The hype around the consumer drone industry is so thick that it clouds our judgement. It is as if our biggest boosters have forgotten what our technology stack really does, what it doesn’t do, and what it should do. 

When we believe our own inflated hype, we are not developing applications that can help people today! We beat our heads on inappropriate regulatory pathways and meanwhile huge opportunities are sitting unexploited because our thinking about the ‘drone revolution’ is muddled. I hope this article will at least point to an approach path for people who want to think seriously and carefully the capability of our industry.

Drone is a distinction without a difference

Calling our industry the unmanned aerial systems (UAS) or drone industry is the first disservice we do to clear thinking. This creates the false impression that our technology is about removing pilots or labor. Drone solutions almost invariably use more labor than comparable ‘manned’ solutions  even if the labor isn’t on the aircraft. This was absolutely true of my platoon in Afghanistan, where I led the first RQ-7 “Shadow” platoon, and remains true in a variety of other applications as well.

More importantly, though, it obscures what’s really happening in the industry. What we are actually building is networked aircraft. That’s horrible marketing but super exciting—way more exciting than just plain drones! It means that remotely- , autonomously- , optionally-, or just plain-old-piloting an aircraft is an application that is running on the network node. You determine which application(s) to run based on the business case for that node, but piloting isn’t the only application you can run; you can run communications, networking, storage, processing, sensing, or robotic applications from the node. Moore’s law has come to aviation!

Thinking about networked aircraft

One lesson our industry hasn’t absorbed is that Software/Infrastructure as a Service – SaaS has been eating on-premises tech solutions since before drones were anything more than defense projects . Drones are not the peace dividend of the smartphone wars—although it sounds great when Chris Anderson says they are. Smartphones are dividend of the smartphone wars. Everyone already has one and they run client/server SaaS applications. Wherever that model will work, it prevails, for all the reasons you use Uber and Gmail and not on-premises solutions. But running your own drone is worse than running your own server because crashes are literal.

Shiny object syndrome disrespects the value legacy solutions in applications where they are superior

By lumping all drone tech together we conflate networked aircraft capabilities with other technologies that are commonly associated, like electric propulsion. Electric propulsion is cool and it’s getting better, but it isn’t on a Moore’s Law trajectory. This conflation of networking other stuff with drones leads to all sorts of inappropriate ideas about what electric drones will do soon, for example long distance cargo transport and agricultural mapping.

Small electric aircraft are a really powerful substitute for ladders, cranes, booms, dollies, and a variety of other inspection/video positioning equipment. For inspection, photography, and videography applications they are clearly a really great tool to reduce the cost of putting a camera in the air over the photographer or in proximity to a tall object. However, when you need to cover ground on the scale of agriculture or civil mapping, they don’t even come close to the right economics. You need something that flies high and fast.

The data above comes from public claims of electric drone companies for quadcopters and electric fixed-wings. I’ve tried to use the most favorable claim I know of from any company, but I’m showing my math here so you can plug in what you think if you know different numbers. I’ve included actual TerrAvion performance in the Cessna 172 column. You can halve the cost and double the acres collected and you still don’t touch a Cessna.

Electric drone collection is more costly than TerrAvion’s published rates for our OverView aerial data subscription. OverView includes not only collection, but processing, transmission to the cloud, delivery software, analytics, long-term data storage, API access, training and support, incentives to channel partners who help take action on the data, calibration by a PhD sensor physicist, and annual sensor upgrades.

What we’re doing—turning tens of thousands of acres a night around at four different locations around the world—wouldn’t be possible without the networked aircraft technology stack. A Linux server in a Cessna enables remarkable things, but most importantly, it makes it markedly cheaper and easier for growers to use imagery to control their operations.  This means that hundreds of farms are easier to run and more profitable, and soon, thousands and thousands more will be too. This may not have all the sex appeal that combat drone flights do, but it certainly has a much more positive impact on the world we live in. Someday I’d love to switch the Cessna out for a civilian Scan Eagle VIII or whatever Boeing is building in 2025, but that’s not the important part. The important part is connecting the grower to actionable sensor data.

I hope you’ll join me in thinking about how we can apply “drone” technology where it really makes an impact on all our world, even, or especially, if it doesn’t look like what people think of when they think drone.

The robotics industry is much better at making things that are abstractly awesome rather than making things that people want, and the most important tool for overcoming this problem is hypothesis testing. We need to have hypotheses about what our customers value. Then we need to test these hypotheses by trying to deliver that value.

