RESEARCH REPORT. Published 3Q 2015 AMY WINDJU Senior Analyst. CHAD MITCHELL Senior Research Associate. CLINT WHEELOCK Managing Director

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1 RESEARCH REPORT NOTE: This document is a free excerpt of a larger research report. If you are interested in purchasing the full report, please contact Tractica at sales@tractica.com. EXECUTIVE SUMMARY Drones for Commercial Applications Small Unmanned Aircraft Systems for Filming & Entertainment, Mapping, Aerial Assessments, Prospecting, Data Collection, Disaster Relief, and Delivery: Global Market Analysis and Forecasts Published 3Q 2015 AMY WINDJU Senior Analyst CHAD MITCHELL Senior Research Associate CLINT WHEELOCK Managing Director

2 SECTION 1 EXECUTIVE SUMMARY 1.1 INTRODUCTION The utilization of unmanned aerial vehicles (UAVs), also known as unmanned aircraft systems (UASs) or drones, for commercial applications has a great deal of potential to be explored and exploited. Companies, government agencies, and other institutions are all actively assessing the opportunity for drones to disrupt some industries and create innovative business models in others. Tractica anticipates that the demand for drones will increase during the coming years as their use across a variety of market applications continues to grow. A major growth driver for commercial drones will be their ability to provide tangible return on investment (ROI) to multiple industries using common technological capabilities that can perform a wide range of applications. The advancement of drone technology in a relatively short period of time has provided companies and other organizations with an effective tool to aid their businesses and other initiatives in a cost-effective manner. Vendors interviewed for this report repeatedly stated that while a multitude of reasons exists for why commercial drones should be free to fly, they are not able to do so. There are regulatory aspects to consider and technological advancements that need to be developed to ensure safe flight. Some vendors voiced frustration at the regulatory bodies with a key sentiment being that they (the regulatory bodies) are behind the times in terms of understanding the new technology used by commercial drones. Other vendors are seeing traction in their products. Without question, this market is a classic example of how a disruptive technology is changing the way companies do business and how the regulatory bodies are responding to this change. The commercial drone industry demonstrates all the classic characteristics of a nascent, yet dynamic, technology market. Among the key hallmarks: The majority of vendors in this sector are startups, ranging in products from airframes, to accessories, to data analytics, to apps, to insurance. There is a great deal of talk about investment opportunities in an industry rife with regulatory and technological uncertainties. The number of company founders and key executives willing to speak passionately about their products to a market researcher was impressive and demonstrative of their entrepreneurial spirit. A number of vendors have not yet fully launched their products and appear to be waiting for the right time to fully ramp up manufacturing and enter the market. The market is still in a high-growth stage and open to new entrants, as the revenue and growth numbers in the Market Forecasts section below demonstrate. Success for these companies will most likely occur when the technology and the regulatory environment have matured. The competitive landscape remains fluid and dynamic, and we are still a few years away from seeing which companies will achieve long-term leadership and which will fall by the wayside. Now is the time for the companies to perfect their products and gain momentum. 1

3 1.2 MARKET TRENDS The commercial drone market has, in a period of just a few years, gone through an evolution. The emergence of new, small, low-cost drones has dramatically improved the feasibility of using drones for data collection within a variety of industry applications. What was previously exclusively done by a helicopter or airplane rental can now be done by drones in half the time and at half the expense, if not less. For the most part, commercial applications for drones fall into two major categories: Aerial Imagery: The drones offer a multitude of purposes, ranging from the ability to take aerial footage to digital elevation maps using geo-referencing capabilities. The platforms can take images that are sharper and more detailed than just a decade ago via a Cessna. Users have the ability to take a range of images on their own time schedule and at affordable pricing. Data Analysis: The value of flying a commercial drone happens post-flight. The data collection and image processing capabilities and techniques have the ability to produce minuscule measurements; anything from crops to water quality can be detected in a fraction of the time and cost it would take with a low-flying Cessna. The reports produced post-flight offer end users an easy-to-read product that adds value to their operations. The public s full acceptance of this new disruptive technology is hindered by privacy and safety concerns. People and legislative bodies have voiced their opinions regarding law enforcement s increased surveillance capabilities and their perceived violation of privacy rights. With regard to safety, the miniaturization of drones in fewer than 3 years has meant an overhaul of the aviation policies and infrastructure required for their safe introduction into a nation s airspace. The necessary tests and technology to mitigate risks are still in the early stage. And the necessary regulations are still underdeveloped. Acceptance of commercial drones by the public will require education and marketing. The evolution from military to commercial use gives this technology a bad rap. Because of the economic benefits of commercial drones and their multitude of uses and applications, the public needs to be educated in order for this new technology to gain full acceptance. Nevertheless, governments around the world are addressing the privacy and safety concerns in regard to the safe introduction of commercial drones. In the near term, the four main industries that will lead this market are film, agriculture, media, and oil & gas. The aerial imagery and data analytics functions mentioned above are the primary drivers for their use in these industries. The capacity to collect, analyze, and deliver information in near real time will continue to be a reason for industries to adopt this technology in their supply chains. 1.3 MARKET FORECAST This report examines the growth and uses of drones and related technology (e.g., sensors, data analytics) for commercial applications. Not covered in this report are drones for consumer or military uses, such as weaponized and advanced surveillance systems. Tractica forecasts that the market for commercial drones including revenue from hardware sales as well as drone-enabled services will experience substantive growth throughout the 2015 to 2025 forecast period. Starting from a base of $452 million in 2015, revenue is forecast to reach $12.6 billion by 2025, which equates to a compound annual growth rate (CAGR) of 39.5% over the course of the forecast period. 2

