Pippa predicts

Her father was a senior aide to four US presidents and Pippa Malmgren was herself a special assistant to President George W Bush on his National Economic Council – so you might say she is steeped in Beltway politics. However, the London-based Malmgren is also co-founder of H Robotics, a maker of drones for industrial clients.

Malmgren was the keynote speaker at HSBC’s GBA Connections event in Hong Kong in late June. WiC caught up with her to further explore some of the topics she raised, especially the future of the drone industry, new applications for facial recognition technology and what she thinks may really be driving Trump’s China policy.

In your keynote speech you spoke about facial recognition. Do you see this as an area where there is Chinese leadership?

Facial recognition is a fast-emerging technology and China definitely has leading capabilities in this space. Immediately one thinks of the company Sensetime, which is an extraordinary success. I think it is still the most successful start-up ever.

What major applications do you see facial recognition having?

There are two broad ways to think about facial recognition technology. One is identification, using it like a thumbprint or biometric to identify who a person is and what category of person i.e. is it a white female, a Chinese male. But the other aspect, which is far more interesting about the technology, is it allows you to engage in a brand new kind of cartography. It allows you to map emotions. That means it has the ability to identify when you are sad, scared, nervous and so forth. But it also can identify the micro facial movements that indicate when you are lying or telling the truth. This aspect has not been discussed as much and people haven’t thought as much about how this could be used.

For example, a bank may check whether a potential customer is lying when applying for a loan?

This is exactly the sort of use that is starting to unfold. The question then becomes is this a reliable way of doing it? The big criticism about facial recognition technology is we don’t have enough data points to reach reliable conclusions about the what the facial recognition is seeing. It’s not that it can’t be done. You just need a lot of data. It may be that one reason the Chinese excel in this area is they just simply have a lot more people and more faces to run those algorithms over. The quality of that data is currently largely a function of the quantity.

Could consumer goods firms use the technology to figure out reactions to proposed new products?

I could easily see that. It could certainly be more effective than existing surveying techniques. For instance, I can see it being really useful for companies asking if a consumer likes the product and showing that, though they might say yes, they don’t actually really like it. Human beings are funny creatures – we are very easily able to say one thing and think another. This is what it’s good for, because it spots what the target really thinks.

Moving to a different technology, you make your drones in the UK – and not somewhere lower cost like China. Why?

There are a number of reasons. One, because I live in the UK. Yes, we could easily have outsourced the production to anywhere in the world. However, we found that modern technology permits high-end engineering in very small spaces and with very little overhead and capital equipment commitment. For example, we are able to 3D print components for our drones, which are very rugged and high-end. It didn’t require us to send it elsewhere for manufacturing – though that would have been the case 10 years ago, no question. But now we don’t have to send it away and the turnaround time is really fast. We can 3D print in our office immediately and can make whatever small parts we need. For something bigger we can still have a turnaround within three days.

Are you focused less on mass market consumer drones and more on drones for the commercial market?

Exactly, we exclusively serve industrial users and we deliberately don’t sell to the general public. That’s partly because we expect the regulators will be much tougher on retail consumer drones going forward and will accommodate much greater usage in the industrial arena. It is much easier to manage the regulatory issues when there is a controlled environment, where the company owns their own property and where there is a specific reason to be using it. We specialised in this market and think it is a bigger market ultimately.

So what are the applications for your drones? Who are the clients?

People say to us what are your drones for, and we say we have no idea. Actually it’s very exciting. The way we built our drones was as a stable platform in the sky to which you can attach virtually any hardware, be it a camera or any accessory. If the market comes up with a device we can deploy it on our aerial platform. Similarly all the data goes from a stable platform in the sky to a stable platform in the cloud, meaning we deploy any software to that data.

The use-cases are almost endless. We are literally agnostic to types of customers or services.

So your drones are used as transporters?

We are finding that delivery is the least useful thing to do with a drone, although you can do it. The really valuable aspect is the data gathering.

Were you surprised that the US government gave approvals for DJI’s Government Edition range last week?

No, DJI was clever to announce it would manufacture these drones data-related components inside the US. That helped address the perceived problem.

Do you see your company competing with DJI in commercial drones?