Invariably, we find that some of our hypotheses about what our clients want are wrong because human behavior is much, much harder to engineer than robotic behavior. My own start-up, TerrAvion, initially thought that our data collection system (robot) would be used to feed analytic algorithms. But it took farmers to show us that they could use the imagery to manage their operations, creating far more value than we ever dreamed possible with the analytic approach.

The second thing is that, to take something into the market sustainably, it must be profitable on a risk-adjusted basis. Sitting here just outside Silicon Valley – an admittedly privileged position – it seems that ideas that can show they stand a reasonable chance of making a lot of money are capable of getting the funding, people, and support they need. (If you don’t find this true where you are, you should move here!) This is regardless of the underlying technology, or even if the business doesn’t have an underlying technology. To lend support, most people need some reasonable expectation that their support (whether in money, time, or expertise) will get repaid. If your idea isn’t profitable, it won’t be around long enough to repay that support.

Finally, it takes a crushing amount of work. I don’t know what to say about this. There are methods, tricks, short-cuts, and best practices, which is fine, but even if you do everything well it is a lot of work. Taking any novel idea into reality requires that you pour out all your time and attention to get a million things done. There are many ways motivate this, but the work still needs doing. It certainly helps if you can at least remove money as a negative motivation, because we all have to eat.

Above all, we are trying to do something that is of tremendous value. If what we are doing is indeed of tremendous value, our customers are happy to pay a price that allows us to make money. And making money allows us to capture the attention of good people; good people allow us to make things that people really value; and so the cycle repeats … but it always starts with doing something of great value to others. So when we let our imaginations run wild, we should always try and think about what would be of value to others.

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The Lunar Lions from Penn State are the only university team that is competing.  Astrobotic is a spin out from Carnegie Mellon, just a few hours down the road from State College in Pittsburgh.

Thanks @glxp @Robohub! @LunarLionPSU what is the story with your launch arrangements?

— Robert Morris (@robocosmist) December 11, 2013

The story of the Lunar Lions ride is actually quite interesting and shows how the Google Lunar X Prize is making humanity’s future in space a reality.  Team Phoenicia was originally a GLXP competitor.  However, in looking around at launch services, the team discovered that there was excess rocket payload capacity that was hard to purchase: surplus capacity on flights scheduled for other customers.

Team Phoenicia dropped out of the GLXP and now runs a business breaking up the payload capacity of rockets. Since the Lunar Lions don’t need all the spare payload capacity, some is going to be sold to other customers who want a ride to orbit.  Some of this capacity will be to low Earth orbit, but at least two cubesats will also make the ride to lunar orbit.

When the GLXP says we are going back to the moon for good they are serious.  We are going back with an armada!

Here is the new GLXP leader board:

Though I’m a bit late in reporting this, I believe that the leader board above now accurately reflects the launch dates that have been announced as of the end of 2013. Once again, please note that the the leader board does not yet take into account the certainty of the launch date or the likelihood of a team succeeding.

More team disclosures would give us a better picture of how things are heating up!

The rules of the Lunar X Prize are that, to win the grand prize ($20M + bonuses), you must land on the moon before the end of 2015 and move at least 500 meters while sending back HD video. The second place team also gets a small prize and a shot at some of the bonuses. Additionally, there are some milestone prizes. In 2014, about $10M in prize money will go to teams that demonstrate a series of technical and team objectives here on Earth. I look forward to seeing those awards, because it will give us a better idea of who is ahead and whether launch dates tell the story.

To enjoy racing, you must be able to know who is ahead right now, but there is surprisingly little coverage of this event that gives a clear picture of which of the Lunar X Prize teams are on track to finish and who is leading. Since the key to this race is getting launched, my view is that whoever has a launch agreement this stage is a strong contender. So without further ado, here are my picks for the Google Lunar X Prize leader board:

Currently, according to the Google Lunar X Prize website, there are 20-odd teams that are still “Active.”  Current leaders are Barcelona Moon Team and Astrobotic — they both claim booking on launch vehicles. Moon Express and Team Indus have made ambiguous statements about possibly having an identified launch vehicle. Other teams do not look to be far enough along to be seriously considering a launch before the end of 2015 — though I would be very happy to be wrong on this point.

So here is blow-by-blow recount of how we got to where we are:

May 2013: The first shot in the GLXP was fired by Astrobotic.  They announced an agreement with SpaceX to ride a Falcon 9 in October 2015, three months before the expiration of the Lunar X Prize.

