Updated: Mar 30
On a clear March day last year, Chris Anderson led FORBES onto the outdoor deck at 3D Robotics’ Berkeley, Calif. headquarters to discuss the future of flying robots. As the CEO of North America’s largest consumer drone manufacturer, Anderson, former editor-in-chief at Wired and author of New York Times bestseller The Long Tail, explained why drones would be the next convergence of computing and gadgetry. 3D Robotics was poised to take advantage of a multibillion-dollar opportunity, he said confidently.
“There are no drones in the sky right now, and that is so weird,” he remarked, pointing to the heavens. “When you talk about a blue sky opportunity, we really are looking at one.”
Drones may still prove to be invaluable pieces of consumer technology like personal computers or smartphones, but the outlook for 3D Robotics is now cloudy and bleak. In 12 months, the company has gone from an industry leading U.S. drone startup to an organization struggling to survive--the result of mismanagement, ill-advised projections and a failed strategy that relied on a doomed flagship drone. As a result, 3D Robotics has laid off more than 150 people, burned through almost $100 million in venture capital funding and completely changed its business strategy.
FORBES spoke with 10 former 3D Robotics employees to understand the company’s predicament. Many said that they were unaware of any problems until the beginning of this year when poor holiday sales and rapidly evolving technology from competitors forced Anderson and his executive team to move away from consumer drones. Others said they saw the collapse coming a little more than a year ago when 3D Robotics stumbled in the production of its first mass market drone, Solo.
“It was classic Silicon Valley hubris,” said one former employee, who asked to remain anonymous because he still works in the drone industry. “3DR was a $100 million blunder based on ineptitude.”
At its peak, 3D Robotics had offices in the Bay Area, Austin, San Diego and Tijuana; employed more than 350 people; and was valued by investors--which included Qualcomm Ventures, Richard Branson and True Ventures--at more than $360 million according to Pitchbook, a private company research firm. Seeing a consumer drone space with few competitors, Anderson hoped to develop flying robots that appealed to the average consumer as well as businesses. In one of his last stories before departing Wired to run 3D Robotics full time, he envisioned a future where kids flew robots in their local park, while farmers and construction workers used the same device to map corn fields or survey build sites.
That drone was supposed to be 3D Robotics’ Solo, a sleek black quadcopter, whose open source software platform would invite outside developers to create a host of capabilities. Solo, however, never caught on after its April 2015 debut, the victim of missed product deadlines, buggy components and stiff competition from SZ DJI Technology Co., a Chinese company that slashed prices and moved quickly to develop newer devices.
“What we realized is that it’s just going to be inherently much more difficult for a Silicon Valley-based, software-focused company to compete against vertically integrated powerhouse manufacturing company in China,” said Colin Guinn, 3D Robotics' former chief revenue officer, who departed in September.
Anderson, a 55 year-old who regularly delivers his vision for drones in keynote speeches at industry conferences, may have realized this too late. 3D Robotics spent nearly everything it had to manufacture Solo, and while it has pivoted into developing software and service applications for partners like Autodesk, it’s unclear how much money the startup has left. In an interview last month, Anderson declined to discuss his company’s financial situation, but said that 3D Robotics was now solely focused on enterprise software.
“We exited hardware and we exited consumer partly because it was a tough market,” he said. “DJI is an amazing company and lots of people got pounded.
“It was just brutal.”
3D Robotics began as the brainchild of Anderson and Jordi Muñoz, a 20-year-old Mexican immigrant who was tinkering with remote control helicopters out of his home’s garage in Riverside, Calif. After meeting through DIY Drones, an online community for drone enthusiasts created by Anderson in 2007, the then-Wired magazine editor was so impressed with Muñoz' self-made autopilot systems that he sent him $500 to help with his work.
The odd couple founded 3D Robotics in 2009. Muñoz maintained the small operation selling homemade drone kits and autopilot circuit boards while Anderson remained on the fringes, managing the bustling DIY Drone forum and keeping his day job at Wired. By 2012, however, Anderson turned his attention to his drone venture, penning a piece in the technophile publication that illustrated how bullish he was on the technology.
“Just as the 1970s saw the birth and rise of the personal computer, this decade will see the ascendance of the personal drone,” he wrote in a Wired cover story entitled “How I Accidentally Kickstarted the Domestic Drone Boom." “We’re entering the Drone Age.”
