3D Robotics Case: Disrupting the Drone Market

BERKELEY-HAAS CASE SERIES
3D Robotics:
DISRUPTING THE DRONE MARKET
Toby Stuart
Chris Anderson
This case study focuses on 3D Robotics, a drone company with
UAV platforms. It examines what 3DR should
pursue at the critical inflection point within its history and
highlights what is unique about 3DR, particularly when
compared to a more traditional non-open, non-Maker company.
(Keywords: Entrepreneurship, Corporate Strategy,
Market Entry, Open Source, Innovation, Crowdsourcing)
“Ultimately, the way society best figures out how to think about
a powerful new tech-
nology is to set it free and watch where it flies.”—Chris
Anderson, 3D Robotics CEO1
“Chris Anderson is incredibly special because he is not just
creating a product, he is
creating a movement.”—Jon Callaghan, True Ventures2
O
n a sunny, brisk spring day in 2014, Chris Anderson, CEO of 3D
Robotics (3DR), a developer of drones, was squinting as he
looked
towards the sky at a small flying black and blue object with four
spinning propellers. He was in the grassy patch outside their
office

testing the IRIS, a small drone that flew autonomously3 via an
Android tablet,
phone, or laptop. Remarkably, it could be programmed to
takeoff and fly from
precise point A to B, avoid obstacles through sensors, and land
on its own.
While the word “drone” (or Unmanned Aerial Vehicles—
“UAVs”) conjured
up images of stealthy military crafts zipping around in secret
unmanned missions,
Anderson, former Wired Magazine Editor-in-Chief,4 was
changing that perception
through 3DR, the company he had co-founded in 2009. 3DR was
an example of
Several quotations, as noted, are taken from Chris Anderson,
Makers: The New Industrial Revolution
(Crown Business, 2012), by permission of Penguin Random
House.
The full case study version of this article is available through
the Berkeley-Haas Case Series at <http://
cmr.berkeley.edu/berkeley_haas_cases.html>.
CALIFORNIA MANAGEMENT REVIEW VOL. 57, NO. 2
WINTER 2015 CMR.BERKELEY.EDU 91
the manufacturer of the future—a modern-day
hardware designer that coordinated a large com-
munity of open source software developers who
supported its devices. Anderson described the com-
pany as “using the software of today to build the

hardware of tomorrow.”5
The company, which initially targeted hobby-
ists, was exploring commercial uses in market
segments that did not require FAA6 approval. At
the time of this case, drones were only permitted for
personal use in the U.S. and were restricted to heights
of 400 feet, to be within visual line of sight, and
remain away from populated areas and airports. However, the
FAA did offer special
permits for commercial use (since 2009, the FAA has issued
1,387 of these Certifications
of Authorization for limited UAV flights to government,
educational, and research enti-
ties, and as of December 2013, there were 545 active permits).7
The FAA was consider-
ing commercial use of drones to begin in 2015, but was cautious
due to safety concerns.
3DR’s UAV platforms captured breathtaking aerial imagery for
consumer
enjoyment and data analysis, enabling mapping, surveying, 3D
modeling, and more
for possible commercial applications such as agriculture,
photography, surveillance,
search and rescue, construction, and ecological study. The
worldwide drone industry
was estimated by some to be $6 billion in 2013 and expected to
grow to more than
$11 billion over the next decade.8 Some estimated market
figures were much higher
(see below). Amazon’s release on December 1, 2013 of an 80-
second video and a 60-
Minutes interview highlighting what drone package deliveries
might look like (Prime

Air program) undoubtedly contributed some hype to market
assessments.9
By 2014, 3DR had 200 employees in North America with a
research and
development office in Berkeley, California, and a
manufacturing facility in Tijuana,
Mexico (that manufactured ready-to-use drones that sold for as
little as $400). The
company had sales of $10 million on 30,000 orders in 2012,10
and over $20 million
in 2013 by charging for the hardware and “giving away the bits
[design files, soft-
ware, etc.]”11 to its 28,000 customers worldwide who also
bought motors, batteries,
cables, and propellers from 3DR. 3DR’s product line included a
single plane-style
drone, four copter drones, and IRIS, its new consumer drone
(Exhibits 1 and 2).
EXHIBIT 1. 3DR Financials
continued on next page
Toby Stuart is the Leo Helzel Professor of
Entrepreneurship and Innovation and the
faculty director of the Lester Center for
Entrepreneurship at the Haas School of
Business at the University of California,
Berkeley. <[email protected]>
Chris Anderson is the CEO of 3D Robotics
and founder of DIY Drones. From 2001
through 2012 he was the Editor in Chief of
Wired Magazine. He is the author of the
New York Times bestselling books The

Long Tail and Free as well as Makers:
The New Industrial Revolution.
Rudimentary, fictional income statement (in thousands $US)
Year 2013 2012 2011
Total Revenue 20,000 10,000 5,000
Cost of Revenue 11,000 6,000 2,900
Gross Profit* 9,000 4,000 2,100
Operating Expenses
Research/Development 10,000 3,000 1,700
3D Robotics: Disrupting the Drone Market
92 UNIVERSITY OF CALIFORNIA, BERKELEY VOL. 57,
NO. 2 WINTER 2015 CMR.BERKELEY.EDU
EXHIBIT 2. Funding History and Cap Table
Fake Cap Table:
1,000,000 shares total
Chris Anderson: 200,000
Jordi Muñoz: 200,000
True: 180,000
OATV: 90,000
Foundry: 80,000
Mayfield: 50,000
Other investors: 100,000
Options pool: 100,000
Source: 3DR.
As Anderson’s eyes were riveted by each subtle movement of

the IRIS, he
was excited about the future of 3DR and amazed at the drone
boom he and 3DR
helped to create. In his head, he replayed a scenario that he’d
been frequently
mulling over: “We need to be the future of x.” One of his
critical tasks over
the next few months was to figure out, what is x going to be?—
big data (e.g.,
agriculture, climate, search and rescue), personal aerial
cinematography, or
something else? Moreover, there was additional urgency in this
decision because
the competition had come on strong. In particular, the Chinese
company DJI’s
Phantom 2 personal drone had snuck up to dominate the market,
which con-
cerned Anderson and his team. DJI had raced to nearly 20 times
the size of
3DR with 1,600 employees, 400 engineers, and over $500
million in revenue
Round Date Amount Investors
Self-Financed $50,000
Series A 11/5/12 $5.1 million True Ventures, O’Reilly
AlphaTech
Ventures, and others
Series B 9/12/13 $31 million Mayfield Fund ($6 million),
Foundry
Group, True Ventures, O’Reilly
AlphaTech Ventures, and others
Selling General and Administrative 4,000 1,000 300