June 2013:  Team Indus makes an ambiguous blog post about having the ISRO Polar Satellite Launch Vehicle “pre-selected” for them.

August 2013:  Barcelona Moon Team fires back and takes the lead. They announced that they have set the date for their previously unscheduled launch aboard a Long March 2C.  And what an announcement: they grab pole position from Astrobotic by four months, announcing for June of 2015.

December 2013:  Moon Express CEO Bob Richards tells me via Twitter that they hope to announce a launch partner in early 2014, amid a flurry of publicity about testing of their MX-1 lunar lander.

I cannot wait to see private exploration of the Moon begin. The frontier will be open again.  This time, instead of being conquered by man and beast it will be won by man and robot.

In an effort to increase the quality of available information on this amazing contest, I welcome comments, additions, contradictions, snarky tweets, and corrections.

Other references:

Astrobotic SEC Filings
Moon Express SEC Filings
Wikipedia X Prize Page
Robots Podcast: Race to the Moon, with Red Whittaker

The keynotes highlighted a couple of things that I thought were worthwhile.   First is that robotics is at the beginning of its journey.  Robotics is attacking markets and building companies, but the best is yet to come.  Dan Kara of Myria RAS talked about robotics working on delivering value to the whole manufacturing sector instead of merely automating pieces of processes.  Sanjiv Singh talked about a true trillion dollar market that he’s being laying the groundwork for: personalized aviation.  Admittedly a bit blue sky right now, but he had the videos of his full-sized (as in AH-6 “Little Bird” helicopter) performing the necessary actions to fly autonomously in obstructions and uncertain landing areas.  We are at the dawn of an era, robotics is no longer just talk, and the action is going to get greater and greater.

On the other hand, the message I took away is that we are still dazzled by fancy public relations, or perhaps our own wishful thinking.  Henrik Christensen pointed out that that MAKO Surgical just got acquired by Stryker (NYSE:SYK) for $1.6 billion.  I have not seen a peep about this from any of the robotics press, save Robohub and the Robot Report’s Frank Tobe.  We have been hearing for a year about how the $775 million acquisition of Kiva is going to transform the Boston robotics scene.  I look forward to a year of hearing twice as much about how the Ft. Lauderdale robotics scene will be transformed.

The floor was a nice a smattering of robotics from primarily the two disciplines, described yesterday, industrial robotics and consumer device robotics.  However, a few departed from this paradigm and exhibited some service and field robotics.  I really liked ASI’s heavy equipment because, it can really do field work and I think that is where robotics future lies.

I am also not insensible to how cute robots can be.  I had never seen a Pleo in the rubberized fabric skin before.  They are amazingly cute!  They really do respond to what the owner does.  I’m not sure my photography does justice to how it nuzzles its head against your hand in the most adorable way when you pet it gently, or looks plaintively around and squirms when you pick it up by its tail.  It is really quite a remarkable feat of engineering.

There were 16 breakouts which were a mixture of speakers and panel discussions, ranging from technical and speculative talks to business subjects.  I particularly enjoyed the investor panel, but I am not sure that there were any earth shattering revelations beyond the prominent presence of the venture capital investors at RoboBusiness.  This change has been really cool to see.  Robotics is finally getting attention from regulators, attorneys, venture capitalists, and capital markets.   We have arrived as a real industry!

Fittingly, the night closed with the iRobot cocktail reception.  There were iRobot martini glasses … what else do I need to say?

‘Drones in agriculture’ has been a topic hot lately, but is it a real business?

As a former Army UAV platoon leader and a current founder of an aerial data collection start-up, I believe so, but when I first got back from Afghanistan, I did not see how drones could be a big thing in agriculture. WHY? I still do not see how the “pilotless app” makes a decisive difference in most civilian applications.  Yet as I expanded my view of a drone to be any flying network node — be it piloted or unpiloted, in the air or in space — I started to see how drone technology could deliver data that creates real value.

Drones may someday perform all kinds of “work” in the field, like spraying or seeding.  However, today the product of the drone industry is not drones, it’s data. Two ideas persuaded me that there is a business here.   The first is that variability information has real value to growers — it is production control data.  The second is that there are places where drone technology allows real data to replace heuristics and estimation in order to drive action.

Agriculture is a very sophisticated business.  Even in specialty crops with less automation, the growers are extremely sophisticated and as scientifically inclined as one would expect of managers of multi-million dollar production facilities.  Putting production facilities out of doors and using production implements derived from nature only increases the complexity of these operations.   In particular, it introduces uncertainty, variation, and risk into the production process.  The managers of these operations, who  have responsibility for maximizing production, are the customers for this data.