4 Chart 1.1 Commercial Drone Total Revenue by Region, World Markets: $14,000 ($ Millions) $12,000 $10,000 $8,000 $6,000 North America Europe Asia Pacific Latin America Middle East and Africa $4,000 $2,000 $ (Source: Tractica) Drone-enabled services represent the largest portion of total revenue, particularly services driven by filming and entertainment applications. Despite regulatory hurdles faced by commercial drone hardware vendors and service providers, those involved with aerial photography and videography are beginning to reap the benefits of large increases in commercial drone lobbying efforts led by the Motion Picture Association of America and a variety of other commercial drone stakeholders. Still in its infancy, the commercial drone market is poised for significant growth across all segments. Some will grow more slowly than others due to logistical hang-ups, regulatory concerns, and technological immaturity. But, as innovation continues at an accelerating rate, the nascent commercial drone market will blossom and find increasingly more use cases. 3

5 SECTION 8 TABLE OF CONTENTS SECTION Executive Summary Introduction Market Trends Market Forecast... 2 SECTION Market Issues Scope of Report Types of Commercial Drones Key Technology Trends Generalized Use Cases Market Drivers Increased Demand Economic Opportunities Intelligence Capabilities Affordability Market Barriers Regulations Commercial Insurance Technology Issues Export Regulations Financial Issues Regulatory Issues FAA Regulations at a Glance Overview Flying Legally FAA Updates Economic Benefits Safety Considerations Proposed Requirements for Operators of Small Drones General Regulations and Flight Regulations Summary Small UAS Registration Aeronautical Knowledge Test TSA Background Check Significance of Possible FAA Changes U.S. Department of Commerce U.S. Department of State U.S. State Laws State Laws and Approved FAA Test Sites Test Site State Legislation Alaska Nevada New York North Dakota Virginia Texas

6 Summary of U.S. State Legislation How Does Confusion of State Laws Affect the Commercial Drone Industry? Key Industries Agriculture Oil and Gas Utility and Power Real Estate Insurance Mining Film Media Scientific Research First Responders Delivery Key Applications Aerial Assessments Data Collection and Analytics Filming and Entertainment Mapping Prospecting Early Warning Systems Disaster Relief Environmental Monitoring Delivery Regional Trends North America Europe Latin America Asia Pacific Middle East and Africa SECTION Technology Issues Introduction Privacy Safety Security for Technology in Commercial Drones Software Certification Security/Misuse Operation Considerations Weather Flight Time Sense and Avoid Radio Interference SECTION Key Industry Players D Robotics Aeronavics Agribotix Airware Amazon Prime Air Cyberhawk Innovations Ltd CyPhy Works

7 4.8 Drone Aviation Corp DroneDeploy Ehang Kespry Inc PrecisionHawk Parrot sensefly Prioria Robotics Sharper Shape Skycatch Skyward.io SZ DJI Technology Co Torquing Group Ltd./ZANO XAIRCRAFT Technology Co., Ltd UAV Factory SECTION Market Forecasts Introduction Forecast Methodology and Assumptions Forecasts Global Revenue Forecasts Regional Hardware Revenue Forecasts by Industry Regional Drone-Enabled Services Revenue Forecasts by Application Conclusions SECTION Company Directory SECTION Acronym and Abbreviation List SECTION Table of Contents SECTION Table of Charts and Figures SECTION Scope of Study Sources and Methodology Notes

8 SECTION 9 TABLE OF CHARTS AND FIGURES Chart 1.1 Commercial Drone Total Revenue by Region, World Markets: Chart 5.1 Commercial Drone Cumulative Revenue by Region, World Markets: Chart 5.2 Commercial Drone Hardware Revenue by Region, World Markets: Chart 5.3 Drone-Enabled Services Revenue by Region, World Markets: Chart 5.4 Commercial Drone Hardware Revenue by Airframe Type, World Markets: Chart 5.5 Commercial Drone Hardware Revenue by Industry, World Markets: Chart 5.6 Commercial Drone-Enabled Services Revenue by Application, World Markets: Chart 5.7 Commercial Drone Hardware Revenue by Industry, North America: Chart 5.8 Commercial Drone Hardware Revenue by Industry, Europe: Chart 5.9 Commercial Drone Hardware Revenue by Industry, Asia Pacific: Chart 5.10 Commercial Drone Hardware Revenue by Industry, Latin America: Chart 5.11 Commercial Drone Hardware Revenue by Industry, Middle East and Africa: Chart 5.12 Commercial Drone-Enabled Services Revenue by Application, North America: Chart 5.13 Commercial Drone-Enabled Services Revenue by Application, Europe: Chart 5.14 Commercial Drone-Enabled Services Revenue by Application, Asia Pacific: Chart 5.15 Commercial Drone-Enabled Services Revenue by Application, Latin America: Chart 5.16 Commercial Drone-Enabled Services Revenue by Application, Middle East and Africa: Chart 10.1 Tractica Research Methodology Figure 2.1 Types of Commercial Drones... 4 Figure 3.1 Small Drone Hardware and Software Components Table 2.1 Commercial Flight Regulations: Regional Comparison Table 3.1 Technologies Incorporated in Commercial Drones Subject to Attack or Breach Table 4.1 Additional Industry Participants

