DJI is facing sanctions again. According to the Daily Economic News, a total of 13 Chinese companies, including DJI Innovations, BGI Group, and 360 Technology, have entered the U.S. Department of Defense blacklist.
On one hand, DJI drones, originally intended for consumer use, are now soaring over the skies of the Ukrainian battlefield, sparking discussions in the industry about whether affordable civilian drones are becoming the “air force of guerrilla warfare.” On the other hand, on March 12, 2022, Figma, a U.S. design software company, announced the suspension of DJI’s accounts, giving no response time and stating that design files inaccessible due to login issues would be sent to DJI via email within two weeks.
Figma is not entirely irreplaceable software, but similar software in China tends to have their own focuses for differentiation, making it difficult for a single software to fully replace Figma. DJI faces two main challenges this time: it may disrupt the rhythm of research and development, affecting the speed of iterative product design; and it may incur additional costs to purchase multiple software alternatives to Figma.
From 2016 to 2022, the U.S. has continuously escalated restrictions and sanctions on DJI over a span of six years. However, DJI has consistently maintained a market share of over 70% in the consumer drone market, with a market share in North America even reaching 85% at times.
While the U.S. Department of Defense announced the ban on military use, the U.S. military, on the other hand, “disobeyed” and spent hundreds of thousands of dollars to purchase DJI drones, sparking a buying trend among military forces in Iran and the UK. When the U.S. imposed tariffs on DJI, DJI responded by proportionally increasing prices for products sold domestically to maintain profit margins, resulting in an increase rather than a decrease in market share. The U.S. government has almost exhausted all efforts to sanction DJI, but even in the sixth year of sanctions, DJI continues to thrive unaffected.
In 2015, at the White House Correspondents’ Association dinner, DJI had a minute of exclusive attention. On January 26 of that year, the Secret Service discovered a crashed quadcopter drone on the southern lawn of the White House during patrol. The military and Secret Service were on high alert, only to later discover that this small device was operated by intoxicated U.S. government intelligence personnel who, due to lack of proficiency and impaired judgment after drinking, accidentally flew it into the White House without their knowledge, and then went to sleep. This quadcopter drone, trespassing into the White House unnoticed, was from DJI.
Public opinion in the U.S. was in an uproar. President Obama, for nearly half a year after the incident, was constantly asked about Chinese drones by reporters wherever he went. So, at the 2015 White House Correspondents’ Association dinner, Obama brought up the incident and made light of it. He displayed a photo on the big screen of then-Vice President Biden swinging a baseball bat at a DJI drone on the White House lawn, claiming that the Secret Service had installed a brand-new state-of-the-art security system at the White House to prevent further intrusions.
Laughter filled the dinner, but whether it was Obama on stage, Trump sitting below, or the photoshopped Biden portrayed as the “state-of-the-art security system,” no one truly treated this incident as a joke. To some extent, this image was not a joke but rather a statement, even a kind of prophecy.
In 2016, U.S. lawmakers began proposing restrictions on DJI citing concerns over cybersecurity. In 2017, the U.S. officially initiated an investigation into DJI, and in May 2018, the U.S. Department of Defense Army issued a memorandum instructing all subordinate units to cease procurement and use of DJI, banning all drone products from DJI. However, none of these restrictions could hinder DJI’s annual revenue growth of 300% to 500%. DJI continued to dominate around 75% of the U.S. consumer drone market, even surpassing the once hopeful 3D Robotics, which struggled with issues like mass production of stabilizing gimbals and frequent GPS system connection errors.
The U.S. military itself expressed reservations about the ban. In August of the same year the memorandum was released, the U.S. Air Force Special Operations Command submitted a procurement report, stating that they had tried domestic options such as Tiny Whoop, Ebee, and 3DR Solo but found them inadequate. “Due to urgent operational needs and a lack of domestic alternatives, we request a special procurement of 35 units of DJI Mavic Pro Platinum drones.” According to information revealed by CNN, within a year of the Army’s ban, the “disobedient” Navy and Air Force spent nearly $190,000 and $50,000, respectively, to purchase DJI drones.