When these managers are trying to squeeze the most production out of a given set of inputs, particularly land and labor, there is a natural cycle of input opportunities.  Data only has value if the manager can act on it, and this is where agriculture becomes extremely heterogeneous.  At one end of the spectrum you have dry farming of corn, where there might be three or four viable input opportunities (plant, a spray or two, then harvest), most of which are already done automatically — or robotically — on a combine.  In high value per acre specialty crops (like vegetables, grapes, or nuts), managers might make over 50 discrete, pre-planned input decisions each year, especially if the crop is deficit irrigated.  Even though these crops are in some ways “lower tech” in that they don’t use as much machine automation (such as combines), they do have a much more sophisticated ability to react to variation data.  These are where the drone’s fundamental advantages are most likely to be valued.

The tradeoff in data collection is a tradeoff between the cost of collection per geographic unit and “responsiveness.”  Responsiveness is the degree to which the system can deliver exactly the data needed to make better decisions, exactly when needed, and is a function of many factors including system reliability, resolution, revisit rate, sensor selection, controllability, and ease of deployment.

Drones and other overhead networked systems provide a continuum of data options.  At one end you have LANDSAT satellite data, which provides free, 30-meter pixels, un-interpreted data once every 16 days (if you are lucky enough not have clouds).  At the other end of the continuum, there are hand-launched drones, which have a high real cost per acre because of their short lifespan and the amount of labor required, but can be launched at anytime and are cheap enough to keep in the back of your truck.  In between you have a variety of commercial solutions.

There will always be a tradeoff between cost and responsiveness, but the idea of drones is that electronics will move the efficient frontier in this tradeoff towards more responsiveness at a given cost.  The challenge with this access to better data is not to overshoot the mark.  It is very expensive to overshoot the required responsiveness for the crop.  The trick is match responsiveness to the needs of the manager.  This is the task for the commercial drone industry: match responsiveness to the needs of the decision-maker.

As time goes on, every category of platform across the continuum will have to offer more responsiveness for the same money.  However, the customer responsiveness needs will not increase unless the managers are also given new mechanisms for taking action. Beyond being used to control fast-spreading crop diseases, I do not know what new markets will open up for drones — perhaps they aren’t in agriculture; the film industry certainly requires even more responsiveness than anything in this field  — but it is going to be fun to discover them.

One of the challenges that I would like to lay down to the ground robotics and manipulation communities is to reduce the cost of making an intervention.  Until it makes production sense to go out into a cornfield 20 or 30 times per season and take an action to improve growing, there won’t be a need for more responsive information.  As interventions become more profitable and crop managers decide to increase the number of interventions, there will be a greater need to automate data collection.  Then we can kick off a virtuous cycle of robotic technology.

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All the panels that I went to were focused on this latter view of robotics as a more or less consumer-focused industry.  There were talks about building robots that delighted customers, how to scale manufacturing, get venture capital investment, go big in crowd-funding, and how to market a product with or without crowd-funding.  I hope that Frank Tobe will be able to fill in some of the stuff that happened at the robotics as manufacturing automation because the rest of the Robohub contributors were at the start-up breakouts.

The pitchfire was the runaway success of the evening. Many great start-ups got to discuss the robots they were building.  The winner was Unbounded Robotics with their new UBR-1 robot as general purpose ROS platform.

The Pitchfire event was organized by Robohub’s very own Andra Keay who had this to say about it:

We’re seeing the emergence of many robot startups across just about every vertical possible. There is a real convergence of funding, technology and demand. By leveraging the lessons that software startups have learned in the last decade – iterate early and often – hardware startups have closed the funding gap and are now the hottest properties around the Valley.

A pitch event is great for robotics startups. If you’re in Silicon Valley – at least in the mobile and software world – then you see a lot of companies pitch, you hear a lot of feedback from investors and you learn a lot about what makes a startup successful. Silicon Valley Robotics is helping robotics startups get the same level of acceleration, with pitch events and startup seminars.

This RoboBusiness is not the cause, but it definitely marks the arrival of the Silicon Valley spirit in the robotics industry.

