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$20,000,000 for 160 units. $125,000 each. Slightly more expensive than the remote control helicopters you buy as toys. If this number is correct, I would love to know what justifies that amazing cost per unit.

EDIT: Jeebus, it is actually 20 million pounds.

R&D.

The production cost of the units is likely quite reasonable but the cost of developing and testing the system is what cost ₤20mil.

Begs the question though, what exactly are they doing during R&D?

About 2 years ago i was building comparable devices for around £285 GBP each. Today i can do the same (thanks to cheaper lighter parts and experience on my part) for slightly over £110, that could be reduced for bulk builds.

My R&D costs were 2 weeks worth of my evenings reading and planning.

You can buy a commercially developed equivalent with better flight stability than the model they've produced (their design is inherently more unstable - and thus agile, and possibly slightly quieter) for under £60 delivered, video reception equipment is a separate purchase at £30.

except that theirs probably (hopefully) is not (easily) jammable and the signal is not (hopefully/easily) interceptable...
Hopefully!

Although i reckon even the common kit that's been available to consumers for the past few years could be tricky to jam without concerted effort:

http://www.futaba-rc.com/technology/fasst.html

I.e. to jam this frequency hopping requires than you either a) figure out what channels to jam at what time or b) saturate the full bandwidth.

If you can do either of those, you'd probably be better jamming the voice comms than RC helis. Not sure though.

The frequency hop rate for commercial stuff is pretty low.
Presumably the military has met (and solved) this problem already, so it's just a case of getting the RF equipment small enough.
You should consider that most (all?) of the tiny RC equipment comes straight out of China. Given that, I suspect that they had to build the thing from the ground-up. Did you do everything from choosing materials to designing your own gearbox?
That's a simplistic way to look at things. As others mentioned, there's of course R&D. But there's also a huge difference between military-grade hardware and your hobby kit. Would you rely on the latter with your life? To work reliable in all conditions? To provide an encrypted video stream to a special control unit?
This is the case of economic stimulus through military spending in addition to hidden high-tech subsidy on taxpayer's tab. And redistribution of wealth, if you wish.

Wouldn't it be nice to be able to do any amount of "crucial R&D" that will eventually be sold to taxpayers irregardless of outcome? Every big corp manager's dream.

It doesn't matter if the thing works extra reliably or not: an average lifespan of the battlefield equipment is measured in hours. At a significantly lower costs these copters could be disposable suggesting an entirely different patterns of tactical use.

Apart from the redistribution of wealth from the taxpayers' pockets into the pockets of elites the military spending is "no questions asked" then compared to social projects. Taxpayer's either won't care at all or will come up with reasoning such as "military grade means X1000 the civil costs".

Meh. Still sounds like an absolute bargain for a government project which always entails tons of overhead starting with a complex and time consuming procurement process, project management, auditing, vacations, management changes, political spin doctoring, competing priorities, etc etc.

And then it's military on top of that, which means ruggedized equipment, security and lots of field testing.

This combined with Google glass. Each soldier could have a couple of them buzzing around with "autonomous" or "controlled" modes, with a landing/charging pad on their backpack.
I like the idea. When the battery of the first starts dying the next one could even be sent into the field for a seamless handoff.

I'd prefer it be used for non-evil uses somehow though ;)

(...) and now that we have balanced the defence budget we are able to confidently invest in these kinds of cutting-edge technologies. - The nano helicopter has been developed by Prox Dynamics AS of Norway as part of a £20m contract for 160 units

That's loads of money if they are not much different from toys/hobbyist UAVs. Do you think that those helicopters are just streaming video or is there some kind of software merging it all together into a 3D reconstruction (odometry?)? If not, what can justify this price?

I was amazed that they managed to do it for as little as £20 million!
A hobbyist UAV is probably not weather sealed, hardened against interference or heavily tested under battle like conditions. These are assumptions but they'd be my requirements if I was specing this system. They also appear to be an order of magnitude smaller than hobbyist UAVs with video.
Nothing can justify it. The MOD's procurement system is a massive fucking hole that tax payers pour money into and get very little out of in return.
Oh hey, just like our DoD over in the US. I've heard that this is because once you get approved as a supplier, you have monopsony power. Anyone with experience in procurement know if this is actually the case?
DoD does have large problems with procurement IMO. Parts of it are self-inflicted (e.g. by making it nearly impossible for a supplier to be "certified" you give existing suppliers the ability to extort more money from you), parts of it are inflicted by the government (e.g. various HR laws the gov't self-adopts in order to 'lead by example', requirements to buy stuff the DoD doesn't even want, etc.)

But the big rub is that it's a very hard problem to tackle. There's already tons of rules and regulations to try to prevent the issue of corruption. Adding more rules makes the 'normal path' even less efficient. Taking rules away risks lots of graft in the 'worst case path'.

And even if DoD somehow adopts a most-efficient acquisition scheme, it still has to get the prime contractors to become more efficient to actually realize savings based on this. There's only so many defense contractors to choose from for major acquisition projects, and from the DoD/nat'l defense point of view it's better to buy expensive kit than to stop buying at all for a few years into order to weed out the most sluggish contractors.

I have a feeling that we're still just scraping the surface of drones-as-military-equipment. They are being used now in very remote parts of a remote (and relatively small by global standard) war.

The future is scary.

Coming up next in Afghanistan: giant fly swatters.
I find it pretty amazing how quickly this Minority Report stuff is turning into reality. Don't know how autonomous these are right now but I would assume in near future you would just open a box to release a swarm of these and they would manage themselves, patrol on certain area, come back for reloading etc.

Visualizing the information is then one thing. That reminds me about Microsoft maps augmented reality presentation from TED where they superimposed live video feed over street view style imagery [1].

[1] http://www.youtube.com/watch?v=0TOqikZTBMY