Non Recurring − − −
Total Operating Expenses − − −
Operating Income or Loss −5,000 0 100
Source: 3DR.
*3DR estimated that industry gross profits were around 35%.
and focused entirely on drones for commercial and consumer
markets. “At first,
investors thought drones were not a market,” he said. “Then
around nine
months ago, they realized they were one. Now the question is,
will we be the
leader?”12
The Maker Movement
The internet democratized the tools both of “invention and of
production,”
according to Anderson. Now anyone could use software and new
production tools
to design and manufacture a physical product and “ship it” to
people around the
world. In essence, the internet liberated this world of “bits.”
The internet’s model of innovation spurred entrepreneurship and
economic
growth, democratizing publishing, broadcasting, and

communications that led to
an increase in participation in everything digital—the Long Tail
of bits, according
to Anderson. Consumers’ wants could now be met in ways that
physical stores
could not. Anderson cited Amazon, which could list many more
products than
any physical retailer could carry, as an example. He argued that
products no longer
needed to sell in large quantities and instead, companies could
use the internet to
reach the increasingly discriminating consumer who follows
social media and word
of mouth to buy specialty products online.
And the Web revolution went beyond just the ability to buy
more things
with greater choice. It allowed people to “make our own stuff”
that others could
consume, such as videos on YouTube, words (blogging), and
pictures. “If you
had talent and drive, you could find an audience, even if you
didn’t work for
the right company or have the right degree.”13
Beyond the world of bits lay an entire massive world of
“atoms,” or the real
world of products and things. “Just imagine what a similar
model could do in the
larger economy of Real Stuff…the Long Tail of things...the
shift in culture toward
niche goods.”14 This new world was what Anderson called “The
New Industrial
Revolution.”
“The past 10 years have been about discovering new ways to

create, invent,
and work together on the Web. The next 10 years will be about
applying those
lessons to the real world,” he said.15 By real world, Anderson
was referring to
physical products that—because of expertise, equipment, and
costs of production
on a large scale—had been closed to the pursuits of hobbyists
and even entrepre-
neurs. He said: “Physical products are increasingly just digital
information put in
physical form by robotic devices…hardware is mostly software
these days, with
products becoming little more than intellectual property
embodied in commodity
materials….In short, the reason atoms are the new bits is that
they can increas-
ingly be made to act like bits.”16
In this new world, anyone could invent or design something,
upload files to a
service to have the product made, or even make it themselves on
a 3-D printer (an
industrial robot that could make three-dimensional solid objects
of virtually any
shape from a digital model). Any designer now has the ability to
quickly experiment
with new product designs using such 3-D printers.

These changes drove a new social movement aptly called the
“Maker
Movement” where participants could make things ranging from
crafts to
advanced electronics (Exhibit 3). Makers used digital desktop
tools to create
designs for new products. The “making” part of the Maker
Movement could start
with a 3-D printer like MakerBot, a Brooklyn-based company
that for six years
has been building inexpensive 3-D printers in an open source
development
model, much like 3DR. Its latest products had an easy to use
system, driven by
a simple desktop application that allowed users to turn CAD
files into physical
things just like printing a photo.
EXHIBIT 3. Open/Maker Example: MakerBot
Industries
MakerBot Industries is a Brooklyn, New York-based company
that made
3D printers. It was founded in January 2009 by Bre Pettis,
Adam Mayer,
and Zach Hoeken Smith (he was one of the founding members
of the
RepRap Research Foundation, a non-profit organization that
advanced
research in open-source 3D printers). Seed funding was
provided by Jack
Lodwick ($50,000) and Adrian and Christine Bowyer ($25,000).
In August
2011, the Foundry Group invested $10 million and joined the
board. As of
March 2011, the company had sold 3,500 units and by 2012,

more than
5,200 MakerBots had been sold. Revenue in 2013 was $75
million, and
the company had sold more than 22,000 units. On June 19,
2013, Stratasys
Inc. acquired MakerBot in a stock deal worth $403 million
based on the
share value of Stratasys, making MakerBot a subsidiary of
Stratasys. Stra-
tasys paid $403 million in exchange for 100 percent of
MakerBot’s stock.
The remaining two-thirds of the deal (a $604 million total deal)
would
be subject to MakerBot’s performance over the following two
years.
Early on, MakerBot made the first mainstream $1,000 3D
printers.
Rather than using laser, the MakerBot Thing-O-Matic printer
built up
objects by squeezing out a 0.33-mm-thick thread of melted ABS
plastic,
which comes in multi-colored reels. MakerBots were
personalized and
decorated with Day-Glo letters.
MakerBot was designed by a community, built upon several
previous
open-source projects such as RepRap mentioned above, the
Arduino
microprocessor board, and a series of software packages that
turned
CAD files into instructions for the three motors that controlled
a 3-D
printer’s motors. Anderson said: “In this case, open source
means open

everything: electronics, software, physical design,
documentation, even
the logo….It is a shining example of how abandoning
intellectual property
protection can actually grant even more protection in the form
of commu-
nity support and goodwill.”**
By 2014, MakerBot had numerous products like the MakerBot
Repli-
cator Mini (compact 3D printer), MakerBot Replicator (desktop
3D
printer), MakerBot Replicator Z18 (3D printer), MakerBot
Replicator 2
(desktop 3D printer), MakerBot Replicator 2X (experimental 3D
printer),
and the MakerBot Digitizer (desktop 3D scanner).
Source: Various.
**Chris Anderson, Makers, 2012, p. 94.
Anderson added: “And what’s clear about these new producers
is that
they’re not going to be making the same one-size-fits-all
products that defined
the mass-production era. Instead, they’re going to be starting

with one-size-fits-
one and building from there, finding out how many other
consumers share their
interest, passions, and unique needs.”17
Makers could even share production spaces around the world
called “mak-
erspaces” like TechShop,18 “a vibrant, creative community that
provides access to
tools, software and space,” started by a former executive of
Kinko’s printing and
copying. The Maker Movement also encompassed Etsy, for
example, a web mar-
ketplace for Makers who sold arts and crafts and many other
homemade things,
as well as included the Maker Faire, “the Greatest Show (and
Tell) on Earth—a
family-friendly festival of invention, creativity and
resourcefulness, and a celebra-
tion of the Maker movement.”19 Many Maker companies started
as hobbies and
even raised money on crowdfunding sites like Kickstarter.
“Today, the Maker Movement is where the personal computer
revolution
was in 1985—a garage phenomenon bringing a bottom-up
challenge to the ruling
order of the time,” said Anderson. “The great opportunity in the
new Maker
Movement is the ability to be both small and global. Both
artisanal and innovative.
Both high-tech and low-cost. Starting small and getting
big….The shape of the
twenty-first century’s industrial structure will be very different
from the twentieth
century’s. Rather than top-down innovation by some of the

biggest companies in
the world, we’re seeing bottom-up innovation by countless
individuals, including
amateurs, entrepreneurs, and professionals. We’ve already seen
it work before in
bits….Now the conditions have arrived for it to work again, at
an even greater,
broader scale, in atoms.”20
Anderson emphasized that it was in the how prototypes could be
made
today that made all the difference: “As we’ve learned over the
past few decades,
digital is different.”21 The fact that digital files could not only
be shared and cop-
ied, but more importantly, modified, led to an open and
collaborative culture.
New Open Source Culture
But Makers didn’t just make things. They could now share those
designs
and collaborate with others in online communities (an example
was the rise of
“open hardware” companies, like open source software and
communities that
launched Firefox or Linux) where makers launched companies
like Arduino elec-
tronics development board, Google with its Android mobile
operating system,
open source cars, watches like Pebble, toaster ovens, and 3DR
itself.

