First Click: I, for one, welcome our Chinese drone overlords

January 20th, 2016

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“Designed by Apple in California. Assembled in China,” reads the back of the iPhone.

Decades of Western outsourcing have created the idea that Chinese tech companies are smart enough to manufacture and copy, but not smart enough to invent or create innovative products on their own. That’s about to change as China’s massive population of engineers help convert the world’s largest Xerox machine into the world’s most formidable innovation center. And it’s starting with drones.

Drones are quickly shaping up to be the first breakthrough category of consumer electronics to have been invented and then dominated by Chinese companies. You could make the claim about hoverboards, too, but there’s no clear origin for those rideables. Testament, perhaps, to the speed and brashness of China’s copycat culture. The invention of the modern mid-range and prosumer drone, on the other hand, points to just one company: DJI.

Da-Jiang Innovations (DJI) was founded by Frank Wang Tao, born in China and educated at the Hong Kong University of Science & Technology after first being rejected by MIT and Stanford. DJI was born in Wang’s dorm room in 2006, and reached maturity with the launch of the Phantom in 2013. DJI is now located in Shenzhen, a Chinese city that sits smack in the center of the biggest and most nimble technology supply chain the world has ever known.

While Foxconn and others have been content to siphon off the relative pennies afforded to contract manufacturers, companies like Apple and HP have reaped the lion’s share of the rewards. These US companies invent the patented technologies that Foxconn packages, and then sell the final products around the world behind powerful brands and, in Apple’s case, fat profit margins. Now DJI’s doing the same.

DJI owns its operation from art to part, so to speak. It has complete control over every facet of its drones including the patents, operating system, manufacturing, software, service, and sales. It’s doing what Foxconn can’t by taking ownership of the value chain at both ends and twisting it into a smiling curve of its own design. A grin so charming that it generated about $1 billion in revenue for the company in 2015, twice what it pulled in during 2014. Sure, that pales in comparison to China’s Lenovo, with 2015 revenues of $46.3 billion. But Lenovo didn’t invent the PC, IBM did, which it sold to the then-unknown Lenovo corporation back in 2005 as the ThinkPad business and brand. DJI’s making its own way. It’s building brand recognition with the help of its new flagship store and by controlling over 70 percent of all consumer drone sales. A market that’s expected to quadruple by 2020, according to Juniper Research.

Walking through "Drone City" at Las Vegas’ CES recently made it abundantly clear just how many Chinese companies are building drones. The best of the upstarts was the Typhoon H from Yuneec with its real-time obstacle avoidance. But it was Ehang that stole the show with a prototype for an all-electric drone that’s large enough to carry a single human passenger. Not surprisingly, both companies are based in China, and they were just two of dozens demoing their wonderful flying machines.

Drones aside, the US won’t lose its edge on product innovation overnight. And I wouldn’t count GoPro and 3D Robotics out of the fight just yet. For all its progress, Shenzhen still lacks the strange brew that makes Silicon Valley so successful. Namely, a cowboy culture wherein you’ll find a highly concentrated mix of venture capitalists, budding engineers, high-tech startups, and intellectual property lawyers that stretches from San Jose to the Golden Gate Bridge. But make no mistake, the shift has begun, and I’m certain the day will come when five simple words will be printed on the back of the world’s most popular communication device:

"Designed and assembled in China."

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