9 SECTION 10 SCOPE OF STUDY This Tractica report examines the market trends and technology issues surrounding the commercial drone industry and presents a comprehensive analysis of the drivers and inhibitors of market development, the regulatory landscape, business models, and supply chain considerations. The report includes a 10-year forecast for drone hardware unit shipments and revenue, segmented by industry, airframe type, and world region, in addition to drone-enabled services by application area. Commercial drone industry segments and applications are analyzed in depth, and the report also includes detailed profiles of 21 key industry players. SOURCES AND METHODOLOGY Tractica is an independent market research firm that provides industry participants and stakeholders with an objective, unbiased view of market dynamics and business opportunities within its coverage areas. The firm s industry analysts are dedicated to presenting clear and actionable analysis to support business planning initiatives and go-to-market strategies, utilizing rigorous market research methodologies and without regard for technology hype or special interests including Tractica s own client relationships. Within its market analysis, Tractica strives to offer conclusions and recommendations that reflect the most likely path of industry development, even when those views may be contrarian. The basis of Tractica s analysis is primary research collected from a variety of sources including industry interviews, vendor briefings, product demonstrations, and quantitative and qualitative market research focused on consumer and business end-users. Industry analysts conduct interviews with representative groups of executives, technology practitioners, sales and marketing professionals, industry association personnel, government representatives, investors, consultants, and other industry stakeholders. Analysts are diligent in pursuing interviews with representatives from every part of the value chain in an effort to gain a comprehensive view of current market activity and future plans. Within the firm s surveys and focus groups, respondent samples are carefully selected to ensure that they provide the most accurate possible view of demand dynamics within consumer and business markets, utilizing balanced and representative samples where appropriate and careful screening and qualification criteria in cases where the research topic requires a more targeted group of respondents. Tractica s primary research is supplemented by the review and analysis of all secondary information available on the topic being studied, including company news and financial information, technology specifications, product attributes, government and economic data, industry reports and databases from third-party sources, case studies, and reference customers. As applicable, all secondary research sources are appropriately cited within the firm s publications. All of Tractica s research reports and other publications are carefully reviewed and scrutinized by the firm s senior management team in an effort to ensure that research methodology is sound, all information provided is accurate, analyst assumptions are carefully documented, and conclusions are well-supported by facts. Tractica is highly responsive to feedback from industry participants and, in the event errors in the firm s research are identified and verified, such errors are corrected promptly. 75

10 Chart 10.1 Tractica Research Methodology MARKET RESEARCH SUPPLY SIDE DEMAND SIDE PRIMARY RESEARCH Industry Interviews Vendor Briefings Product Evaluations End-User Surveys End-User Focus Groups SECONDARY RESEARCH Company News & Financials Technology & Product Specs Government & Economic Data Case Studies Reference Customers MARKET ANALYSIS QUALITATIVE ANALYSIS Company Analysis Business Models Competitive Landscape Technology Assessment Applications & Use Cases QUANTITATIVE ANALYSIS Market Sizing Market Segmentation Market Forecasts Market Share Analysis Scenario Analysis (Source: Tractica) NOTES CAGR refers to compound annual growth rate, using the formula: CAGR = (End Year Value Start Year Value) (1/steps) 1. CAGRs presented in the tables are for the entire timeframe in the title. Where data for fewer years are given, the CAGR is for the range presented. Where relevant, CAGRs for shorter timeframes may be given as well. Figures are based on the best estimates available at the time of calculation. Annual revenues, shipments, and sales are based on end-of-year figures unless otherwise noted. All values are expressed in year 2015 U.S. dollars unless otherwise noted. Percentages may not add up to 100 due to rounding. 76

11 Published 3Q Tractica LLC 1111 Pearl Street, Suite 201 Boulder, CO USA Tel: This publication is provided by Tractica LLC ( Tractica ). This publication may be used only as expressly permitted by license from Tractica and may not otherwise be reproduced, recorded, photocopied, distributed, displayed, modified, extracted, accessed or used without the express written permission of Tractica. Notwithstanding the foregoing, Tractica makes no claim to any Government data and other data obtained from public sources found in this publication (whether or not the owners of such data are noted in this publication). If you do not have a license from Tractica covering this publication, please refrain from accessing or using this publication. Please contact Tractica to obtain a license to this publication. 77