DJI: Going to Greener Pastures
To counter stiff competition in its core market and maximize pre-IPO growth, DJI should look to the agtech industry by creating an analytics platform for its existing products.
The Ivey Business Review is a student publication conceived, designed and managed by Honors Business Administration students at the Ivey Business School.
DJI: Flying High
Da-Jiang Innovations (DJI) is a leading developer of recreational and professional drone technologies. The company has seen tremendous growth since its establishment in 2006 by CEO Frank Wang. Now valued at $21 billion, DJI manufactures drones with a variety of consumer-based and professional-grade videography, photography, and aerial surveillance functionalities. While the majority of DJI’s manufacturing capabilities are based in Shenzhen China, its products can be found all over the world. Approximately 80 percent of its revenues come from outside of China, with 40 percent of revenues from the U.S alone. DJI’s product offerings include a wide range of high-quality drones and camera products, with capabilities suitable for numerous industries including film, agriculture, defence, and construction. Its drones have been involved in filming numerous hit television series including Game of Thrones and Better Call Saul, and various DJI sensory technologies are employed by militaries and government agencies.
As of 2021, DJI is a privately held company. The company has engaged in several rounds of pre-initial public offering (IPO) financing, with investments totalling $105 million coming from Accel Partners and Sequoia Capital. Rumours of a DJI IPO have been circling since 2018, and with a public listing now likely in the near future, the primary concern for DJI is now optimizing its pre-IPO market position. Therefore, DJI needs to diversify its revenue streams and pursue further growth to maximize its potential before going public.
Getting Cropped Out
DJI is at the forefront of innovation within the drone industry. It has an overwhelmingly dominant market share, possessing 70 to 80 percent of the worldwide commercial drone industry. DJI’s industry dominance has grown to such an extent that “rivals don’t so much compete with DJI as cower before it” according to Bloomberg Businessweek’s Blake Schmidt and Ashlee Vance. This industry dominance is a result of extremely competitive pricing coupled with superior drone and imaging technologies. Additionally, the company is known for its relentless push towards innovation, devoting 25 percent of its engineers towards R&D efforts and prioritizing internal competition through team-based projects and competitions. These efforts have allowed DJI to stay at the forefront of drone technologies and consistently beat out smaller and less well-capitalized competitors.
While its market share may be dominant, there are concerns surrounding stagnating profits and growth. CEO Frank Wang predicted DJI’s commercial drone sales might hit a ceiling in the future if the firm continues without new avenues for growth. Therefore, DJI faces immediate concerns around perceived limited growth opportunities. Furthermore, its market share dropped by five percent from 2018 to 2019 while the commercial drone industry grew by 56 percent. This further substantiates claims concerning DJI’s stagnating growth within the commercial drone industry. Consequently, with ongoing concerns for future growth, eroding market share, and a potential IPO on the horizon, DJI should diversify its product offerings. In particular, the precision agriculture technology (agtech) space could provide an interesting opportunity for DJI, given the segment’s limited selection of drone offerings and fit with DJI’s existing capabilities.
Opportunity in Data Farming
In the United States, 20 to 25 percent of agricultural crops are devastated each year by pests, disease, and bacteria. Agtech helps farmers grow crops using real-time actionable data that allows for more efficient practices to take hold. As a result of agtech implementation, an additional $500 billion of GDP will be generated by the agricultural industry by 2030.
With a projected CAGR of 31.1 percent through 2025, the agtech drone industry shows great promise. However, the agriculture market in the developed world today consists of an aging demographic of farmers—the fraction of farmers younger than 40 in Canada was 9.9 percent in 2011, down from 26.5 percent in 1991. These aging farmers are less willing to adopt novel and unfamiliar technologies. Market share is also in contention in this growing industry segment, with many new entrants and specialized precision agriculture players such as AgEagle. Therefore, DJI must differentiate itself with perceived utility and ease of use for farmers to successfully compete.
DJI currently offers two drone-based crop products serving the agtech space. The first, the Agras T20 drone, is equipped with crop-spraying technologies to help prevent pests, disease, and inclement conditions. DJI’s second product, the P4 Multispectral, is equipped with crop surveillance capabilities that indicate the relative health of crops in terms of their density.
Both of these product offerings require a high level of technical expertise to use, from using the spraying functions to analyzing the crop surveillance data. As a result, most farmers will hire an agronomist to analyze the drone data that is collected. If DJI can offer third-party agronomist services bundled with its drone products, it has an opportunity to differentiate itself from competitors such as Parrot, whose products require the addition of further services.