By November of that year, Anderson had secured a $5 million round of venture funding and vacated his editor post. 3D Robotics expanded its operations, with Anderson, as CEO, running business operations from Berkeley, while Muñoz built out offices in San Diego and Tijuana. The next year, the company raised another $30 million.
As 3D Robotics began to take flight, Shenzhen-based DJI was starting to assert itself as the early consumer drone leader. Founded in 2006 as a company that built flight controllers for RC helicopters, DJI unveiled the Phantom in 2012, a complete off-the-shelf device that would become the standard for consumer drones. With the Phantom, DJI, unlike other Chinese tech companies that stay on their side of the Pacific, targeted a global market, establishing an American office with the help of Colin Guinn, a drone nut and former reality television star. As the marketing face, Guinn took the Phantom to trade shows and sold the product into hobbyist retailers.
By late 2013, Guinn’s relationship with DJI had soured, and he was forced out after the company shuttered its Austin operation. Guinn sued and took his revenge one step further by joining 3D Robotics the following February. (DJI and Guinn later settled out of court.) With his fellow former DJI America employees in tow, Guinn, as chief revenue officer set up an Austin office for 3D Robotics that handled marketing and sales.
“In meetings, he would always say ‘I want to fucking kill DJI,’” remembered one former 3D Robotics employee.
Together, Guinn and Anderson dreamt up the Solo to challenge the Phantom's hegemony. Instead of white, Solo would be black and offer features--such as scripted flight paths, open code for developers and responsive customer service--that DJI lacked at the time. Despite its relatively steady do-it-yourself parts business that was bringing in $10 million a year, 3D Robotics focused all its resources on its new drone and acquired Sifteo, a consumer electronics game maker with no prior drone experience, to form the project’s core engineering team.
When 3D Robotics launched Solo in April 2015 at the National Association of Broadcasters conference in Las Vegas, The Verge said it “may be the smartest drone ever,” extolling the device’s self-piloting features and its control of an on-board GoPro. Drone followers also celebrated that there was now an alternative to the Phantom, a prospect that worried 3D Robotics’ main competitor. That spring, DJI founder and CEO Frank Wang traveled to Berkeley to talk with Anderson and offered to buy the company outright, according to one person who witnessed the meeting. The 3D Robotics CEO, who was about to start shipping Solo, declined. 3D Robotics was in for the long haul.
Former employees told FORBES that they noticed issues with Solo as soon as the devices hit the shelves of Best Buy in June 2015. “Things were never going to plan after the Solo launch,” said one.
The drone’s GPS system sometimes failed to connect correctly to ensure stable flight, causing the drone to fly away or crash. The gimbal, or camera-stabilizing device, faced production delays and the first Solos hit the market without this add-on, making it unsuitable for photos and video, the chief use of most consumer drones. “Making the gimbal was harder than making the drone,” said Guinn, who noted that the devices didn’t get to customers until August, a full two months after Solo’s launch.
Still, 3D Robotics executives remained bullish on Solo’s potential, forecasting huge sales for the holiday season. According to one employee, CFO John Rex and Anderson, who had already committed to make 60,000 of the quadcopters with contract manufacturer PCH International, decided in mid-June with less than a month of sales data that an additional 40,000 devices should be built. That represented a significant commitment, said another person who helped engineer Solo, because each drone and its gimbal cost more than $750 to manufacture and ship to retailers. Though the company was able to raise $64 million in 2015, most of that was sunk into manufacturing costs, sources told FORBES.
Multiple people blamed the 3D Robotics’ bold projection for Solo’s failure, including one former employee who said that the fatal mistake was in basing predictions off of “sell in” versus “sell through” figures. The company forecasted Solo sales erroneously based on the inventory it was distributing to retail channels like Best Buy--a poor indicator of consumer demand because retailers can send back unsold inventory--and not on the number of devices actually purchased by customers from those stores.
A person, who worked for 3D Robotics’ marketing team, also questioned the company’s practices when displaying the drone to the press. The demo with The Verge in the spring of 2015, for example, featured a drone that was “worked over and souped up” and did not feature the typical parts you’d find in an off-the-shelf Solo. “We knew the drone would work,” he said, noting that there was an improved GPS component that wasn't shipped in regulars Solos.
