarwal & Moeen,
2015). When the dominant profile consists of startup firms, the industry and the underlying technology
face additional legitimacy challenges; the first movers’ achievements establish a strong precedent
(positive or negative) for future entrants (Fisher,
Kotha, & Lahiri, 2016). The situation is different
when established firms are also present in an
emerging industry. On the one hand, these firms
can benefit from their existing reputation and
complementary assets to compete in the emerging
industry; on the other hand, they contribute to the
F. Giones, A. Brem
overall industry rising its overall credibility and
attract additional actors (e.g., investors).
As a result, the emergence of a new industry
based on a novel technology is surrounded by an
uncertainty trifecta (Woolley, 2014): (1) new entrepreneurial firms with limited legitimacy, (2)
technology under development, and (3) an undefined market infrastructure. Given this complexity,
how does entrepreneurial activity and technology
development co-evolve to contribute to the emergence of a new industry? We explore this question in
the context of the emergence of the drone industry
in the following.
4. Market transformation: From a toy
to a professional tool
Our analysis of industry news and reports, as well as
our interviews with four different actors, suggest
that the emergence of the civilian drone industry
was not only driven by technology evolution, but
also by significant changes to how the technology
was perceived by the market. Using Norman and
Verganti’s (2014) conceptual framework, we identified that the incremental shifts in technology
(i.e., incremental improvements as well as new
possibilities) were coupled with changes to the
meaning of the technology by, for instance, adding
cameras to drones to take scenic pictures or using
camera drones as part of the filming tools in a
Hollywood movie production. Norman and Verganti
(2014) suggested that beside technology-push
and demand-pull innovations, there are meaningdriven innovations that benefit from a design that
reinterprets an existing technology. The changes
in technology meaning give opportunities for new
entrants with complementary business models.
The popularization of civilian drones created an
opportunity for action camera makers to extend
their market and for software application developers to start introducing services that were not
offered by the original drone manufacturer.
We argue that the emergence of the drone
industry has gone through several technologymeaning shifts, and that these shifts contributed
to opening options for alternative business models
that have resulted in the emergence of the industry.
As presented in Figure 3, the emergence is
observed in three different stages: (1) concept
validation, (2) product growth, and (3) market
growth. The change from one stage to the other
is a result of new entrants’ contributions in either
one or many of the developments made to technological components, or in the identification of an
application that gave a new meaning to the drone
From toys to tools
Figure 3.
Industry emergence, technology evolution, and technology meaning change
technology. In Figure 3, we illustrate the technology
components’ evolution with representative examples and highlight the two dominant meanings in
the civilian context of drones: as toys used for
individual entertainment purposes or as tools used
to perform a task or function.
In the concept validation stage (first level in
Figure 3) we observe startup entrants activating
knowledge spillovers (Agarwal et al., 2007) from
other industries, in particular from advanced large
drones used in a military context. An example of
these new entrants is 3D Robotics, founded in
2009 by Chris Anderson, an ex-editor at
Wired. The company targeted hobbyists by offering
small drones for recreational purposes (Stuart &
Anderson, 2015). It quickly became a promising
startup and captured the attention of other entrepreneurs. In this stage, the contribution of entrepreneurial activity is to validate the concept
that supports the technology-meaning transformation. Another example of an entrepreneurial startup in this stage was Parrot. The French company
had already started a few years before, offering
Bluetooth headsets, but its announcement in
2010 of the Parrot AR Drone is considered by experts
as the event that triggered the concept validation
for the consumer drone industry. As argued by
Fisher et al. (2016), the early success of these
new entrants contributed to the legitimacy of the
overall industry.
