Thoughts from the Spatial Sidelines

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It has been quite a ride over the past two decades since the first commercial 3D laser scanning and lidar devices came to market. We have passed through many of the product lifecycle phases, watching as companies have prospered from good lifecycle management. Others have been acquired and incorporated into larger corporate entities, and then those companies who did not do a good job of managing their product lifecycle fell by the wayside of competition. Without customers to drive business forward, we would not have been able to see the innovative products available today.

What many of the customers may not be aware of is their place in the decision making that goes into product design and definition, and I’m not only referring to technical features and functionality. There is a huge investment, and associated risk that goes into taking technology out of the R&D labs and turning it into something desirable for the customer. Remember those first Motorola cell phones, the "brick"? Look at how cell phone technology has progressed to the point where now you can put a complete smart device in your pocket.

One might not remember that Research In Motion, now known as Blackberry, seemed to be an "overnight success" with their smartphone device, but actually it took over 15 years of hard work by the founders, investing and struggling to develop the security technology and device packaging before it was finally adopted widely by the market. Now it seems to be succumbing to the ravages of intense competition from Apple (which had earlier failed badly in the 1990’s with the Newton handheld device), Microsoft (Windows Mobile which still is struggling to find it’s place), Google, Samsung, and others who are all battling for consumer market share. It is during the early adoption stage where the buying public helps to shape the devices we have today.

In the world of 3D airborne imaging, we can trace the roots of technology back to places like Azimuth Systems, and Optech the early developers of commercial airborne lidar sensor systems. Azimuth was acquired in 2001 by LH Systems, then parent company of Leica, which is now known as the Leica Geosystems unit of Hexagon Corporation.

Back in the early years of the 21st century, there were only 20 30 airborne systems sold worldwide annually, a market essentially dominated by Leica and Optech. Now we are seeing something like 200400 new airborne systems sold each year (these numbers are debateable as manufacturers keep the actual counts somewhat of a secret), many of which are replacements for older systems at the end of their useful life cycle.

One also sees more and more customers building their own systems from components like the Riegl scanners combined with the many different available INS (inertial navigation system) devices. This is a truly phenomenal growth driven by market demand, however we also see the average system cost going from about $1.6 million in the early part of the decade to now being somewhere in the range of $700k $1 million.

At the same time, we have watched the tripod mounted terrestrial laser scanner expand in market size dramatically, but not experience the same large drop in prices since they did not have the major capital investment needed for airborne systems. The early Cyrax scanners were on the market for $150k 200k during the 1990’s.

When Leica acquired Cyra in 2001, there began steady erosion in market price to the sub $100k levels for high performance, medium to long range scanners (typically time of flight lidar). This price erosion was even more pronounced and faster for the phase shift technology devices; however the loss in revenues to manufacturers was offset by faster market growth driven in large part by the plant-as-built and BIM sectors.

I would propose that the single most disruptive event in the terrestrial 3D scanner marketplace, after the initial commercial introduction of 3D scanners, was Faro’s introduction of the Focus3D scanner at a significantly lower price (approximately $40k50k) as compared to all of the other major competitors. This drove a large growth in scanner demand, as the devices were, for the first time within reach of customers with less financial means. The 3D scanner was suddenly available at prices similar to total stations, so many companies changed their buying decision from replacing an older, but fully functional traditional instrument (their existing total station), opting instead to embrace the new scanning technology.

I won’t get into business and economic theory, but it is interesting to see how many of these market and price phenomena we have watched are typical macroeconomic cycle theory. These are well documented and easily represented; I have included a couple of simple graphical representations (widely available in most business school texts), see Figure 1.

Early adopters always pay the price for being innovators in the market, but at the same time they are able to demand higher premiums for their service offerings. The recent LIDAR News article "Should 3D Service Providers Worry about Falling Equipment Prices?" by Arik Degani does a great job of detailing some real world examples of how all this theory really has panned out. He very eloquently sums it all up with the statement "…in 2001, after 12 months of a tough life with a newborn technology and a lot of work in trying to sell its advantages, we came across the most important insight for us–It is all about the application, if we’ll try to do the same as before, but with just another tool, we’ll vanish. We have to invent the market and highlight the needs. Since then, we continually invest great effort in searching for new problems to solve."