Key Takeaways from Day 1:

• Robotics is now being considered at as consumer electronics segment.
• Hardware is not as important to the consumer electronics view as many other disciplines, especially software, community, and marketing.
• If you mix alcohol and robotics, you definitely get a better audience response.
• Our industry, at least as represented at RoboBusiness, is still really focused on the robot.  [I’m biased about this, I run a robotics-based service company.  I heard very little discussion of robotic services.  I see a lot of them out there not only in agriculture, but in everything from offshore oil and gas to lab automation, and I didn’t seem them at RoboBusiness.]
• The best part of RoboBusiness is getting to see old friends and meet new ones.

My company, TerrAvion, has been building a data delivery system for our robotics system on Amazon Web Services (AWS).  AWS (Question for another day: is AWS a cloud services robot?) is an excellent example of how to think about handling openness.  The platform is very open—the essential premise is that the customer can build any kind of web application on AWS they can imagine and code, while never having to buy or run a physical server.  Almost everything that could be touched by a customer is open.  There are tons of open source re-useable code and tools available freely to developers on AWS.

However, not everything is open.  We collect almost a terabyte of data a day when we run our system, so we store a lot of idle data in a sub-service of AWS, called Glacier, which is one of the cheapest ways to store data in the cloud, but it has long retrieval times.  Amazon publishes a lot of information about Glacier: speed, redundancy, expected loss over time, retrieval procedures — but nobody knows how Amazon really does it.  A magnetic tape storage solution is the most common belief, but there is also speculation that they use retired hard drives that are generally powered off.  Not to mention there are a bunch of back-end code and human procedures that remain secret.

In a sense, these tools could be open source.  I’d wager that whatever tool AWS uses to run Glacier runs on Linux in an open source language.  Some Glacier code may even be shared back with the community in bits and pieces.  It wouldn’t be crazy to think that the open software runs with some vendor-sourced proprietary components.  However, that whole side of the business is concealed from us.  All we know is that AWS’s combination of technology and organization allows them to store data a price almost no one else can match.

Amazon has achieved openness Nirvana.  They have a solution that functions as totally open from the customer’s perspective.  Customers completely understand how to use, functionally duplicate, hack, and interface with the AWS service.  However, at the same time Amazon manages to achieve secrecy and differentiation around their unique advantage, which is having the technology and processes for price leadership.

If robotics is actually a service industry, Amazon’s approach points to the correct way of thinking about the problem of openness.  What openness will help your customers?  What is it that your company does that is differentiated?  What actually enables you to create and maintain that advantage?  Robotics can be mostly open source and extract the advantages of unique and differentiated intellectual property.  Try on this idea for your domain, and let me know what you think.

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The committee discussions, hopefully indicative of the general tone of legislators everywhere:

The committee seemed to be wrestling with several questions about where to start.  Many wondered what exactly is a drone (Good luck!  If anyone figures out a clear definition let me know!) and what the capabilities of this class of technology are.  I hope that the message that came through from the witnesses is that “drones” are not distinct from other vehicle and sensing technologies, but are just a subset of the flying class of these technologies, and that their capabilities are similar to manned platforms of the same class.   I was also very pleased to see that the committee was eager not to foreclose beneficial uses of the technology.  Some of the committee members specifically cited my company, TerrAvion, as an example of they type of application they wanted to avoid regulating.

The committee and the witnesses all recognized that air safety is regulated by the FAA, but that the states can impose additional regulations on privacy, particularly in law enforcement.  If we are to live in a democracy, there have to be limits on the government’s ability to collect information on citizens.  However, I think that the thoughtful testimony of Sheriff Geoff Dean of Ventura County pointed to the fact that law enforcement agencies are ready for the challenge of using new technology under the supervision of the courts and elected officials in a way that is focused on creating real community benefits and that is not generally invasive – even to people who might be kind of sort of breaking the law, by speeding or possessing marijuana here in California, for example.

Principles for regulating drones:

Uniformity:  I believe that greater regulation of surveillance by the government is required.  Some of the things western intelligence agencies are doing are terrifying.  As a patriot and a veteran, I am dismayed at how our government relates to collecting data on its own citizens.  As a drone operations leader who has participated at the pointy end of the intelligence spear in Afghanistan, I can tell you that cellphone and e-mail monitoring represents an exponentially greater threat to democracy than having a whole fleet of drones at the government’s beck and call.  When we make privacy regulations, let’s regulate what information individuals and the government can collect, not how they collect it.  The platform that is used to collect the information should not matter.  If I can’t collect information with a plane, then I shouldn’t be allowed to collect it with a cellphone camera either.