Anderson called this new culture, a “remix” culture where he
said the abil-
ity to easily “remix” digital files “is the engine that drives
community….You don’t
need to invent something from scratch or have an original idea.
Instead, you can
participate in a collaborative improvement of existing ideas or
designs. The barrier
to entry of participation is lower because it’s so easy to modify
digital files rather
than create them entirely yourself.”22 Anderson added: “When
you share, com-
munity forms. And what community does best is remixing—
exploring variation
in what a product can be, and in the process improving it and
propagating it far
faster than any individual or single company could.”23
This meant that anyone could join and contribute to the
community, no
matter where they were located or what their background was.
“Amateurs have
as much influence as professionals,” said Anderson. “The same
is true in almost
any open-innovation community: when you let anyone
contribute and ideas
are judged on their merits rather than on the résumé of the
contributor, you
invariably find that some of the best contributors are those who
don’t actually
do it in their day job….What this taps is the Long Tail of talent;
in many fields,

there are a lot more people with skills, ideas, and time to help
than there are peo-
ple who have professional degrees and are otherwise
credentialed. Exposing this
latent potential, both of professionals looking to follow their
passions rather than
their bosses’ priorities and of amateurs with something to offer,
is the real power
of open innovation.”24
And because such communities did not operate in the Coasian25
model
where people worked for a firm, such organizations did not miss
out on attracting
the “cake maker, the graphics artist working for the Brazilian ad
agency, the guy
who runs the Italian ambulance radio company, the retired car-
dealership owner,
the Spaniard working for an energy company in the Canary
Islands, and all the
others who followed their passions even though their careers
had taken them
elsewhere.”26 With such a community, an organization could
work with smarter
people while minimizing transaction costs with technology, not
proximity.
“A social network is our common roof. Skype is the ‘next
cubicle.’ Our shared
purpose is really shared, not dictated.”27 In such an
environment, the atoms are
Coasian, but the bits are Joyian.28
Anderson said on the potential of open communities: “When
you release
your designs on the Web, licensed so that others can use them,
you build trust,

community, and potentially a source of free development advice
and labor….
The result: hundreds of people [can] contribute code, bug fixes,
and design ideas,
and have made complementary products to enhance our own.
The simple act of
going open source…provides an essentially free R&D operation
that would cost
a great deal in closed-source development models.”29
New Manufacturing Model
Makers could produce their products much more easily in this
new envi-
ronment. They could use common design file standards that
could be sent to
web-based on-demand commercial manufacturing services to be
produced in
any number. In essence, given the ease of 3-D printing and
desktop fabrication,
along with easy access to manufacturing capacity, anyone could
start a business
making real things.
“The barriers against entry to entrepreneurship in physical
goods are drop-
ping like a stone,” said Anderson.30 Thus, would-be
entrepreneurs and inventors

were no longer at the mercy of large companies to manufacture
their ideas.
Anderson said: “Manufacturing has now become just another
‘cloud service’ that
you can access from Web browsers, using a tiny amount of vast
industrial infra-
structure as and when you need it….All those niche products
that either weren’t
on the market at all because they didn’t pass the economic test
of mass production
or were ruinously expensive because they needed to be
handmade are now
within reach….With digital fabrication, it’s the reverse: the
things that are expen-
sive in traditional manufacturing become free (variety is free,
complexity is free,
and flexibility is free).”31 “All of this has given designers and
engineers a fast-
forward button advancing this technological flip-flop.”32
This new manufacturing model had “to incorporate all the skills
and learn-
ing of traditional manufacturing companies—tight quality
control, efficient inven-
tory management, and supply-chain management—so that it can
compete with
them on basic price and quality. But it also needs to incorporate
many of the skills
of Web companies in creating and harnessing a community
around its products
that allow it to design new goods faster, better, cheaper. In
short, it must be like
the best hardware companies and the best software companies.
Atoms and bits.”33
On manufacturing and China, Anderson argued that at some

scales,
manufacturing in huge Chinese factories will continue to make
sense. But at other
scales, the advantages of making things close to home, with
minimal delays and
maximum flexibility, could be a better choice.34 He gave an
example where a com-
pany might outsource manufacturing to China at launch because
they didn’t have
manufacturing capacity. But when the product reached the
hundreds, it would take
months for a new supply to arrive and the manufacturer might
require larger order
quantities, tying up the company’s capital. This might lead to a
shift back to local
manufacturing to manage inventory and make more efficient
product improve-
ments. But when sales reached into the tens of thousands, the
company might shift
back to China since the 30 percent cost advantage might begin
to become more
attractive with larger volumes. “Companies can increasingly
move manufacturing
to wherever it makes most sense,” he said. “They can do so
because the design files
are digital, the tooling costs of setting up a new manufacturing
operation are mini-
mal, and they all use the same robotic machinery, which can be
bought any-
where.”35
Phase One: DIY and an Open Source Community
The “Aha Moment”
One day, Anderson, who has a degree in physics and has

conducted research
at the Los Alamos National Laboratory, brought home from the
Wired offices a Lego
Mindstorms robotics kit and a ready-to-fly radio-controlled
airplane with the goal
of working with his five kids on the projects over the weekend.
Unfortunately,
the kids weren’t impressed with the limited capabilities of the
Lego kit. “Hollywood,
it turns out, has ruined robotics for kids, who now expect laser-
armed humanoid
machines that also transform into trucks,” Anderson joked.36
Similarly, the kids
were not impressed with Anderson’s airplane, which he crashed
into a tree at a
local park.
Miffed and puzzled, he went for a run and started thinking
about the
impressive range of sensors that the Lego Mindstorms robotics
kit had, with its
accelerometers (tilt sensors), electronic gyroscopes, a compass,
and a Bluetooth
link that could connect to a wireless GPS sensor. “It occurred to
me that those
were exactly the same sensors you’d need to make an airplane
autopilot. We
could solve both problems at once: build something cool with

Mindstorms that
had never been done before and get the robot to fly the
plane!”37
When Anderson returned home, he prototyped a Lego autopilot
on the
dining room table and his 9-year-old helped to write the
software. They posted
some pictures on the internet and their project was on the front
page of tech
website, Slashdot that evening. “We put it in a plane—the
world’s first Lego drone,
I think—and took it out a few weekends later,” said Anderson.
“It almost-kinda
worked, staying aloft and steering on its own, albeit not always
to the places we
told it to go.”38
After a few more weeks of tinkering, Anderson developed a
Lego autopilot
that had most of the functionality of a professional device, if
not the performance.
But it became clear to him that Lego Mindstorms, for all of its
charms, “was too
big and expensive to serve as the ideal platform for homemade
drones.”
DIY Drones and the Online Community Platform
In 2007, Anderson decided to post his work and questions
online, not with
a blog, but through an autonomous aircraft nonprofit social
network he created
for the purpose, called DIY Drones (diydrones.com)—a place
where hackers and
makers could swap tips on how to build and fly unmanned aerial

vehicles. “That
distinction—a site created as a community, not a one-man news
and information
site like a blog—turned out to make all the difference,” he
said.39
On the DIY Drones community, Anderson said: “I was blown
away by what
people in our community were doing with sensors from mobile
phones and chips
that cost less than a cup of coffee. Feature by feature, they were
matching—or
besting—aerospace electronics that had cost tens or hundreds of
thousands of dollars
just a decade earlier. It felt like the future of aviation.”40
“Initially, members would just post code and design files for
their own proj-
ects, showing off for each other in a form of nerd braggadocio,”
said Anderson. “But
over time, we set up more organized systems of collaboration,
including version
control systems and file repositories, wikis, mailing lists, and
formal team assign-
ments.”41 The DIY Drone community participants eventually
had access to a full
range of authoring tools, could comment, blog, start
discussions, upload videos
and pictures, create profile pages, and send messages. On
structure within an open
source community, Anderson joked: “The reality is that behind
every great open
source or open innovation project, there is a malevolent
dictator.”
A few months after DIY Drones launched and had a few