In 2019, the U.S. government, seeing previous measures ineffective, escalated sanctions. The Department of Defense explicitly prohibited the use of federal funds to purchase Chinese-manufactured drones in the 2020 National Defense Authorization Act, and the Commerce Department announced DJI’s inclusion in the trade control blacklist, indirectly increasing tariffs on its products. DJI responded by “raising prices” for affected models, with increases ranging from $120 to $230. U.S. consumers and related companies, in a rush to acquire devices before the price hike, caused a surge in purchases, temporarily pushing DJI’s market share to 85%.
The U.S. Air Force, seeking to purchase discontinued models, even considered directly collaborating with DJI. However, DJI has consistently refrained from producing military-grade equipment, and various military forces, including the U.S., acquire their drones through public sales channels. In some cases, soldiers themselves place orders on platforms like Amazon. When the U.S. military wanted to acquire discontinued models, DJI’s official spokesperson, Lisberg, responded: “Dealers may still have inventory, so why not ask them?”
In October 2020, the U.S. Secretary of the Interior ordered a halt to further purchases of Chinese drones, and two months later, DJI found itself on the U.S. Commerce Department’s Entity List. Nevertheless, DJI’s dominance in the consumer market seemed unassailable. The only competitor that had troubled DJI, 3D Robotics, had already exited the market. Other brands, including Microsoft, held market shares that did not exceed 4%. DJI’s global market share in the consumer market remained around 70%. Meanwhile, the U.S. government’s relentless pursuit of DJI and the military’s inability to find alternatives prompted military forces worldwide to take notice of the military applications of consumer drones.
In July 2020, the Ukrainian State Border Guard Service announced through bilateral cooperation with the British Embassy that it had acquired 10 drones with a total value of approximately $44,600 for border surveillance and homeland security. Upon closer inspection, these 10 drones were actually DJI’s Mavic, with the most expensive professional version priced at only 12,888 yuan each—less than $2,000 in total.
From the incident of a quadcopter crashing at the White House during Obama’s presidency in 2015 to Figma, a design software company, announcing the suspension of DJI’s account under Biden’s administration in 2022, seven years have passed, and the U.S. has seen three different presidents. However, DJI remains the same—only stronger.
In the story of sanctions and counter-sanctions against DJI, the most widely circulated episode is the one where tariffs were imposed and DJI responded by raising prices. While it may appear fiery, it is, in fact, a highly rational business decision backed by DJI’s formidable technological capabilities and superior products. As DJI’s PR Director, Xie Tian, puts it: “Every part of a DJI drone that can be disassembled is self-produced, including the underlying code. In terms of patents and research methods, it is challenging for any drone company to bypass DJI.” This accumulation of patents and technology did not happen overnight. Besides founder Frank Wang, two crucial individuals played a pivotal role for DJI: Li Zexiang, Frank Wang’s graduate advisor at the Hong Kong University of Science and Technology, and Zhu Xiaorui, a professor specializing in robotics at the Harbin Institute of Technology, Shenzhen campus. When DJI was down to only one accountant, these two individuals jointly invested 1 million yuan, coinciding with the first batch of graduate students in the relevant field graduating from Harbin Institute of Technology (Shenzhen), solving DJI’s financial and personnel problems.
Due to the academic background of Li Zexiang and Zhu Xiaorui, coupled with Wang Tao and the initial technical team from Hong Kong University of Science and Technology and Harbin Institute of Technology, DJI’s initial team had a strong engineering atmosphere. Many within DJI even felt that Wang Tao’s established R&D system might be the most efficient in the country, with technical documentation written as if it were a textbook. “It’s hard for people with such R&D habits not to succeed.” And indeed, facts have been validating this statement.
In March 2009, DJI produced its first mass-produced helicopter flight control product, the XP3.1. Due to its technological leadership and limited competition, it quickly achieved a commercial balance. In 2010, the second-generation helicopter flight control, Ace One, was iteratively developed, reducing weight from 700-800 grams of XP 3.1 to around 100 grams. The unit price also dropped from over 20,000 yuan for XP3.1 to over 100 yuan. The revenue level quickly stabilized at the million-dollar range. Subsequently, DJI rapidly iterated to introduce the new generation helicopter flight control, WooKong, and then developed their own multi-rotor flight control, WooKong-M.
