Axon Enterprise Inc. Takes to the Skies with DJI Partnership

Axon Enterprise (NASDAQ: AAXN) has been expanding its product portfolio, connecting its body cameras and fleet cameras with services like cloud storage and records management for law enforcement. Now, it’s taking to the skies in a partnership with DJI, the industry leader in consumer drones.

The linkup is notable because it brings drones into the tool set for Axon and its customers, but I also think it’s a good strategy to partner with another manufacturer rather than develop drones in-house. That may help Axon to avoid some of the pitfalls others have fallen into.

Axon’s Matrice drone from DJI. Image source: DJI.

Axon Air

The new joint offering is being called Axon Air, and will combine DJI’s drone tech with Axon’s connected data network and its cloud service. The result is a new tool with which law enforcement can capture and preserve video footage.

Three DJI drones are currently available from Axon, and they’ll bring different capabilities depending on what customers need.

Drone Operating Range Flight Time Maximum Speed List Price
Phantom 4 Pro 7 km 30 minutes 45 mph $1,499
Inspire 1 5 km 18 minutes 49 mph $3,799
Matrice 210 7 km 38 minutes 51.4 mph n/a (listed for $9,990 on Amazon)

Source: DJI.

Drones are risky business

Partnering with another manufacturer to bring a device to market isn’t something Axon would normally do in body cameras, but there are plenty of reasons it wouldn’t want to build a drone/camera combo in-house.

A number of companies have tried to enter the drone market in the last few years, and every one has either failed or fallen well short of DJI’s leadership position. GoPro introduced the Karma late in 2016 and tried to make a run at DJI’s consumer market. A little over a year later, it shut down its drone division. Drone start-up Lily went bankrupt in 2017 after raising $15 million, and 3D Robotics, which has raised $178 million in funding according to Crunchbase, had to abandon its efforts on consumer drones and focus on the commercial market.

The goal for Axon isn’t to have drone sales be a profit center, the goal is to get more customers into the subscriptions and paying for other service tools like records management, which is where the real money is. Axon camera services revenue grew 72.2% year over year in the first quarter to $20.2 million and gross margin was 79%, an incredibly profitable part of Axon’s business. And remember that any incremental growth drones bring to services will come at little to no upfront development cost for Axon.

At the end of the day, getting drones to fly stably and selling a critical mass that would make the development costs worthwhile didn’t make sense for Axon. After watching competitors like GoPro, Lily, and 3D Robotics struggle or fail at making and selling drones, Axon looked for the best partner it could to add drones to the portfolio. DJI was the natural fit.

Axon brings another tool to law enforcement

It’s hard to project how many drones the Axon/DJI partnership will sell, but there are 226,900 software seat licenses booked at the end of the first quarter of 2018. If even 5% of those customers add drones to their purchases, Axon Air would be a big win for both Axon and DJI. The devices fit neatly into Axon’s strategy of locking law enforcement customers into a growing ecosystem of products and services. That’s why I view this as an important partnership for Axon long term.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Travis Hoium owns shares of Axon Enterprise. The Motley Fool owns shares of and recommends Amazon, Axon Enterprise, and GoPro. The Motley Fool has a disclosure policy.

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