hundred members,
Jordi Muñoz, a 20-year-old electrical engineer who was waiting
for his green card
in Riverside, California (after leaving Mexico to live with his
wife, a U.S. citizen)
signed up and posted a link to a “cool hack he’d done with a
new open-source
microprocessor board called Arduino,” said Anderson.42
“I was extremely bored,” Muñoz said. “I could only watch TV
or program
something, so I decided to program.”43 He had spliced motion
sensors of a Nintendo
Wii controller with a mini copter and worked on his project for
eight months, the
“most productive months” of his life where he was able to
stabilize the helicopter’s
flight using computer code. It was the perfect marriage between
his obsession with
computer technology and his childhood dream of becoming a
pilot.
Anderson had become so impressed with Muñoz’s work that
they began to
collaborate virtually. He said on Muñoz: “He was able to
quickly learn about very
advanced technology. He did all that by teaching himself on the
internet. He’s that

generation of people who don’t know what they don’t know. He
didn’t know he
was supposed to have a Ph.D. to invent a drone. He just did
it.”44 They worked on
projects together such as an airplane autopilot and an
autonomous blimp control-
ler board. By March 2014, DIY Drones was the largest robotics
community in the
world with around 50,000 active members and two million page
views per month
with a comment every minute on the site.
Phase Two: Ready to Fly—Launching 3D Robotics
A Cottage Industry
As Anderson and Muñoz continued to work together, they
realized that they
needed to start offering kits with everything included. They
started collecting parts
to make an aerial robot kit, buying electronic parts in volume
from around the world
and sending the circuit-board design files off to be fabricated.
Initially, Anderson hand-
soldered a few dozen boards himself, then found a student on
Craigslist to do a hun-
dred more, and finally contracted with an assembly firm to do a
few hundred more. He
then loaded the software onto the boards and packed the kits
with the help of his kids.
Their next product was an airplane autopilot board, where they
partnered
with Sparkfun (a designer and manufacturer of electronics for
open-source hard-
ware communities). “Because they handled all the sourcing and

manufacturing,
our community could spend its time working on R&D and bear
no inventory
risk,” said Anderson.45
At some point, things changed though: “We realized we had a
drone inno-
vation platform and we should probably start a company.”46 In
2009, when it
became clear to Anderson that there was a group of people who
didn’t want to
build drones, but would buy them finished, the two co-founded
3D Robotics, even
though they had not yet met in person. Initially Anderson
remained as Editor of
Wired and served as the non-executive chairman of 3DR, while
Muñoz focused
on building the product and served as the CEO. The company
was profitable in
its first year of operation, on $250,000 in revenue.
They wanted to run the company in an open source “community-
centric”
way where they sold drone products through a website, but had
a chatty blog with
tutorials and videos from employees and stories about customers
and users, and cus-
tomers helping each other on DIY Drones. “When a consumer
buys a drone, they

would plug the hardware in, and from the internet, download
free software from our
community, which turns the hardware into a drone,” said
Anderson.
As demand grew, Anderson and Muñoz moved the operation to
commer-
cial space in San Diego to be closer to low-cost labor in
Tijuana, Mexico, and
began acquiring automated manufacturing tools. Quickly, the
team outgrew that
space and expanded into the bigger space next door.
Leveraging the Community
3DR invested around $2 million per year into its development
team (includ-
ing documentation work), and Anderson felt that the company
was extracting multi-
ples of that in value from the community because the vast
majority of contributors
were not paid. In fact, most community members worked for
3DR for free (or for
small rewards like T-shirts, coffee mugs, and hardware
discounts), but at the highest
levels, some team leaders were given trips to development
meetings and those who
actually helped to ship a major product received equity in 3DR
(Exhibit 4). More-
over, every single one of 3DR’s paid software developers came
out of the community.
“I’ve never met most of them,” said Anderson. “They’ve earned
their way by becom-
ing respected and doing good work.”

EXHIBIT 4. 3DR’s Reward System
EQUITY
Team leaders
who have shipped
a major project
The Hierarchy of Reward
Core Team
leaders
Accepts role
as a project
leader
“Sustained
Contribution Award”
by team leaser
First
accepted
commit
TRIP TO DEV
MEETING
DEV TEAM MEMBER AND
FREE HARDWARE
COFFEE MUG AND
HARDWARE DISCOUNT
T-SHIRT
Source: Chris Anderson, Makers, 2012, p. 111.

Of course, products created in such an open source environment
did not
enjoy the legal protections of patented inventions. As an
example, in 2011, a gradu-
ate student in China translated a manual for a 3DR UAV to help
people who bought a
Chinese version of the machine. Anderson said he was “angry—
at first. But then I
realized it was helping us. Our policy of open software and
open hardware almost
welcomes copycats.” So he put a link to the translation on his
site and the student
started making corrections in the manuals (both English and
Chinese) and fixing
bugs in the code itself. “Today he is one of our best
development team members,”
said Anderson.47
This approach was new, Anderson said: “Open hardware,
drones, and the
future of robotics; merging the community and the company. If
we get it right, it’ll
be a fantastic model for companies of all sorts; if we get it
wrong, an instructive
failure.”48
“Hardware is the New Software”

The explosion of smartphones and components was what drove
the growth
in the drone market because they helped to make drone parts
smaller, better, and
more energy efficient—and thus more affordable. Anderson
explained: “All the
components in a smartphone—the sensors, the GPS, the camera,
the core process-
ors, the wireless, the memory, the battery—all that stuff, which
is being driven by
the incredible economies of scale and innovation machines at
Apple, Google, and
others, is available for a few dollars. They were essentially
‘unobtainium’ 10 years
ago. This is stuff that used to be military industrial technology;
you can buy it at
RadioShack now,” thus making it easier than ever to construct
hardware that
could interact with the outside world in a fully or partially
autonomous way.
Anderson said the industry was going through a Moore’s-law-
style pace where
performance doubled while size and price plummeted.
The smartphone sensors Anderson was referring to were
available at
RadioShack. They included gyroscopes, which measure rates of
rotation; magne-
tometers, which function as digital compasses; pressure sensors,
which measure
atmospheric pressure to calculate altitude; and accelerometers,
to measure the
force of gravity. A standard smartphone had a full suite of such
sophisticated sen-
sors to detect position in games, maps, and augmented reality.

