“Somewhere, something incredible is waiting to be known.”

While some could argue that Carl Sagan only implied the need for space exploration when he said these words that would inspire the next generation of scientists, we think maybe there’s more!

If you’ve spent enough time watching movies like “Deep Blue Sea” and “Europa Report”, you’ve probably heard this: “Oh, but we know more about space than we know about our oceans”. Considering that 70% of Earth is all largely unexplored water, this doesn’t sound as implausible. Add to it the amount of resources (oil, natural gas, etc.) the oceans contain. We can’t help but feel excited to find out what’s down there!

Beyond just exploration, oceans also play a crucial role in the sustenance of humankind on this planet—from climate regulation (rainfall, weather cycles, heat sink), food, and medicine, to global trade.

Oceans are hard, though!

Even more so than Space (in some ways). As if the vastness of the oceans weren’t challenging enough for exploration, the environments are harsh and stochastic. Needless to say, there’s only so far humans can go in exploring, and by virtue, utilizing what oceans have to offer.

Enter “USVs, or Unmanned Surface Vehicles.”

Before we jump into the nitty-gritty aspects of USVs, it is essential to mention what got us into this thread in the first place. We have been tracking an American USV company called SailDrone for a while now. While we’ve been awed by its many applications, ranging from surveillance to surveys, none captured our attention more when we knew it was used to monitor Carbon sequestration levels in the Arctic. The rare data obtained could be used to create global climate models and study the role of oceans in regulating the global Carbon cycle. Coincidentally, we had been actively spending time in the CCUS (Carbon Capture and Utilization) sector by then, and naturally, we were curious to find out more.

USVs: Technology, Needs and Drivers

USVs are drone ships that sail around water bodies—oceans, rivers, lakes, and dams—collecting data and performing various tasks, from surveys to surveillance.

Maritime affairs are expensive and risky—be it anything from fishing to cutting-edge ocean research. While it costs a few thousand dollars to survey a coral bay area, it costs so much more—in fact, hundreds of times more—to do the same in the Southern Ocean. Why? Because it involves sending a crew of skilled scientists on an expensive research vessel to the remotest corners of the planet for several months together. The scope of the research is limited to the crew’s ability to sustain itself for a long time while being cut off from the rest of the world. Not to mention the fuel and food constraints.

Sounds hard? Imagine doing it while sipping coffee from the safety and comfort of your home! Well, USVs allow you to do just that.

The premise of USV as a technology essentially boils down to the following:

• Can it eliminate or reduce human life risks?
• Can it reduce the cognitive load on humans, or do it autonomously?
• Can it decrease the costs involved in completing an assignment?

The utility of a USV is a function of how well it fares against conventional methods on the above parameters for a given mission. Here’s a quick look:

Now, it wouldn’t take too long for you to notice that we’ve mapped the needs and drivers to specific applications: research, Security/Defense, and Mapping. There are two reasons why:

• Market Traction: These are the areas where USVs, as of today, have found their applications
• Utility-Specific Design: The physical architecture of a USV is decided by the end use case or application

The USV architecture — and a quick imaginary exercise

Imagine buying an expensive remote-controlled boat for your birthday. You’re so happy.
Now imagine the boat having a camera. Fun.
Let the boat now sail in a lake park nearby on a Sunday evening.
All good so far?
Now imagine sailing it in the middle of an ocean.
Let the ocean be the Arctic, and suddenly it’s Monday. Bad vibes?
Someone else is around to help.
Oh, the boat is in the middle of a deadly Arctic cyclone.
And you now get to see it all.
Does it survive? Does it crash? What’s happening?
You can’t control anything and know nothing except that you want it back!

I'm sorry to put you through a bad dream. If you think about it, the technology should be capable of handling this reality. So, what enables it?

GNC—where the innovation lies!

The GNC (Guidance, Navigation, and Control) subsystem in a USV is the brain behind the brawn. The Navigation unit in the module hosts an array of sensors that determine the vehicle’s attitude (position in 3-dimensional space) at any given moment. The Guidance unit uses this information to create a trajectory or path for the USV to travel to accomplish the mission. As the trail gets computed, the data is transmitted to the control subsystem to adjust the control surfaces—propellers, fins, and sails.

It is challenging for two reasons:

• The ocean environment is stochastic — constantly moving and changing.
• All of the computing needs to happen in real time and onboard.

The better your GNC, the better your USV!

However, in saying this, we also make an important assumption: that the playing field is level with the USV hardware. There’s a good reason why there might be merit to this assumption. Let’s take a look at the value chain.

The USV technology value chain

To understand this, let’s break down the USV architecture into three major subsystems and look at their development.

• The structural vehicle hosts the payloads and other electronics primarily assembled in-house.
• Electronics — Software — Handles communications and computing—Developed in house.
• Data processing and asynchronous transmission- Can be done in-house or outsourced to 3rd party.

But why? When we tried mapping the value chain globally, we observed a few patterns that might answer the question.

• Companies often use off-the-shelf hardware (sensors, payload electronics) made by legacy OEMs in the marine industry. A good analogy would be to compare it with Android smartphones. For a given price, the moat comes from the software. Bit of a stretch, but this will do :)
• The nuance is that critical hardware like onboard computers is designed in-house because it is mission- and architecture-specific.
• Developing hardware in-house is expensive and requires extensive testing and development cycles, which startups need help to afford. So, whatever can be purchased readily will be, unless it is mission-critical.

