Category Archives: Economy

What is a Drone and Why Do Operators have to Register in a Public Database?

Why Do Drone Operators have to Register in a Public Database?

I have been an Airplane pilot for 29 years and have watched the aviation industry go through remarkable changes.  When I started flying GPS technology didn’t exist.  We had to navigate by looking at the contours of the earth using dead reckoning and pilotage, which are basically fancy terms for looking out the window (VFR).  Or we followed rudimentary radio signals to and from a ground-based transmitter if we couldn’t see out the window (IFR). 

The first modern area navigation technology for aircraft was a LORAN that used ground based stations that formed crossing radials from transmitters that could calculate an aircraft’s relative position through triangulation. To use early LORAN’s to navigate, however, was tricky.  Most LORAN systems didn’t have a database.  The pilot would have to key in the longitude and latitude for every waypoint manually.  A mistake could be catastrophic. When databases were incorporated they were stored on an EPROM chip that required a licensed Avionics Technician to update.  Sufficveoftosay, the units were rarely updated and not authorized for use for IFR (in cloud) navigation.  

1966 Cessna 172 with a top of the line LORAN upgrade (Top center)

1966 Cessna 172 with a top of the line LORAN upgrade (Top center)

It is fun looking back on the early days of flying.  Technology in aircraft didn’t materially evolve until the 90’s when a small startup at the time — Garmin — built an affordable GPS unit that could navigate by using Military-use-only satellite signals.  Back then GPS signals were intended to be used only by the US Government and had an intentional offset-error embedded into the signal.  Garmin corrected the offset in their software and paved the way for not only modernizing Aircraft they changed how the world navigates.  The GPS revolution was the first milestone that set the direction that made Technically Advanced Aircraft (TAA) possible and started us on the path that decades later that would enable Drone technology.  

2015 Cessna 172 Technically Advanced Aircraft Garmin G1000 Panel

2015 Cessna 172 Technically Advanced Aircraft Garmin G1000 Panel

Drone Evolution   

Mankind has had an interest in flying since the beginning of time.  Flying has been out of the reach for most people.  The cost is high and access to aircraft is limited.  It is no surprise that technology would enable the average person to fly.   

Hobbyist have been piloting remote control aircraft for decades, but the group of of enthusiast has remained relatively small. Typical hobby aircraft are difficult to fly, are expensive, and are actually more difficult to operate than a real plane.  That is until the innovation of the Quadcopter… 

There are three main difference between a traditional hobby airplane/helicopter  and a quadcopter.  First, a quadcopter is inherently stable and easy to operate.  An average person can learn to fly a quadcopter with minimal training.  Second, most quadcopters are equipped with a GPS enabling them to be self-aware of their altitude and location.  A traditional remote controlled airplane must be flown within sight of the operator or it will likely be lost and crash.  A quadcopter can fly well out of the visible range of the pilot and most can navigate themselves back to the starting point and land.  Finally, quadcopters are being mass produced and readily available.  Traditional hobby aircraft were generally only available through specialized stores and require complicated assembly.  

Drone technology, like everything technology, has evolved faster than the government can adapt.  The price of Drones continue to drop making them affordable and well within reach of most anyone who wants one.  

The Drone Challenge

Drones are very  capable aircraft that can be operated by virtually anyone.  From a consumers point of view it is a pivotal time.  Drones have empowered them to not only control flight they can take remarkable photos and videos that would otherwise be impossible.  From the Government’s perspective, Drones have presented challenges they were not prepared for: 

  • A Drone can be transported into National Parks and other areas that are off limits for flight.  
  • A Drone can fly hundreds of feet above ground into the same airspace as traditional aircraft and helicopters.  
  • A Drone can be programmed to fly a pattern well out of the visible and remote control range of the Operator.

Airspace incursion is a big concern for the FAA.  Imagine a police action where there are police and news helicopters flying in close proximity and a neighbor with a drone wants to see the action.  They aren’t communicating with anyone and could easily cause an accident or disrupt an investigation.

Airspace is closed when the President of the United States fly’s in.  A Drone can be carried into an airport and launched without detection.  They could potentially carry explosives or other nefarious items while rapidly and autonomously navigating to its destination with pinpoint accuracy.  

Expanding more on challenges think about aircraft on approach to an airport.  When an airplane is approaching they are flying in an area that should be completely free of other aircraft and obstructions.  Someone could fly a Drone into that airspace simply by not understanding the rules governing where they are.  Approach and Departure incidents cause more injuries and deaths than any other type of Aircraft event.  Someone could legitimately die if a drone crashes through the window of a jet flying 150 miles an hour or stop an engine cold if it is ingested into one at the worst possible time.   