Strategic Solution: Growing a Vertical Crop
With the precision agtech industry anticipated to reach $43.4 billion by 2025, DJI must strategically position itself to grow market share by reimagining its value proposition for its current agtech solutions.
Currently, farmers hire third-party agronomists to analyze data that is exported from a drone. In order to differentiate itself, DJI should pivot to create an integrated platform that combines historical crop data, clinical seed research, weather mapping, and real-time NDVI heat maps to give farmers accessible insights. DJI can then supersede the agronomists and integrate regional and seed-based expertise into this new platform.
According to Cherilyn Jolly-Nagel, a prominent advocate for modern farming practices, farmers are aware of drone technology, but there is some hesitancy to adopt the technology as preferences lean towards historical experience and insights. By grouping together various real-time and historical data points from both the crop and the external environment, DJI can break down barriers for adoption. Providing farmers with preventative insights on infestations, drought, and disease would give them the chance to remedy these destructive forces before they take root.
From a financial perspective, this platform could achieve monetization by aggregating farmer data and selling it to seed developers. This would create a multi-sided platform (MSP) where value could be extracted from both sides while benefiting all parties—a strong two-sided network effect that encourages lock-in. DJI should leverage its existing analytics partnerships with companies such as Delair, which specializes in data analytics, in order to help develop this potential platform.
Who Benefits from All this Greenery?
The creation and implementation of an agtech drone-centred platform would include numerous stakeholders, but farmers are the primary concern. Currently, one percent of all farms globally own 70 percent of the world’s farmland, as arable land has been consolidated over time into large-scale industrial farming operations. These are the consumers that DJI should pursue, as they stand to gain the most from adopting DJI’s drone technologies. Not only would these large-scale farms possess the financial capital to implement DJI’s data-driven solutions, but the sheer size of their operations demands crop monitoring on an immense scale. By partnering with DJI, these farmers would gain real-time actionable insights into their crops provided by drone monitoring.
One specific potential use case is disease monitoring, whereby DJI’s crop surveillance drone would analyze the presence of disease within a farmer’s field. Traditionally, farmers have only been able to identify diseases past the point of possible prevention. However, with NDVI drone imaging, farmers can receive actionable insights in a faster time frame to take preventative measures. Additionally, farmers can benefit from yield increases provided through drone monitoring. Drone monitoring has been proven to help increase crop yields, with surveillance indicating fertilizer absorption rates. Once absorption rates have been collected, farmers then can reapply fertilizer as necessary given the varying absorption rates of a given plot of land. Currently, the OCEALIA group, a French-based agtech firm, utilizes this drone surveillance method and has increased crop yields by 10 percent through it.
Data collected by this platform would also lend itself to future partnerships with another key stakeholder group: seed developers such as Syngenta, BASF, and others. Through partnerships with these firms, DJI would be able to sell aggregated data collected through drone surveillance to further R&D efforts by these companies. Bayer, the largest seed developer, spent $1.67 billion in R&D in 2017, a testament to the scale of what seed developers invest into improving their products.
Money Does Grow On…
By monetizing the aggregated data, the analytics farmers receive could be offered as a free service with the purchase of the physical drone. This would assist farmers free of charge, and as the offering scales, DJI could also pursue a revenue-sharing model for farmers that would compensate them for their data, ultimately commoditizing farm data.
There would also be a positive feedback loop for both farmers and seed developers. As the platform gathers more data on various seed varieties, increased aggregated data lends itself towards superior development of seeds. Subsequently, the vast amount of expertise provided by seed developers could be passed along to farmers in analytics. By partnering with these seed developers, DJI would have access to vast amounts of clinical data that could be used to create personalized insights for various crops, growing conditions, and regions. In addition, farmers would collectively benefit from greater seed variety and efficiency as a result of robust real-world R&D from seed developers. Therefore, through the aggregate sharing of data, both parties stand to benefit.
Finally, this platform would lay the foundation to apply data analytics to DJI’s other commercial drone product lines. That is, agtech presents the company with a revenue stream that can be used to build experience and assets in the analytics space. Once the platform is well integrated within the agtech sector, DJI has the opportunity to transfer its new-founded data analytics competencies towards other core operating sectors including construction, infrastructure analysis, and power line monitoring.
By adopting new drone surveillance technologies, DJI can position itself to not only increase market share and profitability, but also use this innovative agtech platform to help combat food scarcity, improper use of arable land and water, and aid farmers on a global scale. In the process, it will build a robust data ecosystem while reaffirming its dominance in the commercial drone space.