Why Is Sony Corporation Entering the Drone Market?

By Markets Fool.com

Sony recently announced the formation of a new subsidiary, Aerosense, which will build sensor-equipped drones. Half of the subsidiary will be owned by Tokyo-based robotics start-up ZMP, which previously teamed up with Sony to develop autonomous vehicles.

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Aerosense evolved out of Sony's mobility business, which also develops image sensors for Apple and Samsung mobile devices. But instead of building upon Sony's consumer electronics and mobile foundations with consumer drones, Aerosense is building commercial drones for enterprise customers.

According to Sony, Aerosense will synchronize aerial imaging and cloud-based data for various "measuring, surveying, observing, and inspecting" solutions. Sony also stated that it won't sell the drones, but instead sell the software services they use. However, Sony hasn't clarified whether it will launch first-party enterprise services or work with Aerosense to develop custom ones for specific industries. The joint venture is expected to start its first drone flights in early 2016.

Source: Sony/ZMP.

The business of commercial drones
The global commercial drone market could grow from $609 million in 2014 to $4.8 billion by 2021, according to research company Radiant Insights, fueled by rising demand in the energy, agricultural, and package delivery markets.

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Many leading consumer drone makers also manufacture commercial drones. California-based 3D Robotics is the top drone maker in the U.S., and Chinese company DJI Technology is the largest one in the world. It's unclear how much annual revenue 3D Robotics generates, but DJI's annual revenue is expected to double to $1 billion this year. Another growing rival, French drone maker Parrot,saw its drone sales nearly double to $91 million last year. With Sony's support, Aerosense could thrive in this growing market.

A surprising decision
Ryan Calo, a law professor at the University of Washington specializing in issues with robotics, told Ars Technica that he was "a little surprised" by Sony's decision to develop drone software instead of selling hardware.

Calo noted that commercial drones would become more interesting if "third parties can make software and applications" for them. For example, an energy company could require drones for specific purposes that Sony's software can't address. In that case, the business mightbuy programmable drones, like DJI's Matrice 100, instead of Aerosense drones pre-loaded with Sony's software.

DJI's programmable drone, the Matrice 100. Source: DJI.

Sony also generally doesn't like hobbyists tinkering with its hardware. Over a decade ago, Sony issued a DMCA takedown notice to discourage customers from reprogramming its Aibo robotic dogs. That type of thinking isn't unusual for protective tech companies, but it might hamper Aerosense's progress in the commercial drone market.

Is Sony taking the wrong path?
In my opinion, Sony didn't really need to form a joint venture to produce drones. It already sells several products -- including GoPro-llike action cameras and Xperia mobile phones -- that can complement drones. Instead of expanding into enterprise drone software, Sony should build a consumer-facing drone business upon those foundations.

Sony only controls about 3% of the global POV camcorder market, according to IDC's most recent (3Q 2014) numbers. But that actually puts it in third place behind GoPro and iON Cameras, which respectively control 57% and 7% of that market. Since GoPro sees consumer drones as a natural expansion of its business, it makes sense for Sony to expand its Action Cam line in the same direction. Sony is also planning to launch SmartEyeGlass, a Google Glass-like device thatwill initially target industrial and enterprise customers.

Uniting those businesses under a single banner with drones, smartphones, and wearables could also help fulfill Sony mobile chief Hiroki Totoki's stated goalof developing "more categories (of connected devices)in the future." Developing software for Aerosense's enterprise drones via a joint venture, however, won't complement sales of those devices.

Should investors be concerned?
Aerosense looks more like an experiment than a dedicated step into the drone market. Sony, likely concerned that new hardware projects will weigh down its bottom line (already drained by mobile losses), doesn't seem willing to invest heavily in drones. But at the same time, it's afraid to be left behind as newcomers like DJI, 3D Robotics, and possibly GoPro carve up that market.

As a result, Sony is taking a half-hearted stab at the drone market, which might flop because of the need for customized software solutions for enterprise customers. But if Sony decided to sell programmable drones on its own, sales could possibly boost its imaging revenue, which accounted for 9% of its top line last year.

The article Why Is Sony Corporation Entering the Drone Market? originally appeared on Fool.com.

Leo Sun owns shares of Apple. The Motley Fool recommends Apple, Google (A shares), Google (C shares), and GoPro. The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), and GoPro. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.