With the WooKong series, DJI directly surpassed the threshold of tens of millions in annual revenue and individual product revenue exceeding tens of millions, entering a financially sound stage. From the beginning of their business, the entire process took less than 3 years. Many people say DJI’s advantage in the drone market is the first-mover advantage, but this statement is only half correct. Because there were more than one drone startup company in China during the same period as DJI, but none had the strong technical and talent reserves like DJI, and no one could keep up with the rapid iteration speed of their products. DJI’s advantage fundamentally lies in converting the technical strength of the R&D team into the product iteration rate and gradually rolling the snowball bigger.
More importantly, Wang Tao’s understanding of the technological development path has created his unusually keen insight into industry trends. From the beginning, he judged that the three main technical challenges in drones were “flight control, gimbal, and image transmission” and formulated three directions for product development. At that time, the demand for image transmission had not yet risen, and it was relatively challenging, so the decision was made to outsource it first. Resources were prioritized for technical development in flight control and gimbal. The development of the gimbal, in turn, contributed to DJI’s next breakthrough and became an important technological advantage for DJI to withstand the impact of overseas startup companies.
The battle with GoPro quickly matured DJI
In 2011, at the radio-controlled helicopter competition in Muncie, Indiana, Wang Tao met Colin Guinn, an American. Guinn was running a drone startup and was looking for a drone that could capture stable video footage. This coincided with one of DJI’s key research directions.
A few months later, DJI unveiled the “Zenmuse Z15” at the Toy Fair in Nuremberg, Germany, which adopted DJI’s self-developed gimbal technology. This was the world’s first civilian high-precision gimbal, exploding in the industry almost overnight. Colin Guinn had joined DJI and established DJI’s North American branch in the United States, holding 48% of the shares, while DJI held the remaining 52%. In January 2013, DJI released the groundbreaking drone product: DJI Phantom.
Now everyone is saying that the professional drone market and the consumer drone market are different, but before the appearance of DJI’s “Phantom,” there was no “consumer drone market” at all. Just as Apple II pioneered the PC industry and Tesla pioneered the electric car industry, DJI, with the “Phantom,” created the market for non-professional drones, directly driving the financing boom in the entire drone industry in 2014. Qualcomm and Intel frequently visited China for projects, investing funds in the range of $50 million. Colin, in charge of operating the U.S. company, was also a marketing genius, proposing the slogan “The Future Unleashed” and using his star resources accumulated from participating in shows like “Extreme Challenge” to heavily promote the Phantom on social media platforms such as Facebook. This further broke down the common consumer’s cognitive barriers to drones.
During that time, GoPro was gaining popularity, and from Zenmuse to Phantom, both generations of products only had gimbals. DJI did not manufacture its own camera; instead, it defaulted to using GoPro. Colin facilitated deep cooperation between DJI and GoPro. However, during negotiations, GoPro demanded two-thirds of the profits, which Colin agreed to, touching a nerve for Wang Tao. This became a notable case in the history of drone development, with many media later simplifying the conflict between Wang Tao and Colin to an issue of profit distribution, which is inaccurate.
Looking back at the early stages of DJI’s establishment, almost all competitive advantages were built through the evolution of technology and iterative development. The internal R&D department at DJI has always held significant importance, with nearly half of the over ten thousand employees engaged in engineering development work, and the company’s annual R&D investment accounting for about 15%. Wang Tao recalled that at the beginning of the entrepreneurial journey, there wasn’t a particularly clear business logic; it was simply about wanting to create products. While this somewhat naive entrepreneurial approach brought about many problems, behind it was an engineer’s almost instinctive pursuit of technology and product, ultimately laying the foundation for DJI’s core company culture centered around technology and products.
The major difference between DJI and Colin lies in their distinct judgments on the question of “what is most important for a company.” For DJI and Wang Tao, it would be unacceptable for a GoPro, which only serves a marketing role, to take away two-thirds of the profit. In their view, only R&D and technology, which determine the product’s direction, deserve the lion’s share of profits, while marketing does not.
This contradiction became more apparent during later negotiations with Colin. Colin believed he was the biggest contributor to opening up the North American market, even thinking that he shaped DJI’s corporate image and could be considered the second most important figure in DJI. However, Wang Tao only positioned him as a regional marketing and sales manager, resulting in a significant disparity in valuation between the two. Negotiations collapsed.