The product growth stage (second level in
Figure 3) describes the emergence of the product
category. In this stage, even if there are not yet any
clear applications for the technology, the new entrants’ pace accelerates as the nascent industry
becomes visible to multiple stakeholders. In the
drone industry, this stage is characterized by the
rapid development of new drones for consumer use
and for the introduction of key complementary
technologies that generate a technology-meaning
shift. While producers like 3D Robotics and Parrot
experienced a steady growth in sales for their new
drones, it was DJI, a Chinese drone producer based
in Shenzhen, that experienced the fastest growth
and became the category leader. DJI’s drone incorporated GPS and a video camera in its Phantom
product line (see Figure 4). These new features
facilitated a technology-meaning change as users
started to explore potential applications for drones.
In product growth stage, we also see established
firms as new entrants. In this instance, firms aimed
to diversify their business by entering into the
promising drone industry. Examples of such moves
are the action camera maker GoPro, which saw how
the increasing availability of drones opened new
uses and possibilities for its video cameras. As the
Figure 4.
F. Giones, A. Brem
DJI Phantom 2 drone equipped with a video
product found new meaning, there were also unintended new entrants, as the sales manager of Phase
One Camera Systems (world leader in high-end
digital photography equipment from Denmark) explained to us: “We realized that more and more we
had customers purchasing our professional photography cameras to attach them to drones.” Thus,
Phase One started allocating more development
resources to address the customer needs for this
unexpected use of its products.
The market growth stage (third level in Figure 3)
describes the moment when the infrastructure of
the industry is defined, market segments appear,
and there are differentiated product categories for
each market segment. In terms of technological
development, this could be linked to having a dominant design for the industry set (Brem et al., 2016).
It is important to highlight that the transition from
product growth to market growth requires a highly
active participation of startup entrants that push
for technology meaning change applications. An
example is DroneThunder, a startup in Spain that
offers intrusion detection systems to industrial
clients using drones. The company found that its
clients could buy and even learn to use drones, but
they were not able to analyze and store the video
feed captured by the drone. It worked to develop a
video analytics platform and experimented with
custom-made drones to fit the specific needs of
its clients. DroneThunder’s business model is
completely different from DJI or other drone makers: It generates revenue through an integrated
solution of software and hardware, often using
the drones that the clients already have. In a similar
situation, Aerialtronics, based in the Netherlands,
offers inspection services to identify maintenance
issues in wind farms or in difficult-to-reach telecommunication antennas. In 2014, it started to
develop customized drones with more accurate
video data, flight reliability, and tolerance for a
variety of weather conditions; standard commercial
solutions would just fail in these tasks.
Once the industry reaches this third stage, it is
the moment when the awareness of the industry
reaches even nondirectly linked stakeholders. In
the last years we have seen how both general
consulting and insurance firms have increased their
attention toward the emergent industry (see Allianz
Global Corporate & Specialty, 2016; Marsh, 2015a;
PricewaterhouseCoopers, 2016). This is also the
moment when large actors step in as entrants;
drone-specific features in the new processors offered by Qualcomm (Vincent, 2015) are significantly
extending the possible uses of drones. It is also in
this stage when applications become industry segments and differentiate among them. This process
of market structuring also opens opportunities
to entrepreneurs as new entrants, like RobSense
Technology, a new startup that is creating the nextgeneration flight controllers for industrial-use
drones. Based in Hanghzhou, China, but with R&D
partnerships in Denmark and the U.S., this startup
addresses the needs of companies that require
tailored drones for professional use in contexts
where safety and reliability are a priority (e.g.,
companies like Aerialtronics1). The flight controller
equipment can be customized so that industrial
clients can then offer new drone-based services.
There is also a dark side to the process of industry
emergence. The risks taken by the new entrants do
not always pay off. Sometimes, it is because their
targeted area of application does not respond as
expected and, other times, because the competition of new entrants becomes too aggressive and
does not allow for mistakes. The above-mentioned
example of 3D Robotics, pioneers in the civilian
drone industry in the U.S., is also an example of
the struggle to stay competitive in an emerging
industry. The company had problems with a new
drone product launch; since then it has been
severely downsized, not being able to keep up with
the market development pace (Mac, 2016). Much of
the same happened to GoPro as it aimed to revive its
revenues by offering a bundled drone and camera
solution; the product launch, already delayed, was
swiftly followed by a product recall. Design flaws
and/or the malfunction of technical components
were behind the error that now jeopardizes the
future of the whole company (Popper, 2016).
