What's Amazon Thinking?
I donít know about you, but Iíve found the reaction to Amazonís trial balloon to use drones to deliver packages quite curious. Itís been generally negative and several people whoíve Iíve talked to in casual conversation brought it up as a kind of †WTF. Are they really serious?
A poll done by HuffPost/YouGov found that 41 percent of those polled aren't sure if deliveries by drone are a good or a bad idea, 36 percent think itís a good idea and 22 percent replied that itís bad idea. (I'm with the not sures.) Most of the skepticism centers on technical issues such as battery endurance, range, speed, FAA regulations for low-altitude autonomous UASs and safety. Even Jeff Bezos said one thing theyíll have to sort out is how to keep the things from bonking people in the head while landing.
But none of the coverage I saw addressed this question: Why would Amazon want to do this? I get the PR value, assuming that if it works, Amazon looks like itís staying on the keen cutting edge, but my instantaneous first reaction was the economics of it. Think of it in the mass transit context.
If you take the bus to work, it costs you a fraction of what it costs to drive. The same economics apply to airline flying, too. You canít fly your personal airplane 1000 miles as cheaply as you can buy an airline ticket to cover the same distance.
UPS trucks are buses for boxes. The incremental cost of throwing more boxes on the truck is trivial, which is why UPS can ship stuff half way across the continent for under $10. But drone economics are the reverse. Thereís no economy of scale because each delivery is a dedicated event and scaling up may require more aircraft. Or more time. Maybe a lot of both. People assume that drones are cheap to operate because theyíre autonomous, require no pilot and the electric-powered ones require no fuel. They do require recharging, so thereís real expense there, but they are more efficient.
As weíve reported before, Diamond is making quite a tidy little business out of selling piloted sensor aircraft to compete in markets where drones could easily do the work. The reason is that drones require significant infrastructure to set up and manage and that requires people and investment. Not to mention delays in clearing airspace. So for the time being, itís still cheaper to used manned aircraft in many instances where UAS might otherwise be deployed.
Bottom line: The UPS truck might bring the package for $7, but the drone will cost $30. Iím making up numbers here, but you get the drift. Also, at least for the foreseeable future, a drone of the size Amazon envisions has short range. Like under 10 miles. So unless you live within that radius of one of Amazonís 60 fulfillment centers, you wonít be seeing a drone on your doorstep, unless it belongs to NSA.
Not that this would necessarily stop a company like Amazon from marching forward. Forget the mass transit economics for a minute and apply Facebook economics. Tech companiesóespecially web tech companiesódonít necessarily operate to the same economic rules as the rest of the business world. If they did, Twitter wouldnít have a $25 billion market value.
So even if it costs four times as much to deliver a package by drone as by truck, you can easily imagine how a company like Amazon might do it anyway, losing bundles on each sale, just for that priceless cachet of leadership. Audacity never comes cheap. And what hell, if I knew my new HD Fire SBX was arriving via drone in the next 30 minutes, I can think of worse things to do than watch it use the Pineapple Palm in the front yard as a stepdown fix.