Who Builds the World’s Most Popular Drones? Cheap Drones Made by China’s DJI Are Filling the Skies, Disrupting Industries and Sparking Safety Debates

The Wall Street Journal
By Jack Nicas And Colum Murphy
Nov. 10, 2014 1:54 p.m. ET


SHENZHEN, China—Big U.S. defense companies brought drones to the battlefield. Now a Chinese company is bringing them to the masses.

In just a few years, SZ DJI Technology Co. has become the world’s biggest consumer drone maker by revenue, selling thousands of its 2.8-pound, square-foot devices for about $1,000 each. In the process, it also has become the first Chinese brand to pioneer a major new global consumer-product category.

DJI’s four-propeller helicopters, called Phantoms, have become icons of the burgeoning drone era: hovering, camera-equipped robots that almost anyone can pilot. Phantoms have garnered fans for their aerial footage of extreme sports, fireworks and Niagara Falls, and famous users include the actor Jamie Foxx, Apple Inc. co-founder Steve Wozniak and homemaking entrepreneur Martha Stewart .

“The DJI Phantom series is like the Model T,” said Matt Waite, a journalism professor at the University of Nebraska-Lincoln who studies drone issues and owns three Phantoms. “Back in the day, you could talk about cars, but pretty much every car on the road was one of these Model Ts.”

DJI on Wednesday plans to unveil a new high-end drone, called the Inspire.

The proliferation of Phantoms is disrupting industries and social norms, helping stoke debate over air safety, regulation and privacy.

An angry New Jersey resident recently blew his neighbor’s Phantom out of the sky with a shotgun, leading to criminal charges. A man bounced a Phantom off skyscrapers in Manhattan and crashed it next to a pedestrian, drawing a $2,200 fine from the Federal Aviation Administration. A Phantom provoked a brawl and halted a soccer match in the Balkans when it hovered overhead carrying a political banner.

Humanitarian groups have used Phantoms to search for survivors after earthquakes, while the militant group Islamic State has used them for surveillance in Syria, according to news reports.

And Phantoms are a top choice of entrepreneurs in the U.S. who are using drones in filmmaking, farming and construction—all in defiance of the FAA’s effective moratorium on commercial drones. The agency says it expects to propose rules governing the sector by the end of 2014. Regulations could stifle the drone industry if they are too restrictive, but industry watchers generally expect new rules to be a boon for drone makers by assuring potential customers.

DJI and other drone producers, like car makers, say they can’t ultimately control how customers use their products, but they have been adding some precautions. DJI, for example, programmed its drones to prevent users from flying them more than 985 feet high or near most airports, using GPS. It also allows users to program lower height limits to follow local regulations.

DJI, meanwhile, is starting to wrestle with the problems that go along with such rapid success, bracing for upstarts who want to emulate it and facing criticism of its customer service. Frank Wang, its 34-year-old founder and chief executive, says DJI is still figuring out how to handle its sprawling network of new customers. But “we admit we can do much better,” he said in an interview in DJI’s sleek, glass headquarters in this southern Chinese manufacturing hub.

Mr. Wang’s creation is a new breed of Chinese company. China became an economic juggernaut by in large part manufacturing cheap goods for companies from other countries. In recent years, a handful of Chinese firms, including Huawei Technologies Co., Alibaba Group Holding Ltd. and Lenovo Group Ltd. , have evolved from imitators to global leaders in their sectors.

DJI has taken that further by creating a product that is, in many ways, the first of its kind. At a time when most drones were assembled from kits by hobbyists, it developed systems that stabilized both the aircraft and its camera, and packaged them into an inexpensive device ready to fly out of the box.

“DJI started with nothing in this specific category of small-scale, consumer drones—and it’s now a new global market leader,” said Edward Tse, former China head at consultants Booz & Co., who now runs his own firm, Gao Feng Advisory Co. “DJI is the first Chinese company so far to become a global No. 1.”

Mr. Wang founded DJI in 2006 in his dorm room at Hong Kong University of Science and Technology, where he was a graduate engineering student. A slender man with glasses and a slight goatee, Mr. Wang said his dream to popularize drones began after he crashed his first model helicopter as a child in the eastern Chinese city of Hangzhou. “It was impossible for ordinary people to fly that machine,” he said.

