Like many tech-savvy AI players, XAG, as an expert in navigation control simulators, didn’t start with a clear vision of how to commercialize their drone technologies, let alone decide to enter agriculture among numerous verticals. XAG tried applying their drones in electricity, surveillance, and field expedition. Yet, none of them proved successful and sustainable given that those industries are closely tied to the public sector (e.g., the limited number of buyers, unbalanced negotiating power, etc.).
Why Agriculture – Value Creation
A random client request introduced XAG to the use cases in agriculture when the company first set foot in the agriculture sector. The client bought XAG drones to help spray chemicals in the farmland because the landowner couldn’t recruit enough cotton pickers due to labor shortages. Cotton is a massive use case for drones as drones can help spread ethylene to accelerate maturation for machines to pick cotton simultaneously without having to pace themselves to the scattered maturation cycle.
Drones, powered with machine vision, first scout the entire area of farmland (a relatively simple scenario with few abnormalities, such as graveyards, compared to urban environments), then identify the types of crops to spray water/chemicals on. In addition to spraying pesticides, drones can help with spreading seeds and fertilizers, inspecting fields before seeding, and many other operations throughout the entire process of agriculture.
Drones in agriculture create more significant value than manual labor in that they are:
- Sustainable: Drones use far less water and chemicals than humans because drones can spray more precisely with a lower density of chemicals as drones operate at a higher altitude than humans and pressurize the chemicals into smaller particles rather than streams.
- Efficient: Drones can save humans time and effort in scouting and operating in the farmland in person and reduce the unit cost of farming operations when the farmland grows bigger.
A Case Study in Honey Pomelo
Honey pomelo, a specialty fruit grown in the Southern province of Fujian, China, is gaining popularity with its sweet and juicy taste in recent years. Yet the misuse of pesticides and fertilizers has seriously damaged the local soil and fruit quality.
A local farmer approached XAG to co-build a sustainable orchard of high-quality pomelos. The XAG Field Monitor (agriculture IoT system) installed at the farm can record all changes to the honey pomelos (pesticide usage, sunlight, rain, etc.) in each growth stage, from sprouting to harvesting. The data is then fed back to the farmers’ mobile phones to trace the growth and adjust and optimize their production plans for the next stage.
With AI, farmers can now access quantitative inputs that were never measurable before. They no longer need to scout the fields in person; instead, they can monitor the crop growth via digital platforms to make decisions on the usage of pesticides and fertilizers, upgrading their roles from field operators to moderators or managers.
Value Creation Extended from End to End
AI and drones create value not only for farmers and landowners but also for upstream suppliers and downstream end users. The data generated by drones are valuable inputs for pesticide manufacturers such as Dow DuPont and Bayer to develop new-generation, more precise crop protection solutions specifically for drones. Customers can also trace the end product’s information, such as which planting sites the fruit was from, how much pesticide was used, etc., by scanning the QR code on the produce.
AI enables traceability, transparency, and precision, essentially facilitating the decision-making processes of consumers, suppliers, and business partners. With AI-powered data, even newcomers to agriculture can challenge the brand power of big-name incumbents, fostering a more competitive and innovative industry environment by removing entry barriers on scale and scope, awareness and perception, etc.
Value Capturing Enabled by Organizational Innovations
The most exciting and surprising part of XAG to me is not how it reimagines agriculture by generating new sources of information and enabling new ways of operation but how it practices go-to-market and develops its salesforce by mobilizing different stakeholders in the fragmented, highly non-digital rural regions in China.
Initially, XAG didn’t have its own sales team within its organization. XAG established its dealer system in rural villages by leveraging local wedding photographers, seed and crop protection providers, and agri. equipment dealers. To start, XAG spotted a large group of wedding photographers in rural regions getting unemployed because of the rise and further penetration of consumer drones and the shrinking youth population in the countryside due to urbanization. XAG then offered them a new job, agricultural drone flyers; these flyers are equipped with drone knowledge thanks to past photographing experiences but need to upskill on the farming front.
Gradually, XAG realized the local dealers of seeds and chemicals were better alternatives to the wedding photographers because the dealers have a network with local farmers and know what crops local farmers plant, thereby can cross-sell chemicals and drones. Eventually, XAG decided agri. equipment dealers, such as tractor sellers, were the best sales team for the firm because equipment dealers have agricultural know-how, the farmer’s network, and understand the mechanics to offer aftersales and repairment of drones.
In addition to marketing, XAG also relies on these partners to source ideas on product design and aftersales & maintenance as they have the closest interface with consumers.
XAG innovates its operating model by leveraging and incentivizing external stakeholders to work within XAG’s agricultural ecosystem – product design and manufacturing, go-to-market & sales, and aftersales.