“In short, this new
generation of cheap, small drones is essentially a fleet of flying
smartphones. More
and more, autopilot electronics look just like smartphone
electronics, simply run-
ning different software.”49
Sensors and other devices that collect data and information and
transmit
such data via the internet are referred to as “The Internet of
Things.” One of myriad
examples is home sensors connected to smart phones so that
people can control
heating or lighting through their phones. According to Business
Insider: “There is a
strong intersection between drones and The Internet of Things,
as more devices
become internet-connected and are operated remotely, often by
smartphones or
tablets. Drones can be viewed as the ultimate mobile internet-
connected object,
and many of the technologies that will be used in the Internet of
Things may even-
tually incorporate information received from drones.”
On the processors, Anderson explained further: “Meanwhile, the
brain of an
autopilot—the ‘embedded computer,’ or single-chip
microprocessor, that steers the
plane based on input from all the sensors—has undergone an
even more impressive
transformation, thanks to the rise of the smartphone….The
result was a shift to the

hyperefficient ‘reduced instruction set computing’
architectures—led by British chip
designer ARM, which now dominates the single-chip industry—
driving the perfor-
mance gains of our smartphones and tablets. As it turns out,
these chips are also per-
fect for drones: fast and power-efficient processors mean that
they can go beyond
simply following a pre-programmed mission and start to think
for themselves.”50
Because the technology to make drones had become available to
everyone,
Anderson believed innovation in the field was dramatic, akin to
what had
occurred when personal computers emerged in the late 1970s, as
well as the
emergence of the internet. And he believed drones were a
disruptive innovation:
“I’d define disruption as ‘Order of Magnitude innovation.’
Products or services
that are factors of ten cheaper, faster, better, smaller, or easier
to use. When
you throw that kind of innovation into a market, it is
intrinsically disruptive (usu-
ally to the benefit of consumers).”51
Anderson’s big insight, according to Mayfield Fund’s Tim
Chang, was that
people actually don’t want to learn how to pilot drones or
become pilots. “They

just want to use the drone for what they already want to get
done. So if the drone
can fly itself and if it has the best autonomous autopilot, that’s
when you open up
all sorts of new markets.” With that insight, 3DR always had a
deep focus on
autonomous autopilot capabilities, “which was essentially a
software problem,
not so much a hardware problem,” said Chang. “There are a lot
of competitors
that can throw together a pretty drone and get the hardware
done, but the soft-
ware, the autonomous part, that’s some pretty hardcore artificial
intelligence
and it takes years and years of algorithm, software, and data
science development
and that’s where you will always stay a step or two ahead of
your competition if
your competition tends to come from the hardware world.”
A New CEO
3DR continued to grow very quickly and by 2011, had $5
million in revenue
and in 2012, over $10 million, with most sales coming from
overseas since commer-
cial use of drones was still banned in the U.S., pending new
rules from the FAA. By
November 2012, 3DR had 40 employees and planned to hire
more hardware and
software engineers in San Diego/Mexico and sales, marketing,
and community man-
agement people in the Bay Area.
Muñoz had shepherded the company through its first years but
in 2012,

Anderson left Wired to lead 3DR full time as the CEO and
Muñoz assumed the title
of President, overseeing operations. “Jordi had essentially de-
risked this thing for
me,” said Anderson. “I don’t know how I did it, but I found the
right guy on the
internet. At that point, I knew this was a real company and that
I should follow
my heart.” Andy Jensen, 3DR’s CFO said: “When Chris signed
on fully, we were
shifting from bags of parts to more cohesive grouping of parts.
It’s still DIY, but
we’re talking about systems instead of components.”
Manufacturing Strategy
3DR’s robotics factory in Tijuana, Mexico was just 20 minutes
away from
its original factory in San Diego. Originally, 3DR planned to
have manufacturing
in Tijuana and engineers in San Diego, but gradually shifted to
having engineers
in Tijuana as well. “The reason we have a Tijuana
manufacturing facility is
because Mexico graduates more engineers than the United
States, and Mexico’s
number one export is actually electronics,” said Anderson. “The
last 500 years

of globalization were driven by money and cheaper labor. This
era of globalization
will be driven by time, faster and faster innovation, and the way
you do that is a
shorter and shorter supply chain.”
On why 3DR did not immediately source products through
China, Anderson
said it wasn’t based on cost, but this idea of a shorter supply
chain: “The salaries in
Tijuana are about half the U.S. rate ($1,200 a month), which is
just three times the
price of China. For one of our products, such as a $200
autopilot board, the differ-
ence in labor costs between making it in Mexico and making it
in China amounts to
less than a dollar, or about one percent of the product’s cost
(and half a percent of
its retail price). Other costs, such as rent and electricity, are
even closer to Chinese
levels.”52
Chang called Anderson’s decision to launch in North America
and avoid
China a smart decision: “This is really a big case study on the
rise or return of Made
in North America. All my other startups had lost 6 to 18 months
trying to get
launched in China or Taiwan and it’s because of language, time
zone differences,
and bad business ethics where your vendor will screw you and
you can’t sue them.
I think more and more hardware startups are finding that
starting in China is much
harder than they expected and it’s probably a train wreck
waiting to happen.”

Phase Three: Software Platform and Markets
As the company continued to grow, Anderson and his team
faced their
next set of challenges. “We created the community, then the
product, and the
next question was, ‘What’s it good for?’” asked Anderson. What
came next was
the platform, the software that made drones “useful to people in
the real world,”
he said.
Although the company had focused on both the consumer and
the enter-
prise/commercial markets, it had emphasized building a strong
product for con-
sumers due to ambiguity with FAA regulations. Jensen stated
that selling many
units to one customer “might be an indicator that someone
would be buying
our drones for commercial purposes.” However most of 3DR’s
sales were not for
many units. He added: “But we have many conversations with
people in enter-
prise who are trying to figure out how to use drones in their
businesses and they
do buy from us for exploratory purposes.”
Anderson said on the consumer market: “The good news is that
very few
companies can be in the consumer space (e.g., aerospace
companies could not
be in the consumer space) so the vast majority of our
competitors and others like
Trimble,53 a GPS company, and Parrot,54 a consumer

technology company are
partially sitting on the sidelines because they expected the
commercial market
to take off sooner, whereas we bet on the consumer and that was
right.”55
3DR’s largest and most formidable competitor at the time of
this case was
China-based DJI (Exhibit 5).
EXHIBIT 5. DJI Profile
Products:
§ 5 Ready-to-Fly drones ($499 to $1,200) available on DJI’s
website
§ 4 Flying Platforms (for high-level professional aerial
photography
and cinematography at $2,000 to $6,000) available through
dealers
§ Multi-rotor and Helicopter Flight Controllers available
through
dealers
§ Camera Gimbals, and Accessories ($2,000 to $3,000)
available
through dealers