Now to just put this into the perspective of a system developer and manufacturer, many of the same considerations come into play, but often with even greater economic considerations. To develop a new device (and I am talking about just taking a working technology and engineering it to a product, not doing core R&D for the underlying technology which is more often left up to universities and research institutions), the upfront investment is often many millions of dollars and years of development before any market launch, sales or profits are realized, see Figure 2.

In this diagram, "A" and "D" refer to market adoption and decline respectively which corresponds with the "early adopters" and "laggards" in Figure 1. Now don’t take the word laggard as a negative, since this is usually where a technology buyer get’s the most cost effective purchase price, but does not have the same competitive technological advantage as the early adopter.

Let’s take the case of mobile mapping systems. In the development of Optech’s Lynx mobile mapping system, it was about 2 years from initial conception and decision to proceed in development to market launch in 2007. The cost of the development process included hundreds of man-hours of engineering and scientific staff, plus use of underlying technology, facilities and infrastructure which had been built and invested in over the previous 30 years of the company’s operations.

This was the first truly purpose-built mobile mapping sensor and integrated system. There were a number of systems commercially available prior, most typically based on adapted Riegl or other sensors, custom integrated with various INS systems like those commercially available from Applanix and IGI. While the initial success was strong market acceptance over the first 4 years, within one year of the Lynx market introduction, there were new dedicated design sensors emerging from Velodyne and Riegl which have since seemed to capture a lion’s share of the market.

In the more recent years we have seen numerous other system integrators enter the mobile market such as Siteco (based on Faro and Riegl sensors), Topcon (based on Velodyne), 3D Laser Mapping (based on Riegl and Velodyne), Lidar USA (Velodyne-based) just to name a few. There are even a few Chinese manufacturers dipping their toes into the proverbial waters, offering their own home developed and built sensors now for terrestrial tripod mounted, mobile and airborne systems. These have not yet hit the international markets in any large way but eventually (inevitably?) will, as the market demand for lidar scanning and systems grows.

So as we see, the market demand for 3D data has helped push demand for systems, but at the same time exerted downward system pricing pressure, as more and more market entrants rush to fill the demand. We also see how most of the new system offerings are based on component sensors, as opposed to developing their own.

It is a critical decision for a company to make–should they offer a modular component (Riegl and Velodyne) encouraging system integrators to drive the market, or hold their sensor systems closed and proprietary (Optech). This can mean long term success or failure.

The typical case study is the rapid growth of personal desktop computers, where Apple maintained its closed system architecture, while IBM offered a completely open system. As we know the IBM model quickly proliferated the nascent market for desktop computing, fuelling a much larger growth in hardware accessories which were not inhibited by the Apple corporate requirements for licensing accessories. Yes, the Apple philosophy has resulted in quite stable and elegant systems, requiring less operator attention due to system instability, but even today Apple only holds a miniscule market share of all desktop computing devices. Even more dramatic is the recent rapid change in computer operating system adoption (See Figure 31).

That said, one could argue that Apple has won in the end. Figure 42 shows that Apple device users as a percentage of Windows users has grown from under 30% in 2010 to almost 70% today. The Windows operating system at one time, not too long ago, held 95% of the computing market, at least in households. But now I admit that I am getting dangerously close to comparing apples to oranges, so I had better to get back to the 3D scanning and spatial imaging topics.

It has been a very interesting early market, and I call it an early since we are at a point in time similar to the 3D medical applications of spatial imaging in the early 1980’s. Just look where the medical devices are today, ranging from the handheld ultrasound devices available for several hundreds of dollars all the way to the multimillion dollar MRI and PET scanners. The 3D spatial imaging, lidar and associated industries are no doubt poised for the same heights so we should not fear high technology investment. The real decision is when is the right time for you to invest in the technology that best fits your business model, service offerings and needs.

1 Source: Gartner Inc. Research, Strategy Analytics Inc, BI Intelligence, company filings
2 Source: www.businessinsider.com

Brent Gelhar is an experienced corporate leader, technology commercialization consultant and executive business coach. Today Brent works at his Toronto-based consultancy www.spatialinitiatives.org focusing on new technology start-up and commercialization.

A 1.132Mb PDF of this article as it appeared in the magazine complete with images is available by clicking HERE