Moreover, private individuals ought to have the same right to collect information that the government does.  In practice this might mean that if the government can fly a drone, I as a private citizen should be able to fly a drone.  If the government can issue a subpoena (or national security letter), I as a private citizen should be able to discover those same records in litigation for things that have nothing to do with national security.  There should be uniformity, no institution should be sitting in privileged position, if there are extra steps for government uses of data, I’m okay with that.

Regulate Late in the Information Cycle:  A corollary to  the idea of regulating uniformly, is to regulate late in the information cycle.  One of the key ideas of modern information networks is the idea that the information cycle is being modularized.  This modularization means that instead of a single organization that delivers “the answer” through all the steps, a decision-maker can change one part of the process at a time to deliver better results.  The implication of this is that collection is likely to be used in many unanticipated ways.  Regulations that are targeted “upstream” in the data cycle are likely to become obsolete and quickly generate unintended effects.  If legislators are looking curtail specific negative effects of data collection, they should target them later in the information cycle, most importantly at taking actions.

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I love the United States’ robust take on personal freedom.  Taking our cherished rights and freedoms into the digital age is going to require hard, thoughtful work from legislators, voters, and public and private officials.   I hope the robotics community wakes up to the fact that data collection and privacy are not just drone issues, but issues that we share across domains and with other data-rich technology sectors.  I am heartened by my participation thus far in our democratic process; it seems like people are really working to accommodate each other’s concerns and arrive at a future that we will all be happy to live in.

The first pass seems to indicate that Boston is actually living up to the hype this year as it tops the list in number of deals and amount of funding and brings home the three largest deals.  Silicon Valley trounced the rest of the country on last year’s list with a similar performance to Boston’s this year.

Stay tuned for more analysis of the list once there is time for collective knowledge of the internet to complete the missing deals.

In December my colleagues and I produced a valuation of Intuitive Surgical.  Below is a representation of our model of the asset structure of Intuitive Surgical in our forecast.  Whether you agree with our estimate of a 31% return on economic assets or not (though the stock market roughly seems to), this chart is very instructive to look at what the economic assets of a successful robotics firm are.

And hey, guess what?!  Intuitive looks more like a software company than a traditional manufacturer.  Strike another blow for the case that robotics companies – at least successful ones – are capital efficient!

Moreover, if I was critiquing the model in the valuation I would say that we hadn’t adequately valued the intangible assets of Intuitive Surgical.  The intangible assets of the firm probably have a market value of 2-8 times what we estimate.  Even with our conservatism, look at what you’re buying into when you buy a share of Intuitive:  A $2Bn stack of cash, a multi-billion dollar IP portfolio, and a smallish medical device manufacturing company.

[How to read this chart:  Black is our estimate of “R&D assets” in $K so starting balance is just shy of $2Bn.  Red is GAAP non-financial assets, otherwise know as real stuff, like buildings, inventory, and accounts receivable.  Grey is our estimate of financial assets with the current dividend policy–this model posits that Intuitive will be sitting on $4Bn in cash or the like in 2016 and an IP portfolio equally as large and valuable.Return on economic assets was estimated using our income forecast over capitalized R&D spending in the R&D account plus assets less cash and securities.  The model has a depreciation factor for R&D each year to account for obsolescence and expiration.  We went back several years to estimate an appropriate R&D account starting balance for the projection.]

The stock market assigns a $20Bn valuation to Intuitive.  It recognizes that Intuitive’s control of  intangible assets is very valuable. The graph of the model here only scratches the surface of intangible assets.  We assumed that the only off balance sheet economic asset was an R&D account.  Clearly, this is not the case as Intuitive Surgical also has unique and valuable organizational processes, sales relationships, and employment relationships with talented employees but those are much harder to find information about in SEC disclosures.    Similarly, we also marked R&D at cost–with a portfolio as valuable as Intuitive’s the market is probably going to value the R&D output at more than Intuitive paid to develop the R&D assets.

Even with all this, Intuitive Surgical looks like lean, mean, capital efficient, IP intensive, knowledge economy company.  Can anyone tell me why we let people talk about robotics like it is capital intensive?

I’d like to gratefully acknowledge my co-authors of this report who have given me permission to publish it: Avinash Belur, Naohiro Furuta, Masayuki Minato, Kohei Mutoh, & Dashampreet Sidhu.  Analysis available by request.

In particular, Anderson promoted one idea that deserves the attention of the drone industry: that by operating in a legal “grey area” (read: deliberately violating regulations that are perceived as unreasonable and unenforceable) drone enthusiasts will force regulatory movement, and this is a good thing. Anderson gave two examples of circumstances that challenge current regulations: Lego Mindstorms being classified by regulators as a cruise missile guidance system (and hence violating export controls), and flying drones in contravention to the FAA regulations governing the use of unmanned aircraft.

