Using drones for commercial reasons has slowly become a reality. Doing that, however, requires new regulation, changes to existing rules, and figuring out how to turn what was once a toy into a practical business tool.

On this episode of Industry Focus: Energy & Industrials, Sarah Priestley is joined by Motley Fool contributor Daniel Kline to look at how drones might be used and what the current rules are in the United States. They also examine the overall potential for markets and touch on some of the possible industrial uses that are being tested now.

A full transcript follows the video.

This video was recorded on May 24, 2018.

Sarah Priestley: If you're unfamiliar with drones and you're listening to this, the strict definition is an unmanned aircraft that can fly without a human in control. But many people, including myself, say "drone" to mean any aircraft without an on-board pilot. You've probably heard some crazy stories about the future for drones. One recent headline that I saw is that Uber is kicking off a test program, which is kind of what we're talking about today, to make food deliveries in under five minutes. So, no more cold pizza delivery.

Dan Kline: I think it's fair to say that drones are one of those topics that lend themselves to sensational headlines, and a lot of companies have capitalized on that. There have been, Domino's and Chipotle have both put out drone tests, which are literally buying a drone at a hobby store, taping a burrito to it, and doing it for publicity purposes.

Priestley: [laughs] Yeah, I was going to ask you, what are some of the craziest headlines or applications that you've seen?

Kline: Well, Chipotle did do a test on a college campus. The reality is, we're going to get into this later, that's probably going to happen at some point. But, there are a million hurdles -- well, not a million, but there's a lot of hurdles before that can happen. Right now, you've been able to buy a drone for 20 years at your local hobby store. I used to run a giant toy store, and people would buy drones and they would use them for aerial photography, probably for taking pictures they shouldn't be taking.

It's always been sort of a complicated thing. There's no pilot, but they still had to be flown. As we move into commercial drones, it's going to be figuring out, are there pilots? Are they automated? It's really taking something that was just a toy and making it something that has commercial applications.

Priestley: Yeah, absolutely. As you've said, this tech, as we talked about, so sci-fi, but, it has so many practical applications, specifically for our sector in energy and industrials. Drones can be used in agriculture to monitor large farms, they have security and defense applications, which is a big part of the market right now, and maintenance and inspection of a lot of industrials like oil and gas, and bridge inspections, and things like that. In fact, last night, actually, I saw Chevron's keep DOERS doing TV commercial, and they were using a drone for an inspection purpose in one of those commercials. So, you're seeing it more and more. The size of the industry and range of the potential applications is pretty big. It's expected to get a compound annual growth rate of 19% between now and 2020, very soon.

Kline: Yeah. Right now, though, you're talking a very small industry that has the potential to be enormous. When you marry a drone to the Internet of Things, you theoretically have the ability to be more places than a person can be. So, you could be doing everything from inventory to security to checking to see if there's a leak in the back corner of your factory, and have it all be completely automated. Which, we're going to see those types of applications that don't involve flying over cities or bringing you a pizza. It's a little bit tricky for an airplane to bring you a pizza as opposed to an airplane reading RFID tags to know that you're low on inventory on, I don't know, stuffed teddy bears, and you have to order a crate of them.

Priestley: Yeah, absolutely. Just in case anybody at home doesn't know, Internet of Things?

Kline: The Internet of Things is the world of connected devices. It's basically everything from a smart refrigerator to the watch you're wearing that can send your doctor your heartbeat information.

Priestley: So, the total market size for drones, as you said, right now, is pretty small. For business solutions, which is what we're talking about today, rather than the more gimmicky things, is pegged at $127 billion. I think that might have been by a Bank of America study. So, yeah, a ton of applications, predominantly in infrastructure, agriculture and transport. As you said, it's not even 20 years ago that drones were this sci-fi concept. How much have modern drones that we're talking about using in these tests changed from what you were selling 20 years ago?

Kline: The test ones are absolutely more involved. When you look at the Amazon footage of their theoretical delivery drone, it's super-duper high tech. A lot of what's being used out there now, though, in terms of testing, is really just an extension of the original high-end hobbyist. Not the $300 model, but the $900 model that hung on a high shelf in the store. It really is just a way to be more places. A lot of the uses right now are camera-based. There might be sensors, but it's just, there's a guy and he's looking at the field to see where things are.

Absolutely, what you can add to your drone has changed, because not everyone used a smartphone when I was in the toy store business a decade ago or whatever it was. But, certainly, the underlying technology for the piloted drones is the same. And when you start getting into the unpiloted ones, of course, it's a leap.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel B. Kline has no position in any of the stocks mentioned. Sarah Priestley has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Chipotle Mexican Grill. The Motley Fool has a disclosure policy.