Federal Aviation Administration (FAA) is Stepping in

There are hundreds of documented incidents where Drone pilots have inadvertently, or in some cases intentionally, broken the law.  They have landed on the White House lawn, crashed over sporting events, nearly missed aircraft on approach, are disturbing wildlife in National Parks, etc., etc.  The FAA is legally required to do something about this.  They regulate all airspace across the United States from the surface through the stratosphere at the edge of space. 

The first step in FAA process of getting control over drones is to get a handle on who actually owns one.  They created an online registration system and did a remarkably good job of making the process easy.  

The FAA registration site opened on December 21, 2015.  All that is required is to navigate to the FAA website, answer some questions, pay $5, and you are licensed.  People that owned Drones before December 15 have been given a grace period until February 19, 2016 to register.  The registration process is backed by Federal law.  The registration of Drone operators is mandatory in the United States.  

The Registration Challenge

The challenge for the FAA is that it is impossible for them to know who owns a Drone.  They can’t contact owners or get safety information to them without knowing who they are.  Drones are not licensed like aircraft, boats or cars.  There is currently no reasonable way to track sales of Drones.  

Over the 2015 Holiday season, the FAA reported 181,100 drones were registered.  However, they estimate that 700,000 were sold.  Without a process to enforce registration at the point of sale like cars, guns, airplanes and boats, it will likely continue to be a challenge to get people to register.  

Related Article: FAA Reported 181,000 Drones Have Been Registered

The FAA is working with Manufacturers to provide an easy means for Drone owners to register and compile a list of buyers for them, but the FAA has no authority to enforce Drone Manufacturers to do anything.  Incorporating registration forms, standardized aircraft registration numbers, etc. will add cost and complexity to something that has up until now been considered a recreational device.  Many of the Drones are manufactured in China and other countries as well that further complicate the FAA’s standardization efforts.  

Another challenge for the FAA is that their database is open to the public.  People that register as a Drone operator is searchable online.  Anyone can go to the FAA site and pull a list of names and address of Drone owners.  Operators are legally required to provide their real Physical address as well.  PO Boxes, Office Addresses and Mail drops are not permitted. 

Pilots, Ham Operators and other Federally licensed people have had to live with their data being out there for decades, but this concept is new for the general population.  People are not accustom to having their personal information available for anyone to find — especially with the daily threats we all see from hackers and identity thieves in the news.  

Will Registration Impact Drone sales? 

I don’t believe registration will have any measurable impact on Drone sales.  They are popular items that will continue to sell.  The problem is for owners that don’t register.  If they get caught flying an unlicensed Drone there can be stiff penalties and possible confiscation of their expensive Drone.  The best course of action is to register your Drone and check that you are ok to fly it in an area before you do.  

The FAA is trying to make flight rules easy to access for non-licensed aircraft pilots that may not be familiar with the rules.  They created an Apple iOS mobile application called B4UFly that shows airspace restrictions to users based on their GPS location.  An Android application is under development.  

Regardless of ones personal position on registration, I highly suggest that drone operators download the app and check it carefully before flying.  It is a good insurance policy in case an operator is questioned by law enforcement.  Having something to validate you can legally fly where you are in hand may prevent a drone from being confiscated. 

A final thought about looking before flying is that localities are implementing laws covering where Drones can be operated that may not be in the FAA database.  Chicago, for example, recently passed a Drone Ordinance that Bans Drones from flying over areas not owned by the operator.   That change effectively makes flying a drone anywhere in the City of Chicago illegal.  

Owning a Drone can be a very rewarding experience, but owner/operators are taking on liability and responsibilities that may be larger than they realize. Homeowner umbrella policies and insurance may not cover operator liability either if they are not in compliance with the law.  Bottom line is to Register your Drone and carefully research an area before you fly.  The risk of not doing so is much greater than the risk of having your personal information on the FAA Website.   

Happy flying! 

Chicago CIO and Entrepreneur. Started @Orbitz, @AssureFlight, Team ITG, YourPrivateLine and others. I Love technology, startups and meeting interesting people.
China Trading Stopped for Second Time This Week

China Trading Stopped for Second Time This Week

China’s stock market tumbled and suffered its shortest trading day in its 25-year history on Thursday, January 7, 2015, as Beijing’s growing tolerance of a weaker currency intensified concerns about capital flight and the health of the world’s No. 2 economy.