Technologists in general (and Silicon Valley in particular) take a dim view of regulations promulgated under the old order (e.g. Lyft, Uber, AirBnB), and it’s true that some aspects of the FAA regulations are out-of-date and no longer reasonable. But while I’m not completely outraged when technologists upend the status quo to make something new (and improved), this attitude works better in industries that don’t involve fast-flying heavy objects.

Let’s remember that the FAA’s primary goal is to keep people from getting killed by aircraft. When it comes to aircraft regulation – manned or unmanned – people on the ground are the main beneficiaries. We are not talking about regulating a relatively low-risk activity (like renting your room out with AirBnB); we are talking about regulating heavy objects hurtling over the heads of people who haven’t consented to be part of the experiment.

Our society rightly asks the government to ensure that activities that impose risk on others — especially those who did not consent — be minimized. We need to update our regulations, but aircraft operators need to respect the letter and spirit of the law as it stands.  What standards do we have if not the law? If we follow the path of breaking all the rules, someone is going to accidentally kill a sympathetic bystander. Beyond the personal tragedy this will create, such an accident will set back our industry and the benefits we can provide to society by a decade.

In Afghanistan, one of my planes almost smacked into a helicopter, but it was the helicopter – not the drone –  that had come, without clearance or radio calls, into an active artillery firing ROZ (restricted operating zone: this is an airspace control measure that makes sure that aircraft don’t run into artillery fire).  Similarly, the first full-sized drone and manned aircraft collision involved a C-130 violating airspace control measures around an airfield.

Pilots are not infallible and often break the rules. The best drone operators have a different safety culture: one where there is proper approval for everything, because every move will be recorded and second guessed. Military drone safety culture is a great example of this approach. I hope this culture will permeate the civilian unmanned aircraft community as well.

Although breaking the rules might move us toward our unmanned enabled future a little bit faster, this is an incredibly dangerous path for our industry and our bystanders.  The closing thought of VLAB Drones was that unmanned aircraft will eventually make the airspace safer for all users.  The panel wondered if this was hyperbole, but it is inevitable when drones have a strong safety culture. Conversely, as long as we are the irresponsible jerks of the air, safety conscious regulators like the FAA will be unsupportive of us flying.  When we, as a civilian unmanned aircraft industry, can be counted on as strong safety partner, and when people in general and commercial aviation are learning safety lessons from us, there will be no more foot dragging. We will get our airspace and the drone revolution will finally be here.

In the meantime: seriously, don’t do anything that could kill anyone, please. Especially if it is illegal. You will ruin it for the rest of us.

Misperception #1: There is some sort of ethical quandary or challenge in using robotic weapons.

There is no controversy about the legality or ethics of current and contemplated robotic weapons. The controversy is manufactured.  There are legitimate concerns about the ethics of the campaigns these weapons are used in.  Western law and ethics tell us that necessity (a true and ethical need to attack a target), proportionality (minimizing unnecessary destruction), and discrimination (minimizing the destruction targets that are prohibited or non-combatant) are all required for legal and moral use of force.  Despite the ceaseless talk of civilian casualties, robots and drones enable unprecedented proportionality and discrimination.  The statistical record of even the most controversial program shows that these systems are among the most precise and humane weapons in history.

Having seen the war in Afghanistan, I am sympathetic to the idea that the United States has gone too far in the Global War on Terror.  However, resorting to debate over the means obscures the real question we face as a democracy: Should we be engaged in this war at all?  If we decide that we should be engaged in war, robotic weapons represent a huge improvement in almost every way over 19-year-olds with automatic weapons.

I saw first-hand how horrible this path is.  When troops of the 82^nd Airborne Division (one of the most elite in the U.S. Army) came to relieve my brigade, the first thing they did was shoot a farmer because he was “armed” with a shovel.  I could go on about the pregnant women, families, and the doctors shot at by convoys and check points, the botched raids by uber-elite units… Let us not delude ourselves: no matter how it is conducted, war is a horrible, disgusting business.  If the alternative to war is so horrible that a war is justified, our values demand that we conduct war with the most proportionality and discrimination that we can muster.  With a drone strike, the decisions are being made with better intelligence, certainty of review, in places removed from the fear and chaos of a firefight, and in accordance with procedures.  So much so that lawyers literally stand with the commanders ordering a drone strike to review it before it happens.