Below is a quick map of the USV value chain (non-exhaustive)

At this point, it is important to acknowledge that we’ve considered USVs to be the natural choice of technology to perform marine operations. However, it would only be fair to look at other technological systems that can more or less deliver similar outcomes.

How do USVs fare against other competing technologies?

While USVs might seem an obvious choice compared to human-crewed ships, this is only sometimes the case. There are Unmanned Underwater Vehicles (UUVs) and floating Platforms that can be used to collect data and perform missions. There’s a trade-off made between the choice of technology depending on these parameters:

• How far can your vehicle traverse?
• How much payload can it host? (Often constrained by the power subsystem — battery)
• Can it manoeuvre out of harsh environments or terrains?
• Can it do it autonomously?

The performance comparison chart below shows how USVs fare against other competing technologies. Note:

• The green balls indicate the best-performing vehicle for a particular attribute.
• The arrow marks indicate desirability.
  (High/Low) for a particular attribute

If you wish to monitor the height of waves in a particular location, mobility is not a requirement; hence, float platforms are a better choice. To measure CO2 levels in the Arctic, you require long-endurance systems that can manoeuvre their way through icebergs. USVs prove to be the obvious choice here. If the goal is to measure the depths of an ocean trench, you’d require vehicles that can traverse underwater—UUVs (Unmanned Underwater Vehicles) are the go-to in this case.

However, USVs are the best choice for the below-listed applications simply because they offer the best combination in terms of the tradeoffs suited for them.

• Survey: bathymetry, Hydrography, Ocean Mapping, Infrastructure monitoring — Requires good mobility and manoeuvrability to cover the topography
• Defence, Surveillance and Engagement — Autonomy and payload capacity are virtues in situations like these.
• Research, data collection — Long endurance and manoeuvrability are essential here.
• Short-distance transportation: Ferries (canals, lakes)— Autonomy solves manual intervention and human effort.

Well, then, how do you market a technology like this?

USV — Business Models and Market Trends

Business Models

Depending on the use case, and the geography, we’ve observed a variety of business models that companies use to serve their customers. More often than not, it also boils down to who the customers are. Here are a few standard business models we’ve observed across the sector:

• Data on Demand — The company runs the asset and sells only the data
• Platform as a Service: USV as a platform vehicle to host other sensors and payloads
• Service on Demand — Avail USV service + default payload systems for use cases
• Service Subscription — USV service as a subscription
• Product Sales — Sell USVs on Demand

A few exciting patterns emerged when we tried to map the business models to USV applications and the customer persona.

At a business model level:

• Platform as a service is the most common business model.
• Service — Subscription is the go-to model for recurring use cases like infrastructure inspection and fishing surveys.
• For most research-specific applications, Platform as a Service is preferred.
• Service on Demand wins for use cases like mapping (Bathymetry, Hydrography) as well.
• For applications like the hull inspection of large ships, where the cost of USV is much cheaper — Product Sales seem like the better choice.

At the customer level:

• Academia, Research Institutions, NGOs, and Collective organisations prefer to lease the hardware rather than buy it.
• The government (For defence), Large Shipping Companies (Hull inspections) prefer to buy the asset.

Quick Market Overview

While the premise for the technology has been in the wind for a while now, USVs are only finding their feet in global markets, with a relatively greater presence and monetary traction in the US and EU. When we ventured to find out how the market pans out wrt various use cases, this is what we found. (Please note that this is only indicative of more significant global trends.)

Key markets with respect to use cases: (and key ICPs)

• Research & Data — USA > EU > Asia — Key ICP — Academia & Research Institutes
• Defense & Maritime Domain Awareness — EU > USA > Middle East — Key ICP — Government
• Mapping and Survey: USA > EU > Asia > Middle East > Key ICP — Fisheries Organizations and collectives, NGOs
• Other commercial applications (Inspections, Ferries, etc.) — USA > EU ~ Asia — Key ICP — Ferry/Shipping companies

The Final Crunch

The success of a fundamentally hard-to-build technology doesn’t just lie in cracking the science and engineering behind, but also in ensuring its economic viability while at it. USVs are expensive to build and even more so to maintain. Yes, there is a significant value proposition with certain use cases, but the nuance here to be mindful of is the scope for recurring usage and by extension, the revenue that can be generated over time. Therefore, while the signs are positive, it is yet to be seen how USVs will evolve to become a critical lever in unlocking everything the oceans have to offer.

While we keep track of that for you, here are a few takeaways that round up the USV landscape as it currently stands:

• Currently, USVs are at Level 2 or 3 autonomy.
• The GNC subsystem is often the differentiator at the core of innovation.
• In terms of architecture, non-critical components are often bought off the shelf.
• The US and EU are the biggest markets, with the most customers and companies.
• Research is the actual application with the most capital involvement.
• Platform-as-a-service is the go-to business model.
• Government and Academia are the key buyers.

At Speciale, we’re all about backing fundamentally hard-to-build technologies with the potential for greater global impact. We think the USVs are only the tip of the iceberg that is OceanTech, and the potential for innovation is enormous. If you’re a founder building for the blue economy, we would love to hear from you. Please feel free to write to us at nithish.kumar@specialeinvest.com, or sunil.cavale@specialeinvest.com