He skipped classes and sleep—at one point he was so obsessed he forgot to pay his tuition—to develop a stabilization system that made drones easier to fly, and therefore accessible to a much larger audience.

From the start, his ambitions were global. Having come of age in a China far more internationally attuned than previous generations, he knew markets like the U.S. and Germany held the biggest demand for his products. He traveled to trade shows overseas and hired foreigners in senior positions—a rarity for Chinese firms.

DJI is closely held, and doesn’t disclose information about its profitability or its exact ownership structure—although the company says it has received minimal outside capital and funded most of its expansion from cash flow.

DJI’s earliest products were operating systems that hobbyists used to build drones. In 2012, it developed a camera mount that used similar stabilization technology as its flight-control system, enabling drones to capture stable aerial footage. It put the technology in an eight-rotor helicopter designed for filmmaking companies that cost several thousand dollars, but sales were sluggish amid concerns over murky drone regulations.

In January 2013, DJI released the Phantom, a red-and-white quadcopter that can carry a high-definition camera.

“It shook my world,” said photographer Russell Preston Brown, senior creative director at Adobe Systems Inc. and a co-creator of its famed Photoshop software. “You’re positioning this small camera in a place no one has ever been before.”

DJI’s business soared. From 90 employees and $4.2 million in revenue in 2011, it grew to 1,240 employees and more than $130 million in revenue last year. It now has 2,800 employees, three factories, and this year expects to post sales three to five times greater than 2013.

To sell Phantoms in the U.S., Mr. Wang teamed up with Colin Guinn, a charismatic drone entrepreneur from Texas who had gained minor celebrity finishing second in the CBS reality show “The Amazing Race” in 2004. Mr. Guinn and his team in Austin, Texas, introduced some American marketing pizazz, coining a new motto—“The Future of Possible”—to replace the colorless “Flight Control Experts,” and producing popular Internet videos on the Phantom, prominently featuring Mr. Guinn.

Many consumers assumed the company was American. “It doesn’t come off as a Chinese company,” said Mr. Brown of Adobe. “From the design of the aircraft, to their packaging, even down to their website.”

As sales boomed, DJI’s relationship with Mr. Guinn began to sour. In late 2013, he rejected an offer to take shares in DJI in exchange for his stake in a U.S. distribution company that he and Mr. Wang had formed a year earlier, according to court documents in a later lawsuit Mr. Guinn filed. DJI dismantled the U.S. company, which it majority owned, laying off its employees two days before Christmas, according to the documents. DJI disputes that account, but declined to comment further. Mr. Guinn filed his lawsuit in Travis County District Court in Austin in December 2013, claiming DJI violated an exclusivity agreement with his U.S. distributor by selling directly to other U.S. dealers. The parties settled earlier this year, avoiding a trial.

Mr. Guinn brought most of his team to DJI’s lead competitor, California-based 3D Robotics Inc. He said the settlement precluded him from commenting. Mr. Wang, in the interview, said that Mr. Guinn helped with branding, but differences in style bred disagreements, so the company decided to part ways.

DJI has had other growing pains. One complaint: Phantoms that go haywire and fly away, sometimes never to be seen again. There are lost posters and even a 1,700-member Facebook group “for pilots trying to recover psychologically from crashes or flyaways of DJI products.”

Some customers complain that when devices malfunction, no one answers DJI’s customer hotlines. Aerial Technology International, an Oregon drone retailer, said it recently stopped carrying DJI products after DJI took months to repair them and, in several cases, lost customers’ drones. “Their innovation rose them to the top very quickly,” Aerial Technology CEO Stephen Burtt said. “But then it was: Oh wait, how do we clean up the trail we just blazed?”

Mr. Wang said some customers are losing control of their drones because of technical limitations, including a reliance on a GPS signal, which sometimes can be lost. But “It’s our fault,” he said. “We have to make something that cannot go wrong in any scenario.” DJI generally doesn’t replace drones lost that way.

DJI is also fending off strong competition, including from Parrot SA of Paris and 3D Robotics—the second and third-biggest consumer-drone makers, according to industry estimates—and a bevy of Chinese companies. Peng Bin, CEO of Guangzhou-based drone maker XAircraft, said DJI has dominated aerial photography but is unproven in other drone markets, such as agriculture or deliveries.

—Olivia Geng contributed to this article.

- Source:  http://online.wsj.com