At the end of 2013, Wang Tao locked all North American branch staff email accounts, dissolved most of the employees, and redirected all North American customer orders to the Chinese headquarters. DJI firmly regained the initiative against U.S. competition. Colin retaliated by taking DJI to court. In the end, they settled out of court, with Colin receiving a $10 million settlement fee. According to the valuation of $1.5 billion when Sequoia Capital entered DJI, this price should be closer to DJI’s psychological expectations.
After leaving DJI, Colin quickly joined another U.S. drone company, 3D Robotics, claiming to make the world know 3DR. However, his first product at 3DR, Iris, did not meet expectations. The highly anticipated 3DR Solo frequently experienced GPS system connection problems, making stable flight difficult to ensure. The product launched without even achieving mass production of the stabilizing gimbal components until several months later. Ultimately, Solo failed to compete with DJI’s “Phantom 3 Pro.” 3D Robotics had stocked 100,000 units but only sold 20,000, leading to the company announcing its exit from the consumer drone market.
After the breakdown of negotiations with GoPro and the expulsion of Colin, DJI quickly released the “Phantom 3,” using its own developed camera that had been in the works for a while. Additionally, in the “flight control, gimbal, image transmission” trio, the last component, “image transmission,” no longer used an outsourced analog solution but incorporated DJI’s self-developed digital image transmission. DJI fully achieved autonomy from hardware to software.
In 2015, when Obama made various statements about limiting Chinese drones due to a crashed drone on the White House lawn, reflecting on whether it was necessary to restrict Chinese drones, the most intense battle in the consumer market had already ended. The technological strength accumulated by DJI was exchanged for a thick competitive barrier, making it challenging for anyone to shake its foundation.
Behind DJI’s success is China’s cultivation of drone talent
On a day in December 2005, in Nagoya, Japan, customs officials detained a container destined for China, citing “incomplete procedures.” The cargo inside the container was a brand-new Yamaha R-MAX L 181 unmanned helicopter purchased by a Chinese company.
The subsequent events unfolded unexpectedly for experts from both China and Japan. In late January 2006, the Japanese Ministry of Economy, Trade, and Industry accused Yamaha of “allegedly selling RMAXL 181 unmanned aerial vehicles convertible for military use to China.” The police in Shizuoka and Fukuoka prefectures, in collaboration with Japanese customs, conducted searches at Yamaha, with the Fukuoka police even claiming a connection between the Chinese buyer and the People’s Liberation Army. This revelation surprised experts on both sides, not due to the performance of the aircraft or the underlying transactions, but because they were astonished at how the professionalism of the Japanese police could reach such a low point.
The RMAXL 181 drone was just an agricultural drone used for pest control. While the Chinese company did not purchase it for spraying pesticides, it was intended for aerial photography of urban landscapes and television drama creation. Many aerial scenes in the CCTV version of “The Legend of the Condor Heroes” were produced by this company. Before this incident, the Japanese government paid little attention to its export, and besides China, Sweden, Australia, and Malaysia had also purchased this product. From a military perspective, it was not even a weapon; at best, it was a “toy.” The aircraft, measuring less than 4 meters in length, weighing less than 100 kilograms, flying at altitudes not exceeding 200 meters, and carrying a payload of only 20 kilograms, fell far below Japan’s own restrictions of “the effective payload of exported drones must not exceed 300 kilograms.” However, in the official Japanese description, this commercially available unmanned drone, which was at most “relatively advanced,” became a “vehicle for weapons of mass destruction.”
In 2006, despite being a major power capable of developing fighter jets, nuclear weapons, and ballistic missiles, China faced a setback in the field of agricultural drones and was wrongly accused. The bitterness of the experience needs no elaboration; everyone understood that the Japanese authorities were “using the issue to make trouble,” and there was nothing China could do about it.
The world soon witnessed the strength of “Made in China” in the drone field. In a karmic turn, Japan, which had interfered in China’s purchase of drones, now needed to import drones manufactured in China on a large scale. In 2016, DJI’s MG-1 agricultural drone entered the Japanese market, and DJI began establishing an independent sales team in Japan. Compared to Yamaha’s fuel-powered helicopters of the past, DJI’s rotary-wing aircraft were simpler to operate and easier to maintain. After three years, they gained market acceptance and had the highest ownership among similar products.