We don’t see ourselves competing with DJI. We have a very different business model. We are all about the conversations with the client and continuous problem solving with the client. The hardware is just a means of delivering that. DJI has created the drone market and remains the leader.

So is it going to be more about services than hardware in the future?

No, I think there is always a place for a hardware business model and always a place for a services business model. They can do well simultaneously. Our expertise just tends to be in the relationship space, rather than the mass production space.

How about the issue of airspace and how drones will start to occupy more of it?

A lot of groups are working on air traffic control systems with a view to deconflicting – to make sure that commercial application drones don’t hit anything while they are doing their work. NASA is working on this, as is BAE Systems and many others. The question is which system will be adopted. But for sure one will be – we are not going to have this Wild West environment where there isn’t a system for much longer.

The other thing is controls on height and distance limits. We suspect at some point the regulators will realise it is very easy to put code into the systems that would make it so the drone cannot fly above 400 feet, which is the normal legal height limit in most parts of the world. It doesn’t totally fix the problem but it really reduces the risk of some novice consumer who flies it at 2,000 feet because it is just so exciting. If it can’t go above 400 feet it solves a lot of problems.

Reportedly Tencent-backed YH Supermarket is experimenting with drone deliveries of groceries to customers in Guangzhou. Is this a realistic use of drones? Could it eliminate the deliveryman in the next decade or is that science fiction?

It’s not science fiction but we have a long way to go. It may be that the drones that get used for that purpose are much more like the taxi drones that are being tested in Dubai. In other words, heavy lifters that can handle big payloads. The biggest constraint on the use of drones for delivery is their inability to handle weather. It sounds such a basic point, but I promise you most drones cannot handle any rain at all. Most of them cannot handle much wind. Almost all drones were designed for retail consumers and they sometimes don’t handle the basic elements very well. That’s why I think there has been slow going on having them fly over cities or doing industrial heavy lift tasks.

Which country or city do you see usage of drones being strongest?

What’s happening is specialisation. The Emirates have focused on the larger, potentially passenger carrying drones, and they are doing a great job of pushing the boundaries there. China has specialised in the smaller retail consumer drones and have done an amazing job of socialising drones to the entire world. Here in the UK I see companies likes ours whose exclusive focus is on industrial drones. I’ve seen more high-end commercial focus than anywhere else. In the US everyone gave up on hardware, with the Americans more software-focused and generally disdainful of hardware. So in the US there is a tendency to develop sophisticated software and then try and put it in someone else’s drone.

During your keynote you mentioned the tech war between China and the US. Will it accelerate China’s push up the value chain?

The Chinese are moving up the value chain generally. That has been one of President Xi Jinping’s highest priorities: to move China out of the production of toys and into the production of higher value added, more sophisticated goods. So from toys to high-speed trains. They are progressing and the country they are going to be competing with most for engineering, high-speed trains, nuclear power plants and so forth is Germany. And China is gaining huge expertise in these areas thanks to the Belt and Road Initiative.

I don’t think a US tech war stops China from moving up the value chain. I think it speeds the process. As Trump exclude these products and says more has to be made in America, then China has to make better quality products that are more attractive. It is not a bad result for China. It just means they need to change, which they needed to do anyway.

Would a US tech war against China be self-defeating for Washington?

It depends on what your goal is. If your goal is to make an announcement that garners you public support and votes going into an election, it will have been very successful. If your purpose is to permanently remove Chinese competition, it doesn’t work and it never will.

In your keynote speech you also predicted that Trump would do a deal with North Korea. You referred to it as his ‘Wikipedia entry’ – i.e. what he wants to be remembered for. A week later he walked across the border. So your timing was pretty good…

I still think that Trump would concede a number of other priorities in his negotiations with Xi if it meant he got a landmark deal on North Korea. Trump is a fairly unique president: he is prepared to negotiate with the Chinese on the basis of an overall package that includes many elements – trade, defence and security, energy policy and more. The Chinese know this and also that there is a window with Trump where literally everything is on the table – issues that other administrations would negotiate discreetly are all rolled by Trump into an overall bargaining strategy.

If a deal was done it would be a truly historic event and it would be Trump’s Wikipedia entry – as well as Xi’s too as it would solve an issue that’s been around for decades. If there were an announcement like that the markets would rally like crazy.

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