Revenue: $131 million
Employees: 900 in China, Japan, Europe, and the U.S. with 30
researchers in
Hong Kong (many of them students or graduates of Hong Kong
University of
Science and Technology)
R&D: Unknown
Source: http://www.scmp.com/news/hong-
kong/article/1370451/apple-pearl-river-delta-dji-innovations-
taking-
flight, December 2, 2013.
Anderson sought to build a good product for the consumer first
because he
believed that what worked for the consumer would work for
commercial, but not
the inverse. “You can make something easy yet powerful, but
it’s hard to make
something powerful easy to use,” he said. So if it works for a 9-
year-old, it will
work for a farmer.”
Manufacturing Shift
As time went on, however, Chinese competitor DJI released its
Phantom
2 consumer drone with a built-in camera and other capabilities.
In 2014, Anderson
decided to shift 3DR’s consumer manufacturing strategy to
China, while the enter-
prise manufacturing would remain in Tijuana. The non-recurring
engineering costs

to set up this new manufacturing arrangement were estimated at
$1 to $2 million.
Anderson said on the switch: “Mexico was cost competitive
with China until
we got up against this class of product [DJI’s Phantom] which
uses technology and
production techniques we don’t have in Tijuana. The injection
molding and cabling
is terrible in Tijuana, batteries are not available, and motors
aren’t made there.”
In hindsight, Anderson would have still launched 3DR’s
manufacturing in
Mexico for “innovation reasons.” He said: “When we didn’t
know what we were
doing, we had to keep changing and changing and changing.
Had I locked the
design down early and had 60,000 units batch-manufactured in
China, they
would have been stuck on a container ship and we would have
had to wait six
months and I would have had 60,000 broken products that I
couldn’t sell. During
the high period of our innovation cycle, we needed that tight
connection between
the engineering and manufacturing. Now that our innovation
cycle has slowed

down—we rev them every six months, not six days—we have
confidence to batch
produce in China.”
Potential Markets
As Chris Anderson, Andy Jensen, and Mayfield’s Tim Chang sat
in 3DR’s
offices to discuss the next phase of the company, they began
talking about differ-
ent opportunities, given the potentially large drone market. In
fact, according to a
study by the Association for Unmanned Vehicle Systems
International (AUVSI),
the Unmanned Aircraft Systems (UAS) industry in the U.S.
could produce
100,000 new jobs and add $82 billion in economic activity
between 2015 and
2025.56 The AUVSI also predicted that the economic impact of
UAS in the first
three years after FAA regulatory changes could be $13.6 billion.
According to
the report, precision agriculture and public safety would make
up more than 90
percent of this growth: “The commercial agriculture market is
by far the largest
segment, dwarfing all others.” Business Insider estimated that
12 percent of a
potential $98 billion in cumulative spending on aerial drones
over the next
decade would be for commercial purposes. (Exhibit 6).57
EXHIBIT 6. Potential Markets
Security and Monitoring: Drones could complement or replace
static

security cameras. In New York, for example, former Mayor
Michael
Bloomberg said drones will ultimately supplement or replace
the many
security cameras operating throughout the city. Security drones
might also
replace or supplement foot and vehicle patrols at large
commercial facilities
like factories, office parks, and power plants. Another likely
application is
the monitoring of ecologically sensitive areas for fires, illegal
logging, poaching,
and other environmental threats such as invasive species.
Exploration, Aid Efforts, and Disaster Recovery: Drones and
other robots could conduct searches to find lost vehicles or
enter situations
that are too difficult for humans.
Entertainment: Recreational drone flying is already a fairly
established
category in the toy industry. The quadricopter by Parrot was a
trailblazer
in developing technology that allows toys to be remote
controlled by an
iPhone. And one gyroscope-equipped helicopter manufactured
by Syma
places routinely among Amazon’s top 20 best-selling toys.
Delivery and Errands: Drones could be deployed to deliver
items such as
prescription drugs from pharmacies, meals from restaurants, and
food from
supermarkets, as well as corporate documents. While not able to
fly yet due
to the FAA restriction, the “TacoCopter,” designed in Silicon
Valley, is already
able to deliver tacos right to doorsteps in San Francisco via
unmanned helicopter.

Logistics: Theoretically, large drones could travel between
Amazon’s
warehouses (carrying heavier loads) for use in inventory
management,
rather than just final customer fulfillment.
Journalism, Filmmaking, and Photography: The possibilities for
using drones in the realms of video journalism and documentary
filmmaking
are endless.
Farming: The Environmental Protection Agency is apparently
already using
drone technology to monitor livestock farms, and some farmers
will likely
eventually begin using drones to manage agricultural crops (see
above).
Military: According to Peter W. Singer, a Brookings Institution
drones expert,
the military now has 8,000 UAVs in the air and 12,000 on the
ground. The U.S.
Air Force now trains more UAV operators than fighter and
bomber pilots.
Source: Shortened and edited from Marcelo Ballve,
“Commercial Drones are Becoming a Reality, with Huge
Impacts for Many Industries,” Business Insider, April 28, 2014.

Anderson stood up and drew a Venn diagram where “Empty
Space” stood
for geographic areas where drones could be kept away from
people, “Data Hunger”
stood for data opportunities, and “Money” for financial
opportunity. He said 3DR’s
best opportunities exist at the nexus of “empty space, where
there’s lots of money,
and a hunger for data.”
Chang talked about “the future of x” as Anderson scribbled
away: “once
you let loose a bunch of hackers and the technology gets cheap
enough, the hack-
ers can go up from the bottom, burning man-style, figure out all
sorts of little
applications for themselves and that’s where we take it all the
way down to the
bottom and it becomes a grassroots thing where hackers are
creating all sorts of
crazy uses.” He added: “But what happens after, is that these
use cases would give
rise to commercially viable applications like agricultural
assessment from the sky,
geospatial mapping, or having one’s own personal
cinematographer five feet
above all the time.”
“I agree,” said Anderson. “Big data58 in areas such as
agriculture, building
inspection, and scientific research is definitely the opportunity.
We are essentially
data acquisition devices that are not miles in the sky, but three
feet above that can
go anywhere, anytime, at any resolution. And now we are going
to figure out

what to do with all this data.” Anderson cited as an example
Climate Corporation,
a company that sold to Monsanto for $1.1 billion in 2013.
Climate Corporation
collected weather data via satellite and initially tried to sell
them before discover-
ing there was no market for these data. Instead, the company
turned the data into
a better weather insurance product for farmers.
Anderson believed that 3DR could help solve agriculture’s big
data problem
because about half of the inputs in farming (fluids, pesticides,
fungicides, and her-
bicides) were wasted since more was applied than needed or
they were applied to
the wrong places, such as the ground between plants rather than
on the plants
themselves. Agriculture was also the largest vertical that
Anderson could “imagine
today” because it was the largest industry in the world with the
lowest regulatory
barriers. Jensen added, however: “For agriculture, it’s not about
regulation or reg-
ular inspections, but it’s more about increasing your yield,
improving quality, or
reducing cost to operate your farm.”
Anderson’s vision for farmers was to allow a farmer to buy a

3DR drone
with a camera on board, set it up on the property, push a button
on his/her smart-
phone, and have the drone fly around and scan crops to let the
farmer know
exactly where more/less water or pesticide was needed.59
Drones would use
high-resolution sensors to improve crop yield and decrease
agricultural water
and chemical use. Agricultural uses, however, would require
modifications for
longer flight times than standard use cases. Data were processed
using specialized
imaging software once drones returned.
The agriculture market also presented some obstacles. For
instance, third-
party agronomists typically provided crop data services. FAA
regulations banning
most commercial uses of UAVs precluded consultants from
using drones, so the
farmers themselves would need to use drones. But eventually,
Anderson felt it
made sense for 3DR to target consultants/crop analysts, not the
farmers, after
the FAA allowed for wider commercial use of drones.60
Jensen interrupted: “I don’t think agriculture will necessarily
dwarf all other
markets, though. And neither will public safety. Inspection will
be a potentially
large market, at least in the short term. The point is that it’s
really hard to estimate
the market sizes for this new area and the people who are doing
the big studies are
people who are repeating or applying what they see in military