Misperception #2: Drones and robots will change the way that militaries relate to societies.

Some inventions change the way that militaries and societies relate by changing who is in charge and how society will be managed.  For example, the Phalanx allowed the first rise of democratic society, the mounted knight enforced feudalism, and electronic and atomic weapons required the creation of the bureaucratic state. Other inventions change warfare for soldiers but do not affect how the military relates to society. Britannia ruled the seas under both sail and steam, and the flintlock was replaced by the percussion cap, but societies didn’t have to evolve as a result.  The entry of robotics into warfare will likely not change the relation of militaries to societies.  Robotics are a natural growth of and response to precision weapons. The same classes of people and similar organizations are needed for both robotic and precision weapons systems.  Military robotics are the next stage of development for weapons we’ve had for the whole electronic age.  If the surveillance state becomes a reality, it will be cellphones – not drones – that bring it about.

Misperception #3: Military organizations will continue on as before with robotic weapons.

Lost in the sound and fury about drones is an understanding of their true nature in the military.  The value of a military drone is not in weapons, hours of endurance, or even in keeping pilots out of harm’s way.  The value is in giving the commander and his staff the most information-privileged position on the battlefield. Especially on the fast-moving, post-WWI mechanized battlefield, commanders had to be close to the main effort to make the best decisions.  Forces were positioned and organized to support the maneuver of the main effort.

Contemporary technology —  particularly networks and robotics — pushes the military in other directions.  Information is most available at network hubs where information from multiple sources can be fused by staff.  Forces are spread out to guard and support dispersed operations.  Smaller groups and smaller platforms are more capable when used in conjunction with supporting networks.  Even services that have used drones and robots extensively have not found the optimum model for organizing and supervising the systems they will need on the battlefield of the future. The political and budgetary systems that oversee the military have not grasped how resources need to be allocated to make the forces of the future.

Feel free to comment.

Last time I checked 26 is a lot more than 18.

[Image Source:  Google Finance]

By the criteria of the market commentators, the ExOne IPO was a huge success.  You can Google things like “3D printing red hot.”  The IPO was priced at $18, at the top of the range $16-18, it opened around $26 before shooting up over $33.  Almost a week later it is trading roughly at its opening price.

Now this is all fine and dandy as far as it goes, unless you were an ExOne shareholder.  One shareholder sold 300,000 shares in the IPO.  This shareholder transferred a gain of $2.4M to some connections of the underwriters–great if you know the underwriters, not so great if you’ve built the company from nothing.  This shareholder is getting $5.4M, less fees and discounts–call it $5M–from the IPO, so $2.4 is not exactly a rounding error.  Presumably, this shareholder is also more inclined to build companies with the capital than whatever speculators are hovering around the IPO.  Similarly, the company lost out on $40M of capital that could be invested in projects.  Think about that!  The company is worth less than $350M and the IPO mis-pricing cost it $40M of cash.  Cash!  That is cash that could be invested to grow the company and make even more money.

I’m not familiar with the track records of FBR, BB&T, and Stephens, the underwriters for the ExOne IPO, but I’d think twice or three times about hiring them if I was making an initial offering.  They seem to have not only underpriced the IPO, but also floated too much of the company–almost 40%.  Underpricing the IPO might be tolerable if the bankers had only floated 5-10% of the company.  To raise additional capital, the company could have done a secondary offering once the stock had a well established market price instead of getting ripped off during the IPO.  However, the large offering certainly did do one good thing for the bankers: it increased the underwriting fee.

It is hard to explain an IPO price that is so far below the fair market value of the company.  There are a lot reasons why bankers and even executives try to justify under pricing an IPO, but giving-up over 10% of the firm’s market value in a single transaction is really hard to justify no matter what.  Some small part of the economic gains from listing publicly could be given to financial intermediaries and incoming investors to get a deal done, but giving up more than 10% of the company is excessive.  These new shareholders have no restrictions on ownership and are quite likely to flip their shares instead of taking an active roll in growing the company, which seems to further erode any claim they might have to extraordinary gains.

If my company ever goes public, I hope I’ll have the good sense to hire Morgan Stanley–because unless an underwriter is involved in litigation for overpricing an IPO, how can you be sure they’re any good?  Heck, they even give discounts.  What’s not to like?

UPDATE:  This post is adapted from the original posted on robocosmist.com following the ExOne IPO.  At market close on March 4th, a bit less than a month after the IPO, ExOne shares were priced at $27.26–more than 51% over the IPO price and very close to the opening price.