Markets stopped trading about 30 minutes after they opened, as a newly installed mechanism to limit volatility was triggered for the second time this week.

The benchmark Shanghai Composite Index ended the dramatically brief trading day down more than 7% at 3125.00.

Pessimism spread quickly in the market after the People’s Bank of China set the daily yuan reference-exchange rate against the U.S. dollar 0.5% weaker compared with Wednesday’s level, marking the largest adjustment toward yuan weakness since Aug. 13.

The selloff was reminiscent of the similar but more drawn-out episode on Monday, the first day the circuit breaker trading curb was in effect.

The circuit-breaker system is triggered by sharp moves in an index that tracks that largest 300 stocks listed in Shanghai and Shenzhen, the CSI 300. When the index moves 5%, trading is automatically halted for 15 minutes, while a 7% move stops trading for the remainder of the session.

The CSI 300 Index tumbled 5% within 10 minutes after trading began on Thursday, which triggered the initial 15-minute halt.

When trading resumed, the selloff became even more pronounced and within five minutes, the CSI 300 Index extended its plunge to 7%, which brought the day’s business to an abrupt end.

More than 1,600 stocks fell by their daily 10% downward trading limit Thursday, according to Wind Information.

As Chinese stocks tumbled, China’s yuan fell as much as 0.6% onshore. In the offshore market, where the yuan is traded freely, the yuan fell as much as 0.9%.

The onshore-traded yuan is now down 1.5% for the year, after posting its largest annual loss last year. The daily fix was set at 6.5646 against the U.S. dollar, its weakest level since 2011. While traders had expected the yuan to weaken this year, the pace of depreciation has taken many by surprise.

The offshore yuan is now down 2.7% for the year, at a record low against the U.S. dollar.

China’s central bank attempted to soothe investor nerves and clarify its position, stressing the need to keep the yuan stable and at an equilibrium level, while attributing the yuan’s moves to speculators.

By letting the yuan depreciate, Beijing is acknowledging that the economy faces greater challenges this year and any boost that a weaker currency gives to exports would help, economists said.

While Chinese leaders have been trying to keep the economy on a measured path downward, investors are betting that the government will have to let the yuan fall further to maintain growth momentum.

The sharp depreciation in the yuan in recent weeks should—in theory—help Chinese exporters that were hit hard last year by the strong Chinese currency. A stronger currency tends to make goods more expensive in overseas markets. Since Aug. 11, the yuan has depreciated 6.1% against the U.S. dollar.

But China’s actions now have such enormous global spillover effects, which could blunt any benefits, analysts and exporters said.

In the business world, Chinese exporters say their overseas customers quickly demand discounts in line with currency depreciation moves, which negates much of the benefit that they would otherwise receive.

The same thing tends to happen in global currency markets as other nations depreciate their currencies in tandem with the yuan to maintain competitive position. “There certainly is a huge risk of currency wars breaking out,” Mr. Barron said.

The potential economic dividend is also tempered somewhat, since exports are now a less important economic driver than they were five years ago. Chinese companies now also face higher land, labor and environmental-related costs that have driven business to lower-cost nations, economists said.

Also Thursday, the China Securities Regulatory Commission announced after the trading halt that shareholders who own 5% or more of a listed company will be barred from selling more than 1% of its total shares outstanding, and will be required to inform exchanges of any sales plans 15 trading sessions in advance.

The trading limit, set to last three months, succeeds a six-month ban on sales by large shareholders that the regulator imposed on July 8, as it sought to halt the market’s summer collapse. The new rule is meant to “prevent concentrated share reduction” and “stabilize market expectations,” according to a statement posted Thursday on the CSRC website.

Chicago CIO and Entrepreneur. Started @Orbitz, @AssureFlight, Team ITG, YourPrivateLine and others. I Love technology, startups and meeting interesting people.
People are feeling better about the economy for 2016

People are feeling better about the economy for 2016

Good news! The world is looking at 2016 with much more confidence in terms of economic outlook than 2015, according to market research firm WIN/Gallup’s end of the year survey published on Dec. 31, 2015.

The research has found that an average of 45% of over 66,000 people interviewed in 68 countries had a positive outlook towards the economic situation in their own country in 2016, expecting it to be better than in 2016, and only 22% thought it was going to be worse (the remaining 33% didn’t expect changes or had no opinion). This is an increase of 3% compared to 2015—and a signal that people might feel things are getting better.