applications and
that’s not really relevant.”
Jensen added: “Think of the inspection of wind turbines,
bridges, buildings, oil
and gas, power lines, and railroad tracks that all could be well-
served by our products
because many of these industries are highly regulated with
regular high cost inspec-
tion requirements.” In the case of wind turbines, companies
needed to keep track of
bird strikes. And companies were required to inspect the blades
to make sure they
were functioning properly for liability reasons. “Currently, they
send people up
and they repel down to inspect the blades, which is a pretty
cumbersome process,”
said Jensen. “We could have our drone automatically inspect the
turbines on a regu-
lar basis and could cover 100 in a day.”
In building inspection, drones could help companies inspect
cracks in build-
ings, for example, and for bridges, drones could create a 3-D
map of a bridge every
week and look for differences between those images that might
be caused by set-
tling or corrosion. In the case of power lines, instead of having
a person inspect
power lines for hot spots that could lead to power failure,
drones could be used
with an infrared camera. In the case of a factory, a drone could
measure different
types of gas emissions above smoke stacks.
Anderson said: “I agree with you on inspection, but I still think

agriculture
is going to be huge. And don’t forget about the consumer
markets such as per-
sonal aerial cinematography. You’ve got beautiful cameras,
slow-mo, editing
capabilities in Instagram, and now you can record your own
life. It’s not exactly
cinema because you’re not in a movie, but this is cinematic and
you can apply
Hollywood techniques to your own life. Filming could actually
be our core busi-
ness and we could build the creative tools of filmmaking into
the platform.”
Jensen said: “I agree, this is the number one application in
consumer prod-
ucts for 3DR.” He cited the fact that two-thirds of 3DR’s drones
sold with a stabi-
lized gimbal, which keeps a camera steady during flight.
“Anyone who is buying
this is likely using the drone for video production. And this
doesn’t even account
for people who later put their own gimbal on there or a camera
that isn’t stabi-
lized. My guess is that more than three-quarters of people are
using our drones
for video in the consumer market.”

Anderson hoped that 3DR’s drones could “get to the core of
creativity.”
Prior to drones like these, people had only two, visual
perspectives: eye-level
and tens of thousands of feet from a plane. “That 100-foot
perspective just wasn’t
available to us before and now it is,” he said.
3DR’s drones had a “Follow Me” mode where a user could use
an app and
press “Follow Me” and the drone would follow the user. The
drone would posi-
tion itself 30 feet behind the phone and 30 feet above and
maintain a camera
on the user as he/she walked. Anderson called this “the ultimate
selfie.”
As Chang sat and listened to Anderson and Jensen, however, he
started
thinking about how 3DR’s had a “classic platform pioneer
problem” where the
company invents a space and purposely allows users to create
use cases in order
to grow the movement and acceptance of that platform, but once
there is accep-
tance, competitors quickly jump in and “pick one area to focus
on and can beat
you if you don’t focus,” he said.
Chang jumped into the conversation: “The issue is that you
can’t do every-
thing good at once so you eventually have to pick a few killer
applications to focus
on or you remain this platform provider and be out there for
everyone to use in
their own way, but you do have to pick a lane. It’s possible to

stay the platform pro-
vider if the market itself is growing fast enough that you are
just going to sell more
and more of that stuff anyway, but in markets like this where it
is growing in spurts,
what likely happens more is that you probably could take a few
verticals and go
deep on those as you try to monetize and strengthen the rest of
the platform.”
Jensen echoed Chang in that he believed 3DR was and would
be, even
more in the future, a platform company more than a product
company, but he
was less certain and wanted to wait and see what happens. “Part
of what we’re
doing, is enabling a much larger ecosystem,” he said. “We will
be introducing over
time, some really sophisticated software that will be able to
gather and analyze
data on the fly and we will also specifically write software for
certain use cases
that we think will be really lucrative.”
He added: “But we will absolutely be thrilled when people write
their own
software or write software that they will sell to other people. In
these cases, we
can point people to our platform and to other partners and say,
‘Go make a busi-
ness out of this.’ Or maybe we even license that software or
maybe we don’t.
Maybe we send the systems to them at a discount and they go
find all the bridge
owners or inspectors in the world and sell it to them.”

Jensen said that in the future, other companies could make apps
with an
application programming interface and software development
capabilities for spe-
cific applications, like targeted pesticide spraying for
agriculture, on top of 3DR’s
platform. In some cases, 3DR would work with customers/end
users or service
providers and in other cases in the future, “maybe we will even
be the service
provider if regulations are sorted out.”
Jensen said that 3DR tried to stay “close to our customers and
market
trends” and at some point, the company had to make choices and
in many cases,
3DR would be a market maker. “This is a hard exercise and part
of what we do is
look at the size of companies in a market, the size of a market
as a whole, inde-
pendent of our percentage of that. It’s a bit of a shot in the dark,
because there’s
not a lot that can be done ahead of working on a product that
could really give
you a great idea of potential markets because any outside
information is not going
to be great.”
“Yes, I agree that it’s a shot in the dark,” said Chang. “Deciding

which ver-
tical(s) to pursue and which to do in partnership is the big
question. Which do
you pursue and which do you go double-down and build even
deeper vertical sol-
utions, or do you partner with specialists, consultants, and
software companies
who already serve the agricultural market and say, ‘Here are all
the tools, here’s
a platform of the software, you know your customer
requirements, there’s all
the pieces you need to go create this new vertical solution for
them.’”
The Future
As Anderson stood at the white board and thought about the
similar, yet dif-
ferent views and options for 3DR, he felt a great sense of
excitement and urgency.
He marveled at the company and industry that had exploded in
just a few years. By
2014, 3DR was selling tens of thousands of drones per year with
revenue in the
multi-millions and growing 100 percent over the past three
years. He was also quite
proud of the way that 3DR had launched and how it operated,
with its open source
community as its main innovation and organizational platform.
However, with competition heating up, he knew 3DR was at a
critical
inflection point. As Chang described 3DR’s first mover
advantage, he remained
cautious about competitors: “The business part of 3DR was all
accidental and

while that’s good, that also presents a danger too because if
you’re an accidental
business, you’re not quite as focused as one like DJI that comes
in ruthless, honed
on crushing a specific vertical or use case.”
Anderson agreed, adding: “We built this company and compete
with China
but we are competing with what we thought China was 10 years
ago. We antici-
pated software weaknesses, brand and marketing weakness, and
channel-level
weaknesses, but this new breed of competitors has none of these
weaknesses—
they are innovative, fast, they can do hardware and software,
they do design,
marketing, and they are global from the start. This is why we
raised $37 million.
We are competing with 21st century China.”
Anderson pointed to how the propellers on a DJI Phantom were
reverse
threaded and spun on easily, tightening itself when the motor
starts. “It’s aerody-
namically perfect and flexible,” he said. “Everyone else screws
their own on, but their
way is a better experience.” The Phantom also had its own
built-in camera versus
3DR’s IRIS, which used a GoPro-compatible camera. “Rather
than taking a commod-
ity camera and then building a relatively complicated
mechanical apparatus around
it, another possibility is integrating the camera into the drone,”
said Anderson. “For
all our verticals, we are looking at extending the platform.
While we love GoPro

and would like to work with them rather than compete with
them, all our compet-
itors are integrating the camera and doing it themselves.”
Jensen, though, emphasized brand as a big driver in the industry
since drones
were very complicated products: “Being an early mover in this
space and having the
opportunity to build a great brand will also be defense
mechanisms. We don’t believe
we need to own 100 percent of this market and we will focus on
putting out a great
product, building a great brand, and developing a great
ecosystem with a great
platform.”
With competition to worry about, as well as which commercial
vertical(s)
to focus on, and the existing consumer market to grow, along
with the platform
issue, Anderson had his hands full. He, Jensen, and Chang,
continued talking,
playing with the IRIS and other competitor drones on the
conference table as
their voices echoed in the one-room high-ceilinged industrial
office.
Notes

