How Part 107 Will Impact the Development of Drone Solutions and Ecosystems

Legal experts, industry veterans, professional users and just about anyone even peripherally interested in the commercial application of UAVs has expressed an opinion around what Part 107 means for the industry. You can find in-depth analysis and interpretation of the new rules in various places, but what does Part 107 mean for organizations that see this as an opportunity to fully embrace the technology? How will it impact their implementation of drone solutions that can in turn be extrapolated into entire organizational ecosystems?

To find out, I connected with Christopher Korody from the DroneBusiness.center. Korody has helped countless companies launch their products and showcase their technologies, all of which has given him a powerful perspective around how drones can and will be utilized in various environments. In this in-depth interview, we discuss how he’s seen the industry change, the issues of drone implementation for an organization, how service providers will be impacted by the new regulatory environment and much, much more.

 

Jeremiah Karpowicz: Tell us a little bit about the initiatives you’re pursuing and the content you’re creating over at the DroneBusiness.center. Are those things meant to support or expand upon what you’ve established with your Dronin’On newsletter?

Christopher Korody: The DroneBusiness.center (db.c) is the next step in my career in technology marketing. I am applying my experience and industry knowledge for companies targeting B2B prospects with their products and services. And I am building a multi-disciplinary team to work with companies who want to determine how to integrate drones into their business.

The db.c website is designed to be a competitive market intelligence resource. I write critical commentary on a range of business issues that I hope enables visitors to connect the dots in this fast moving industry.

Dronin’ On is a weekly newsletter with the stories and issues that I find interesting. A quick plug here, I’d like to invite your readers to subscribe, and to follow me on Twitter @dronewriter

 

How have you seen the industry and the technology change since you were first asked to do business plan in 2014? 

Three areas stand out – regulation, technology and public perception.

It’s hard to remember that 23 months ago, in September 2014, the FAA issued the first six 333s. And that a year ago only 1,110 had been issued. There are now over 5,000. Part 107 moves us from regulation by exemption, to regulation by license. FESSA, essentially the FAA Reauthorization Bill, was just signed into law and there are major initiatives coming out of the White House Drone Workshop. Taken together this is enormous progress in two years. Now comes the doing.

Technology. Some say Moore’s Law is dying but it’s certainly not dead yet. The price performance ratio keeps improving. A ready to fly 4K drone for under $500? Wow. Sensors are moving just as fast. Software is advancing on multiple fronts. The pieces necessary for autonomous flight are coming together. And in the next few years 5G and additional spectrum will enable the faster, more robust communications solutions the industry needs.

In the midst of all this good news, public perception is a mixed bag. Thanks to unrelenting media coverage there has been tremendous growth in public awareness of consumer drones. Being the Christmas gift of the year didn’t hurt either.

But what I did not expect, and what I think we all need to be concerned about, are the negative perceptions about drones, drone manufacturers, drone pilots and the governments ability to regulate drones. In part it’s because people do stupid things like fly over people’s houses, into flight paths and interfere with air crews fighting wildfires. And seem to “get away” with it.

But I think the bigger issue and the one that is more difficult to overcome, is that drones are becoming a highly visible symbol of a growing angst about privacy. One result is the so called ‘patchwork quilt’ of state and local legislation. It’s easy to understand why local governments are both frustrated and under tremendous political pressure to “solve” these problems.

 

Without derailing us too much, do you think Part 107 will inherently change what it means to fly a drone for commercial purposes, or is it simply a stepping stone to something more useful in terms of regulation? 

Clearly it’s a stepping stone. We now have a straightforward rule that defines a basic level of commercial operations. As neither passengers nor freight are involved, the effort required to get a license is comparatively trivial. Considering how much concern there is about safety, it’s actually kind of surprising. Now we have to wait and see if there is compliance and of course if there is enforcement.

Part 107 also provides a way for the FAA to address more specialized needs through the waiver process. It will be interesting to see how they handle this, for competitive reasons I expect that most people will apply for every possible waiver.

Finally, investors and businesses have been sitting on the sidelines waiting to see what the FAA would do. Now they know. While Part 107 did not go as far as some hoped, I haven’t heard anyone make a case that it is a deterrent to growth or that it will slow investment.

 

That leads us to what I really wanted to ask you about, which is around how individuals and organizations are implementing drones, especially as it relates to Part 107. If the legal hurdles associated with operating a drone for commercial purposes are no longer the biggest barrier to entry, will the logistics of enabling a drone solution that can be expanded into an organizational ecosystem become the primary challenge for operators and organizations?