In today’s drone market, China is undoubtedly the leading player in the first echelon. In the military drone field, Americans might compete with China using the “Global Hawk” and “Reaper,” but in the civilian sector, especially in the consumer market, American companies can only be described as “steadily retreating.” Former U.S. drone brands like 3DR and Lily have either reluctantly announced their exit from the consumer market or are deeply embroiled in management crises. There are even instances of confusing actions such as claiming “footage shot by DJI drones as their own.”
China has over 400 drone manufacturers, and among the top 13 consumer drone brands globally, eight are Chinese brands. In terms of commercial applications, the performance of Chinese drone manufacturers is also impressive. The world’s top five commercial mapping drones, although appearing as different models, are all DJI products. According to a 2018 report by DroneDeploy, a world-renowned drone software supplier, the landscape of the global commercial drone market has undergone significant changes. DJI continues to lead, occupying 85% of the market share. Brands like Autel, Yuneec, and Parrot have also introduced new models to participate in market competition.
In 2006, during the “China-Japan drone incident,” Chinese experts estimated that China would need 2,000 unmanned helicopters by 2020. However, as of 2019, the registered number of drones in China has exceeded 330,000. The reality in China today far surpasses expert predictions. After the 2006 incident, researchers in related fields were mobilized. Agricultural academies and universities began establishing research directions for agricultural aviation, determined to develop China’s own crop protection aircraft. Not only in civilian agricultural drones but also in military aviation and domestic large aircraft projects, a call for fresh blood was heard.
Once resources were invested, results could be seen quickly. From 2008 to 2012, Chinese universities began focusing on cultivating talent in agricultural aviation. In addition to agricultural aviation, other disciplines in aeronautical engineering became focal points of development. Those who were frequently online at that time should know how much attention there was domestically to projects like the J-20 stealth fighter and the development of domestic large aircraft. Once the country starts focusing on a particular field, the related disciplines become incredibly popular. The phenomenon in China’s education system, a classic one from the 1990s, is happening again—many universities’ aeronautical engineering programs began to “expand enrollment.”
As batches of students entered this field, China’s “talent pool” in aerospace engineering began to overflow. Soon, around 2013, the aerospace specialty faced the issue of “employment difficulty” as talent saturation increased, and major research institutes raised their hiring standards. Graduates from 2011 could immediately find work in research institutes, while those who completed their postgraduate studies in 2014 might not even qualify for an interview. At this point, talent was saturated, and research institutes were only interested in Ph.D. graduates from prestigious universities. Consequently, many aerospace students, after graduation, did not work in related fields but began new lives in banks, securities, schools, government agencies, etc. From a macro perspective, this is called “free flow of talent.”
For students in aerospace-related professions, entering a research institute was the most conventional path. However, as this path became less viable, life had to go on. Consequently, they began flocking to private aerospace manufacturing enterprises like DJI and EHang.
This was also true for students in agricultural aviation. For many students in agricultural aviation, DJI was not unfamiliar. Students in the agricultural aviation specialty, while conducting experiments at school, often needed to purchase components to build hardware and write flight control programs themselves. At that time, DJI’s products already had a certain reputation in the community, and many students would buy a DJI drone to disassemble it and study its flight control system. When these students graduated and found that they couldn’t enter a research institute and faced “employment difficulty,” they discovered the rise of private drone companies, and naturally shifted towards the embrace of Chinese private drone enterprises like DJI and EHang. Thus, DJI and other Chinese drone companies embarked on a significant journey overseas.
In fact, the young people who came to DJI were not limited to those studying aerospace. China has an abundance of university students: those studying physics can design aerodynamic shapes, those studying computer science and software can write flight control programs, and those studying wireless communication can improve remote control technology. This advantage of talent “overflow” brought in sufficient substitute players from China to fill positions.