Positive reviews, however, did not save the Solo. By the end of 2015, 3D Robotics had only sold about 22,000 units--half its original projection--said a person familiar with the sales numbers, leaving a significant backlog of inventory that sat on factory floors and in shipping containers. DJI also began to turn the screw. While a Solo with a gimbal and GoPro camera cost more than $1,700, the vertically integrated Chinese company, which controlled its own factories and already sold its comparable Phantom 3 Professional package for $1,300, aggressively slashed prices. By 2016, that Phantom with a gimbal and camera cost $1,000.
“I’d never seen a market with price declines like that,” said Anderson. “Everybody other than DJI lost.”
With DJI dropping the bottom out of the market, Anderson and his executives had no breathing room. They killed a small racing prototype code named “Nemo” at the end of 2015, and after visiting the Consumer Electronics Show in Las Vegas the following January, realized that the once-empty consumer drone space would soon be flooded with dozens Chinese competitors and their similar four-propeller flying gadgets. Upon their return from Sin City, 3D Robotics’ leaders reversed course, shelving plans for a larger, industrial version of Solo code named "Blackbird," and plotting their path out of manufacturing.
“Back in the summer, I floated a question: Is this how a lemon product works?” said a former employee of 3D Robotics’ Austin’s office about Solo. “Could this sink a company?"
In less than a year, 3D Robotics’ resources were decimated by its dependence on Solo. By February, the company had more than 60,000 unsold drones and with no money, it shuttered its San Diego office and Tijuana factory, quietly ushering cofounder Muñoz out the door. (Muñoz, who was reached at his new drone company mRobotics, declined to comment for this story.) 3D Robotics also couldn’t pay contract manufacturer PCH and instead entered into a loan agreement, detailed partially in documents filed with the U.S. Patent and Patent Trademark Office website.
Anderson declined to discuss the details of that agreement, but two employees familiar with the move told FORBES that 3D Robotics handed PCH the leftover inventory and agreed to help market and sell the drones. The majority of those proceeds went toward paying the manufacturer, which also obtained 3D Robotics shares in the transaction and a board observer seat.
A spokesperson for PCH declined to comment.
In March, 3D Robotics laid off about 30 people, including CFO Rex. The company’s president chief operating officer, vice president of design and chief revenue officer Guinn soon followed. Most of the engineers that came in through the Sifteo acquisition to build Solo have also departed. In an interview, Guinn said he knew since the beginning of the year that he would be leaving and the Austin would be closed.
Anderson said that most of the folks associated with 3D Robotics’ consumer efforts are gone, though there is some customer support staff left in Tijuana to help customers with Solos as it transitions to an enterprise-focused company. There are about 80 people left, he estimated, most of whom now work on Site Scan, software which helps companies capture and analyze aerial data.
While it may prove fruitful, 3D Robotics’ pivot puts it in direct competition with a host of Silicon Valley startups, including Kespry, DroneDeploy and others that have raised millions of dollars on the original intent of developing software solutions for companies. 3D Robotics must play catch up and it may not have the resources to do so. In June, a document filed with the Securities and Exchange Commission showed that the company raised $26.7 million in debt and warrants.
“We’re not making anymore Solos and we’re not going to make another drone,” said Anderson, who suggested that 3D Robotics would start developing software for other drone makers. “I love the idea of other companies making hardware so we don’t have to and we can focus on the software and services side. We’re a Silicon Valley company and we’re supposed to be doing software and there are Chinese companies that are supposed to be doing hardware.”
In the meantime, consumers can still purchase the drone that helped Anderson arrive at that conclusion. While Solo and its accompanying gimbal cost more than $750 to manufacture and ship and once retailed for $1,400, a savvy shopper can now find it at a significant discount. Best Buy now offers both products together for $500.
Mac, Ryan, and Aaron Tilley. “Behind The Crash Of 3D Robotics, North America's Most Promising Drone Company.” Forbes, Forbes Magazine, 5 Oct. 2016, www.forbes.com/sites/ryanmac/2016/10/05/3d-robotics-solo-crash-chris-anderson/#2e0b92413ff5.