Ecosystems evolve around a common interest – it could be an industry, hardware or a software standard. What makes them important is their diversity – academia, industry and professional associations, developers, ISVs and VARs, manufacturers, marketing channels, industry analysts, business service providers and in our case government. From that perspective the UAV ecosystem is already quite robust with a great mix of the public and private sector. But it is early days and the industry has yet to come together around any standards. So right now ecosystems are evolving around use cases.

 

What kinds of things does a business need to think about when they consider using drones?

There are a few questions that I think that any organization – be it commercial, government or NGO - needs to ask to determine the potential benefit of adding a UAV to their operations.

1. Exactly how will deploying a UAV drive value? Basically what is the business plan. Are there existing functions that can be done better or more cost effectively? That can be quantified. Or can a UAV be used to create a competitive advantage or differentiate the company or solve a previously unsolvable problem? That is much harder to quantify and can be a tougher sell in more risk averse organizations.
2. Individuals proposing programs need to feel comfortable that the expertise they need to support the proposed operation is available both inside and outside the organization. Can they actually do what they want to do in a reasonable time period and at an acceptable cost?
3. Finally, if the answer is yes or even maybe, some layer of management is going to determine if a UAV investment offers a better ROI than other things an organization might want or need to do. People sometimes forget that organizations have finite resources and that come budget time, UAVs have to compete with other proposals that offer different benefits.

If a company gets through this assessment and it all makes sense, then comes the real challenge that you referred to – figuring out what the next steps are.

 

Sketch that out for me. What is this going to look like?

To be useful, UAV operations need to fit within the organization. There are only a few kinds of structures and one sees them play out again and again in specialized technical areas. The basic concepts are one-offs, out sourcing, an in-house organization and creating some kind of hybrid of the two.

My sense is that most companies are going to proceed slowly with small pilot “one-off” programs. If time aloft isn’t a big issue, a tremendous amount can be done with prosumer gear which makes for a small, easy to approve purchase order. If they are dotting their ‘i’s,’ they’ll get a 107. One-offs are a classic form of rapid prototyping and often yield a lot of innovative ideas. But one-offs alone will never generate the volume necessary to grow an ecosystem or sustain a commercial UAV industry.

Outsourcing is always attractive because it is a low cost, low risk approach that leverages the vendor’s expertise to cut time to deployment. Like a one-off, it is a great way to do a pilot program. If drone use is peripheral to the core business, or if drones will only be used occasionally, outsourcing may be all that is ever needed. The organization will look for partners with the necessary geographic reach, that have domain expertise and any specialized software and hardware necessary for their mission.

If a company can’t find a suitable partner – or for other reasons perhaps having to do with the proprietary nature of the data or the size of the planned operation – the other choice is to build an in-house capability. Now the company has to deal with two things –flight operations and sensor/software. The software side looks a lot like any software development project.

Most companies will partner with application developers and ISVs. They will look for companies with the necessary domain expertise that can provide a customizable, ready-to-fly solution to minimize risk, investment and time to deployment. Beyond the internal customer, they will need people with software development skills to manage development and integration. And they will need to acquire airframes and ground equipment and staff and train their crews.

Hybrids will emerge over time as companies gain experience and find new things to do with drones. One typical model is to meet the everyday needs in-house, then buy the specialty items out. Another scenario will be surge situations where it is less expensive to add independent resources to handle a peak period.

 

What are the functional areas that need to be involved?

The implementation will look somewhat different depending on whether the company decides to go in-house or outsource. But let’s call a meeting and see.

The demand for new capabilities is often led by a functional area. The use cases I have reviewed, and that you can find on the site, suggest that the internal customer is usually a department involved in operations. i.e. this typically seems to be a field as opposed to a corporate initiative.

The internal customer needs to identify what data is needed, how and where it will be collected (tasking), how it will be shared and how it will be acted upon. For the sake of this example the rest of the team can go to work.

If a company is considering developing an internal capability, HR is going to be concerned with recruiting, training and compensating the pilots. The first question is, are there people in the existing workforce who have these skills or will new people have to be hired. Either way they will have to pass Part 107 and learn to fly. And someone will need to be taught to do all the necessary maintenance, not just to comply with Part 107 but to ensure availability. Then comes the question of who they report to. And of course how they will be compensated.

Legal will have to make a lot of tough calls. The easy stuff is things like what types of insurance will need to be added, keeping up with the patchwork quilt and defining the protocol for an accident. Some of the tougher issues will be assessing the likely exposure to invasion of privacy, determining what additional permissions might be required to overfly client properties and helping to define the standards necessary to demonstrate that the data is properly secured.