In the development process of China’s drone industry, one can see a unique talent cultivation route. Before discussing this route, let’s introduce a concept: ordinary talent. In fact, most graduates trained by Chinese schools are “standardized ordinary talents,” not talents. The so-called “standardized ordinary talents” are those who have studied professional knowledge for four years but feel like they haven’t learned much. After working in a professional job, they quickly adapt and grow. When they grow up, they become true talents. We often say, “Chinese schools cannot cultivate talents,” and this statement is not wrong. The cutting-edge trends and deep insights in the industry cannot be learned in schools. Even if teachers pour their hearts out to teach, students can only understand at most 20%. This is because talent is polished through a large number of practical experiences.
As for those who shine in school and make great achievements, they are not talents; they are geniuses. China has the largest number of university students globally, accounting for one-fifth of the world’s university students, and most of them ultimately stay and work domestically. Therefore, we can assume that Chinese schools are outputting a large number of “ordinary talents” to Chinese society, and the “total force” for China’s economic and industrial development is sufficient.
However, having a sufficient “total force” does not mean that there are enough people in each field. People in the fields of business and management are so many that there is a queue to get to the front lines, while there seems to be a shortage in the field of chips. Chinese universities expand enrollment every year, and every year’s students talk about “employment difficulty.” In a sense, this phenomenon may be positive. After all, during the era of students being assigned jobs, demand exceeding supply, and students being seen as the pride of the nation, China’s overall strength was indeed not great.
Many industries are like a wooden barrel placed under a faucet: water gushes from the faucet, and the water in the barrel overflows continuously. Every drop of water entering the barrel is new, but every drop of water flowing out of the barrel may be new or old. When the “standardized ordinary talents” in an industry accumulate to a certain quantity, an “overflow of talent” situation will occur. The most significant sign is the emergence of a large number of graduates who do not engage in related professional work. Among these individuals, some switch to other careers, some establish their own businesses by offering lower prices to capture the market, and some put in a lot of effort to overturn the industry.
This is the Chinese-style route of cultivating industrial talents: creating quality through quantity. After the emergence of a new hot spot, the government takes the lead in development, schools start to expand enrollment, and students enter in large numbers. Eventually, talent overflows, leading to innovation. The highly concentrated resource system plays a huge role at this moment. Then, we see that a group of determined individuals has made groundbreaking achievements. Looking at the development of China’s drone industry, the complete industry chain played a decisive role.
After 2019, the U.S. Department of Defense’s Defense Innovation Unit introduced a “Blue sUAS” (small Unmanned Aircraft Systems) program. This program claimed to provide a “secure option” as an alternative to Chinese products for the U.S. military and federal government agencies while imposing restrictions on DJI. Simultaneously, five other companies were given a whitelist, claiming that these five companies’ drones were the “best drone technology” selected through 18 months of collaboration between the U.S. Army and the Defense Innovation Unit. The U.S. Department of the Interior also cooperated swiftly by grounding approximately 800 Chinese drones and promptly going to these five whitelisted companies to reconstruct its drone fleet. The U.S. Federal Trade Commission also cooperated by announcing measures to combat “false U.S. manufacturing,” stipulating that genuine U.S. manufacturing must meet three conditions: first, the final assembly and processing of the product must be in the U.S.; second, all important processing must be in the U.S.; and third, the vast majority of the product’s components must be produced in the U.S.
The result was that the U.S. actually had no drone supply chain. The cameras, gimbals, airframes, and batteries needed for drones were supplied by China. Among the five whitelisted companies, at least four companies relied on Chinese supplies for components like circuit boards. In the field of small civilian drones, the U.S. couldn’t present alternative products free from Chinese technology.
Looking at the rise of DJI, the core value orientation centered around technology research and development and substantial investment, coupled with iterative refinement and polishing of products, became the most critical competitive barrier. DJI’s entire operational mechanism, almost built around ensuring product development, is the key reason for its significantly higher-than-average rates of iterative refinement and technological research and development efficiency. In the consumer electronics field, only companies that continuously revolutionize themselves can become true leaders.
Simultaneously, in the rise of China’s drone industry, traces can be seen of Shenzhen exploring the industry-academia-research collaboration model. The mechanism for cultivating talents in China’s technology industry is continuously being improved and validated through the development of this industry.
It reflects the entire country’s process of industrial development and the transformation of the education and research system.
The content of this article is excerpted from the original book “Great Power Lock and Key” by “Starsea Information Bureau.”