Hence, any process of industry emergence is always
To see Aerialtronics’ adaptable drone solution for inspection
and photography services, visit https://www.aerialtronics.com/
From toys to tools
linked with a timing risk, which is only manageable
to a certain extent. There are many examples to
underline that even big and experienced companies
like Nestlé have challenges (e.g., in the case with
Nespresso) (Brem, Maier, & Wimschneider, 2016).
5. Room for growth: Entrepreneurial
opportunities in the drone industry
The drone industry provides a unique understanding
of the different roles that new entrants have in
developing the technology and its meaning. New
entrepreneurial startups contribute to the creation
of the new industry, but so do the diversifying firms
that decide to invest in the nascent industry solutions. Furthermore, based on the drone industry
case, the participation of entrepreneurial activity is
not only essential to advance in the first stage of
concept validation, but also to move the industry
through the following emergence stages. Such findings evidence the fragile equilibrium that emerging
industry leaders need to find between keeping low
entry barriers that encourage complementary offerings and protecting their market position against
direct competitors. Lessons from new entrants in
Figure 5.
platform-based markets should be applicable to this
context (see Zhu & Iansiti, 2012). Nevertheless, the
drone industry provides evidence that unless the
technology and market structure are mature, there
is still room for unexpected challenges as the
aforementioned attempt by GoPro exemplifies.
A more detailed review of the findings from the
drone industry emergence suggests a plausible reason as to why it does not behave as a platform
model. The cycle of emergence does not stop
unless there are no further potential applications
(opportunities) to explore (Woolley, 2010). As we
position the current applications based on their
current stage (see Figure 5), we observe that the
recreational use, photography, and media applications that now generate most of the revenue in
the drone industry–—60—70% of the $2 billion of
the actual commercial-use market (Moskwa, 2016;
Thibault & Aoude, 2016)–—will only be a small fraction
of what the industry is expected to be in 2025. In
an attempt to quantify the future value of drone
applications, analysts have suggested that infrastructure inspections, agriculture, transport, and security
could account for most of the $127 billion of value
annually captured by this industry in the near future
(PricewaterhouseCoopers, 2016).
Existent and new applications in the drone industry
Source: Hazel & Aoude (2015); Marsh (2015b); PricewaterhouseCoopers (2016)
Despite the potential flaws in such future predictions, it remains relevant that the applications
that have brought the drone industry to its current
status might not be the ones that define its future.
These days, drones are used as toys. They can be
purchased at any toy store in different sizes, colors,
etc. We can see young kids, parents, and grandparents together in these stores getting excited
about the possibilities drones offer. But this does
not have much to do with professional applications,
which are already in the market, although not in
such a big scale like the privately used drones. For
instance, maintenance of windmills or power supply
lines brings very different requirements to the
drones: operation times, quality of images and
videos, reliability, etc. Moreover, software is needed to analyze the material professionally, staff
training is needed to educate people to operate
it, as well as maintenance contracts and consulting
services. An example of a startup that exploited this
opportunity is Hemav. The company completed its
inspection and mapping services in Spain with training courses to fly drones for customers’ staff members. This offers the chance for entrepreneurs to
develop their own niche as a solution provider
rather than as a seller of standard drones–—in the
best case with the implementation of an industry
standard. The result is the introduction of a servicebased business model that has helped the company
not only get revenue by offering industrial services
with drones, but also get additional revenue
through training programs.