Leading the world in terms of economic optimism are West and South Asia, where 60% of people have a positive outlook, East Asia and Oceania (53%) and Sub-Saharan Africa (45%).

Sticking out for negativity—despite finally having started growing again— is the EU, where only 14% of people are optimists.

People with Positive Economic Outlook for 2016

People with Positive Economic Outlook for 2016

People with Positive Economic Outlook for 2016

A look at the results shows that the negative sentiments are found mostly among the richest countries: in prosperous economies (which the survey defines as G7 economies) only 18% of people think 2016 will be a good year for the economy, while in emerging economies (defined as G20 economies minus the G7) and aspiring ones (everyone else), 54% and 40% of people respectively have good expectations for the coming year. The most optimistic country is China—65% of people are looking forward to what the economy of 2016 has to bring.

Economic outlook for 2016 (by country’s wealth)

Economic outlook for 2016 (by country's wealth)

Economic outlook for 2016 (by country’s wealth)

But while the macro results show that those who have more wealth (G7 nations) tend to be the most pessimistic, the opposite is true when looking at the micro results: demographic-wise, it’s the advantaged who have the most optimistic outlook on 2016. Men under 34, with medium-high income and a university degree are the most positive—although overall no one beats Hindus: with 61% of positive responses, they are the group with the best outlook on 2016.

Chicago CIO and Entrepreneur. Started @Orbitz, @AssureFlight, Team ITG, YourPrivateLine and others. I Love technology, startups and meeting interesting people.

Square’s IPO…What Happened?

“Square’s IPO popped on the first day. What does that say about unicorn valuations? #SquareIPO”

The IPO process is fascinating.  Back in the dotcom era every tech nerd including me wanted to take a business public.  I was fortunate enough to be a part of Orbitz going public twice (NASDAQ: ORBZ; NYSE: OWW).  However, sometimes you have to be careful for what you ask for – you may actually get it…  What we found on the other side of the IPO was a scary place that we were not ready for.  Orbitz was overly hyped when we went public both times.  It is an exciting feeling before an IPO seeing the initial sale price set high and we were all doing the mental conversions of our options in our heads.  I was even in lucky enough to be in NYC ringing the opening bell!

 

ORBZ_02

The unfortunate fact about tech IPO’s is that it is more a game of chance than any of us would like to believe.  Apple, Google and Facebook are the success stories we all aspire to be like; however, truth be told most tech businesses that go public drop like a rock out of the gate – in the industry they call this rollercoaster ride a “Market Correction.”  Orbitz for example, was listed around $20 something a share on NASDAQ as the initial strike price and hovered around $6 after.   The stock fell losing millions for our initial investors.  Our second IPO on NYSE wasn’t much better.  We went out around $15 and no matter what the leadership team did the stock price never reached that value again.

Orbitz and Square are not alone in the rapid decline of valuation after an IPO.  Chicago Based Groupon (NASDAQ: GRPN) have found themselves in a similar position.  There 5-year high was $26.19.  As of this writing, they are trading at $2.79.

YahooGroupon

So what is the deal with IPO’s?

Personally I think it comes down to how the valuation process works.  Everyone wants to experience the ride that Google and Apple had.  The process of getting there, however, is not easy.  The vast majority of IPO’s I’ve seen end up overestimating their valuations through a process that is not easy for startup tech leaders to navigate.  There are tricks that seed investment firms use to alter the formulas that calculate the valuation of a pre-IPO company.

As an example, when a Company gets to a certain FTE count then their valuation increases.  When they burn through their rounds of funding they get more money because their valuation goes up.  Every time a pre-IPO business hits a stage the hypothetical valuation of their business increases.  What is mind-blowing to me is that revenues are not weighted heavily in the valuation process.  They can be losing millions a day and continue to have a high valuation.  Unfortunately no one wants to admit that their numbers are overly inflated.  If a valuation goes down a pre-IPO a business is very likely dead.  No one will invest in them.  They will be out of money and are either acquired at a discount or bankrupt.

What happened to Square?

I don’t have any personal insight on Square, but chances are they fell victim to the same catch-22.  They have a good product, they have market recognition and they have experienced leadership.  So what happened?