Finance has another set of issues. Purchasing will be interested in how the drones or suppliers will be selected so they can set up a compliant bid process. Finance may also want to discuss how the project will be tracked so they have the data they need to do an ROI analysis.

IT has to define the framework to integrate the drone data into the workflow. They need to assess any available solutions and what will be required to customize them so the data plays nice with the tools the organization already uses. And of course they have work out issues about access and security.

The more complex the use case - imagine a utility spreading this out over a number of states and hundreds of inspection crews - the more parts of the organization are involved. That’s why most organizations will pilot first.

 

What type of person and organization do you feel is best suited implement a solution?

In sales training there is a person we call the Fox. He or she knows everyone and everything. And is particularly adept at moving initiatives through the organization. Usually a Director or a VP.

This is the kind of person many companies will tap to lead a substantial initiative. Someone who has a broad view of the organization, the support of senior management and the knowledge and ability to work through the issues on a department basis to bring the pieces together.

 

What role will insurance and coverage play in the creation and utilization of these drone ecosystems?

For those who are wondering, there is no insurance requirement in Part 107. That said, companies need to protect their drone operations in the same ways that they protect themselves from any other business risk. This is true whether a company employee operates the drone or whether the operations are outsourced to a third party. In fact, the biggest reason that service companies carry insurance is that their customers require being indemnified as a condition of engagement.

Because almost all homeowner and CGL policies exclude aviation, the demand to date has been met by aviation insurance providers. Now that Part 107 is in place, some of the major home and commercial players will come off the sidelines. So the ecosystem will grow - companies will have more choices – perhaps the biggest one being that many will be able to deal with their existing broker. Assuming the demand is there, they will also be able to choose from new business models like pay per use, crowd funding and others.

 

No shortage of complications, that’s for sure. How do you think 107 will impact service providers? Will it create more opportunities or more competition?

A couple of years ago, Chris Anderson said that the UAV market is an industry that is going to splinter into a thousand verticals. I like the quote because it clearly defines the opportunity for a service provider to add value through deep domain expertise. Very few service companies will even try to compete across the full spectrum of use cases. The more specialized the vertical, the more the competition will be limited to others with similar mastery of the field.

A lot of these will be smaller markets, but the margins will be better because the business value will be clearer and there will be fewer competitors. Conversely some of the big markets like videography where differentiation is more difficult, will immediately see cutthroat competition. It will be interesting to see if a Part 107 license commands a premium in parts of that market.

Because most companies don’t have a sign that says Drone Department, I think it will be a challenge to find the internal customer we’ve been talking about.

And just to keep it interesting, while the providers are polishing their pitches, customers will be learning from their experiences and becoming more sophisticated. As the ecosystem grows, they will have more choices and begin to purchase in new ways and to purchase different products and services.

 

We’ve all read about how many billions of dollars are at stake in the drone industry. What kind of an impact are those numbers having to the people who want to take advantage of the technology?

Clearly this is a dynamic industry. The irrationally exuberant predictions have created a lot of excitement and been instrumental in drawing some early stage venture money. But like many other people, I think that some of the forecasts have created unrealistic expectations.

Many people seem to believe that now that Part 107 is in place, the industry will enjoy a classic hockey stick adoption curve – grow, grow, grow now. We’ve just looked at what has to happen and I am not convinced.

I believe that there is only one way that the drone industry can grow. And that is one organization at a time deciding that drones provide a valuable solution and making an initial investment. The more companies that buy in and the more they spend, the bigger the number will be. The sooner they do it, the faster the growth. The greater their success, the more likely they will be to continue to invest. And the more quickly the ecosystem will offer the specialized solutions, services and support to meet their needs. It’s a virtuous circle.

I expect the majority of the growth for the rest of the decade to be primarily through the addition of drone offerings in established industries like surveying and photography – industries where for the most part drones will help companies do existing tasks better or faster or less expensively.

The big jump will come from new capabilities that leverage autonomous abilities, swarms and other concepts we’re not even talking about yet. Not just better ways of doing old things, but new high value things that have yet to be imagined. In many cases technology and regulation have some ways to go – for instance the development work on UTM is not even scheduled to be completed until 2019-2020 at which point it goes back to the FAA.

And let’s never forget that right now there are new technologies bubbling up that just might make some drones obsolete. After all, almost nobody was talking about drones five years ago.