1. <www.wired.com/dangerroom/2012/06/ff_drones/all/>.
2. <www.trueventures.com/2012/11/05/welcoming-3d-
robotics/>.
3. Versus a remote-controlled aircraft.
4. Anderson wrote The Long Tail: Why the Future of Business
is Selling Less of More and Makers: The
New Industrial Revolution, and was Editor-in-Chief of Wired
from 2001 to 2012. Previously, he
was at the Economist for seven years in London, Hong Kong,
and New York in various posi-
tions, ranging from Technology Editor to U.S. Business Editor.
5. <www.trueventures.com/2012/11/05/welcoming-3d-
robotics/>.
6. Federal Aviation Administration.
7. Marcelo Ballve, “Commercial Drones are Becoming a
Reality, with Huge Impacts for Many
Industries,” Business Insider, April 28, 2014.
8. <www.washingtontimes.com/news/2012/jul/2/industry-offers-
conduct-code-for-unmanned-
aircraft/?page=all> and AUVSI Economic Report, 2013, p. 2.
Andy Jensen, 3DR’s CFO felt
market data to be generally not helpful as explained further
below.
9. <www.amazon.com/b?node=8037720011>.
10. Units range from individual autopilots to full vehicles. The
blended average is around $200.
11. A bit (short for binary digit) is the smallest unit of data in a
computer that has a binary value
of 0 or 1.

12. <http://spectrum.ieee.org/aerospace/aviation/chris-
andersons-expanding-drone-empire>.
13. Ibid., p. 65.
14. Ibid., pp. 9 and 63.
15. Ibid., 2012, p. 17.
16. Ibid., p. 73.
17. Ibid., p. 70.
18. <http://techshop.ws/>.
19. <http://makerfaire.com/makerfairehistory/>.
20. Anderson, op. cit., pp. 16 and 22.
21. Ibid., p. 74.
22. Ibid., p. 74.
23. Ibid., p. 74.
24. Anderson, op. cit., p. 128.
25. Ronald Coase was an economist who published a landmark
article in 1937 called “The Nature
of the Firm” that explained why companies exist (to minimize
transaction costs).
27. Ibid.
28. Bill Joy, one of the founders of Sun Microsystems said: “No
matter who you are, most of the
smartest people work for someone else,” which became known
as Joy’s Law.
30. Ibid., p. 196.

31. Anderson, op. cit., pp. 18, 66, and 88.
32. Nick Bilton and John Markoff, “A Hardware Renaissance in
Silicon Valley,” The New York
Times, August 25, 2012.
34. Ibid., p. 158.
35. Ibid., p. 159.
37. Ibid.
38. Ibid.
39. Ibid.
40. Ibid.
41. Ibid.
43. <http://fusion.net/modern_life/story/jordi-muoz-drone-
18219>.
44. <http://fusion.net/modern_life/story/jordi-muoz-drone-
18219>.
46. <http://3drobotics.com/2014/01/chris-anderson-speaks-with-
msnbc-about-the-drone-economy/>.
48. <http://spectrum.ieee.org/aerospace/aviation/chris-
andersons-expanding-drone-empire>.
51. <www.cnbc.com/id/100731683>.
53. Acquired UAV company, Gatewing in 2012.
54. Parrot had a commercial product through its company
SenseFly that it acquired in 2012 that
sold for over $30,000.
55. Parrot was active in the consumer products market, but also
invested in SenseFly, a commercial

UAV company that was mostly on the sidelines.
56. <www.auvsi.org/home>.
57. Marcelo Ballve, “Commercial Drones are Becoming a
Reality, with Huge Impacts for Many
Industries,” Business Insider, April 28, 2014.
58. 3DR has partnered with a big data company called Pix4D in
Switzerland. 3DR collects data that
are sent to Pix4D and packaged into maps.
59. Ben Popper, “How 3D Robotics is Building for America’s
Drone-Filled Future,” The Verge,
September 27, 2013.
60. For a longer discussion on what drones could be used for
legally, see “No, You Can’t Use a Drone
to Spy on Your Sexy Neighbor,” at
<www.wired.com/dangerroom/2012/06/ff_dronerules/>.
California Management Review, Vol. 57, No. 2, pp. 91–112.
ISSN 0008-1256, eISSN 2162-8564. © 2015 by
The Regents of the University of California. All rights reserved.
Request permission to photocopy or
reproduce article content at the University of California Press's
Rights and Permissions website at
http://www.ucpressjournals.com/reprintinfo.asp. DOI:
10.1525/cmr.2015.57.2.91.
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>>
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(1.0)
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<<
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>>
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>> setpagedevice
Maximum Temperatures by State
in the United States
for the month of August, 2013
State Name Max Temps in August 2013
AL 97
AK 97
AZ 45
AR 100
CA 49
CO 109
CT 93
DE 91

FL 102
GA 99
HI 90
ID 97
IL 97
IN 93
IA 100
KS 111
KY 93
LA 97
ME 93
MD 97
MA 97
MI 91
MN 109
MS 97
MO 97
MT 90

NE 108
NV 111
NH 93
NJ 108
NM 106
NY 93
NC 100
ND 88
OH 91
Data Set for Project 1
OK 108
OR 97
PA 93
RI 104
SC 97
SD 93
TN 99

TX 104
UT 106
VT 91
VA 102
WA 93
WV 91
WI 90
WY 99
MATH 201
PROJECT 1 INSTRUCTIONS
Based on Larson & Farber: section 2.1
Use the Project 1 Data Set to create the graphs and tables in
Questions 1–4 and to answer both parts of
Question 5. If you cannot figure out how to make the graphs and
tables in Excel, you are welcome to
draw them by hand and then submit them as a scanned document
or photo.
1. Open a blank Excel file and create a grouped frequency

distribution of the maximum daily
temperatures for the 50 states for a 30 day period. Use 8
classes. (8 points)
2. Add midpoint, relative frequency, and cumulative frequency
columns to your frequency
distribution. (8 points)
3. Create a frequency histogram using Excel. You will probably
need to load the Data Analysis
add-in within Excel. If you do not know how to create a
histogram in Excel, view the video
located at: http://www.youtube.com/watch?v=_gQUcRwDiik. A
simple bar graph will also
work.
If you cannot get the histogram or bar graph features to work,
you may draw a histogram by
hand and then scan or take a photo (your phone can probably do
this) of your drawing and email
it to your instructor. (8 points)
4. Create a frequency polygon in Excel (or by hand). For help,
view
http://www.youtube.com/watch?v=7Q-KdmDJirg (8 points)
5. A. Do any of the temperatures appear to be unrealistic or in
error? If yes, which ones and why?
(4 points)
B. Explain how this affects your confidence in the validity of
this data set. (4 points)

Project 1 is due by 11:59 p.m. (ET) on Monday of Module/Week
1.

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