I found this October 22, 2012 quote on the web that makes me think they were going through the cookie cutter increase our valuation process:

“Square, the mobile payments company started by Twitter co-founder Jack Dorsey, announced today that it will be moving its corporate headquarters next year to 1455 Market Street in San Francisco’s Central Market neighborhood (next to Twitter). The move will help accommodate the company’s hiring plans, which include adding about 600 employees over the next year to reach a total of 1,000. Square expects to move into its new location, which will have a chef’s kitchen and rooftop deck, by mid 2013.”

1000 employees is a big number!  How can any business manage the rapid growth in employee population?  Why would they need to grow to 1000 FTE’s?  What are the additional 600 people going to do for them?  Why not outsource and take advantage of more competitive labor rates?  Why?  They can’t.  They very likely had an objective to hit 1000 to get to their next round of funding and increased valuation.  If they don’t hit whatever the magic target is then chances are they can’t get the next round of funding and die on the vine.

“A decrease in valuation is a big deal for everyone, not just the employees of Square.  The Venture firms investing in them lose their money.  The people who invested in the Venture firms lose theirs.”

Ok, I’m sure by now you are all saying yea great.  What are we to do about it?  First, don’t invest in IPO’s just because there is a lot of hype.  Take the Warren Buffet approach. Invest in businesses you personally understand and love.  Accordingly, look at their product objectively and do your own evaluation.  Is the business truly unique?  Is it worth what they are selling it for?  Why is this product better than others out there?  Ask yourself if you, your friends, family and coworkers would buy/use it and continue to buy more as products evolve (public companies are expected to have solid quarterly revenue growth).  Then look at their competitive landscape.  In Square’s case, it isn’t that difficult to find formidable competitors.  Google, Paypal and Apple are in the mobile payment business.  Stable Businesses like Intuit is as well.  How is Square or any startup going to compete in a marketplace they do not control with highly capitalized and experienced competitors?

Step back and think about Apple, Facebook and Google.  Why have they been a big success?   They have a solid business plan that is clearly tied to revenues.  Facebook resisted for awhile, but they were smart about implementing a profitable revenue stream.  They monetized their captive audience well and respond quickly to their customers.  Google did the same with search, which is still by far their #1 profit center.  Google is so good they cornered the market in search and turned their company name into a verb Googling.  Apple lives by clearly understanding their customers.  People buy Apple products without even knowing what it does — and they pay top dollar for it.  Apple has a very loyal following.  They have  done an amazing job cultivating their customerbase.

The business plan with realistic revenue streams, not the employee count or how many rounds of investments they have had is what makes the difference.  My recommendation is to read the SEC Filings carefully before investing in any IPO.  Some of the stuff in those documents make my hair stand up on ends.  Here are some quotes that I pulled directly out of Square’s S1 filing:

“Our growth may not be sustainable and depends on our ability to retain existing sellers, attract new sellers, and increase sales to both new and existing sellers.”

“Our business has generated net losses, and we intend to continue to invest substantially in our business. Thus, we may not be able to achieve or maintain profitability.”

“We derive substantially all of our revenue from payments services. Our efforts to expand our product portfolio and market reach may not succeed and may reduce our revenue growth.”

“Our quarterly results of operations and operating metrics fluctuate significantly and are unpredictable and subject to seasonality, which could result in the trading price of our Class A common stock being unpredictable or declining.”

“An active trading market for our Class A common stock may never develop or be sustained.”

“The market price of our Class A common stock may be volatile, and you could lose all or part of your investment.”

Another area to explore with the SEC is who is actually making the money from the public offering.  In the case of Orbitz’ second IPO (NYSE OWW) we didn’t actually benefit a penny from the investment.  We raised somewhere around a billion dollars and the money was transferred from our bank account to Travelport (NYSE: TVPT) who owned 49% of the Company and was private at the time.  They in-turn transferred the funds to to their owner Blackstone who was also private.  I’m told those funds were eventually paid to Blackstone investors as dividends.  Another area in the Orbitz case was we were over valued from when we were acquired by Cendant.  We were actually carrying a loss on our books for being over valued by savvy investors that had nothing whatsoever to do with our leadership team.

Orbitz had outstanding leadership and we did what we could to keep the company going.  The Company survived for 15 years (I was there for 11 of those years); however, in the end the pressure from investors to grow stock eventually took the toll on the company leadership and they sold the company to Expedia (NASDAQ: EXPE) – our arch rival.  Chance are Square will eventually take the same path.  It is going to be challenging for them to move their stock price up with the cards already stacked against them.

Chicago CIO and Entrepreneur. Started @Orbitz, @AssureFlight, Team ITG, YourPrivateLine and others. I Love technology, startups and meeting interesting people.