Thus, there are also opportunities for existent
firms interested in entering the drone industry. The
development of these applications is, in some
cases, dependent on new technological developments and, in others, on changes to existent
regulations. While technological developments
mostly benefit from the development of new applications and uses, the effects of regulation in an
industry emergence are more easily described using
Bernoulli’s principle: If a potential application is
constrained by regulation, it does not expand
and entrepreneurial activity flows into other more
receptive industries or geographical contexts.
The evolution of promising areas of application in
the drone industry, such as inspection services for
agriculture and farming, have begun to be explored
by companies like Wingtra or Botlink that have
developed their own drones and cloud-based software solutions for this market.2 But their software
To see the WingtraOne drone for precision agriculture and
learn about its specifications, visit https://wingtra.com/
F. Giones, A. Brem
and hardware solutions are dependent on both
advances in the technology behind the cameras,
sensors, and processors, and on new entrepreneurs
attracted by the idea of offering services using their
products to end customers (see Figure 5). These are
interesting examples of alternative startup business
models: While Wingtra offers its own enhanced
drones, tailored to the specific needs of a customer
segment (agriculture), Botlink follows a service
subscription business model approach (Trimi &
Berbegal-Mirabent, 2012). Botlink does not sell its
own drones, but subscriptions to an app that helps
industrial clients to capture, store, and analyze
mapping data.
Looking into the future, logistics companies have
been considering the drone industry with a combination of interest and fear. As an expert in the
recently created Platform for Unmanned Cargo
Aircraft (PlatformUCA) described, there is a clear
opportunity for using drones for large cargo logistics. It could create a new market for direct cargo
deliveries to locations with difficult access or where
an urgent response is needed. Nevertheless, these
drone applications will trigger the entry of new
firms that help to push the batteries and engines
currently used into a new dimension. But considering the fast-paced technological development in
other areas, as in the evolution from the mobile
phone to the smartphone, such technologies might
have the potential in the future to enable such
cargo deliveries even though we might currently
think of this option as an unfeasible and futuristic
The further development of the drone industry
highly depends on the increased capacity and reliability of its technical components, but the survival
of the new entrants will also depend on their ability
to identify and defend solid business models. The
fast evolution of the drone industry has already
shown the challenges for firms that rely only
on offering drone hardware solutions for their
revenue; even the current market leader, DJI, is
starting to shift its business model to accelerate
the creation of third-party apps in its platform. The
co-existence of a diversity of business models is a
common phenomenon in emerging industries (e.g.,
the cases of the different startups in the sharing
economy: Cohen & Kietzmann, 2014; Muñoz &
Cohen, in press), in which new entrants need to
strike the right balance between customer value
creation, financial sustainability, and their growth
ambitions. This can be a long process; for instance in
the case of social media companies like Twitter, the
success in terms of engagement or number of users
has not automatically translated into a long-term
solid growth and business model (Ingram, 2015).
From toys to tools
As long as there is room for new entrepreneurs to
enter and experiment with the technology and
business models, the drone industry will stay engaged in emergence cycles and offer plenty of
opportunities for new and existent firms.
6. Final thoughts
Based on military use in the 1900s and civil use from
the 2000s, hype around drones and their applications has rapidly evolved in the last decade. The
rapid development of key technologies in the fields
of aerial capacity, flight control, position control as
well as communication led to a complex and specific
field for UAS. This industry emerged because of
technological evolution, but also because of technological meaning change, from concept validation
with basic functionalities to product and market
growth with new sensor and control technologies.
With this conceptualization, we explained the evolution of drones from a toy to a professional tool and
we extracted insights on how technology and new
entrants’ business models matter in the emergence
of new technology-driven industries.
With this article, we hope to clarify how the
drone industry has evolved and how it may evolve
in the future. Once startups and established firms
put their competencies together, professional (tool)
and consumer (toy) applications will lead to a
growing industrial field. This development will be
as revolutionary as mobile phones, smartphones, or
the internet, opening opportunities to both entrepreneurs and established companies to participate
in defining the future.
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