Amazon's drone delivery concept: PR stunt or real innovation?

Amazon's drone delivery concept: PR stunt or real innovation?

Summary: Cynics, optimists and realists will all have valid points about Amazon's drone delivery plans. In the meantime, Amazon has managed to dominate the headlines on Cyber Monday.

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TOPICS: E-Commerce, Amazon
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Amazon CEO Jeff Bezos has outlined plans to have drones---specifically versions for Prime subscribers---deliver packages weighing up to 5 pounds in 30 minutes as early as 2018 or 2019. Cue the debate on whether Amazon timed its news perfectly for Cyber Monday or is really innovating.

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Here's a look at the flavors of drone speak today following Amazon's 60 Minutes profile:

  1. Cynic: Bezos knows damn well that a five year time line is way aggressive and the FAA is going to look long and hard at the concept. Bezos' 60 Minutes spiel is nothing more than a PR stunt.
  2. Techno-optimist: Amazon is reinventing shopping and will close the gap between instant gratification and e-commerce. Amazon is innovative beyond belief.
  3. Realist: Amazon concept could work, but will likely take more than five years to pull off, but sounds neat. Who am I to doubt Bezos?

So what's this drone idea really about? Messaging. Amazon is increasingly being known for its innovation---whether it's Amazon Web Services, supply chain or its Kindle business model. This innovation culture keeps people interested and away from annoying questions about profit margins.

Piper Jaffray analyst Gene Munster noted:

While it's highly unlikely we have flying Amazon delivery drones in four to five years, the recently announced initiative illustrates the culture of innovation at Amazon and the depth of its goal to re-engineer the fabric of retail for the next 100 years.

Munster also noted that Zookal, a textbook rental company in Australia, works with Flirtey, a commercial drone service, for quick deliveries.

In other words, Amazon's drone idea may not be all that original. If drones can shoot at bad guys and patrol the skies, surely they can drop off a package at your doorstep.

The overall theme is that Amazon could actually find profit margins with a fleet of drones. These drones, which could carry up to five pounds for 10 miles, would cover 86 percent of the goods Amazon sells. Shipping costs would plummet and Amazon could depreciate its fleet of drones. In theory, Amazon's bottom line could improve dramatically---unless Bezos finds some other venture to invest in.

What do we make of Amazon's drone plan? The realist, cynic and techno-optimist outlined above are all correct. Bezos is a showman so you can bet the drone story is well timed so Amazon dominates the news on Cyber Monday. Amazon will also target new markets that initially look crazy and prove you wrong. And Amazon will likely have drone delivery, but it'll take some time.

Topics: E-Commerce, Amazon

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120 comments
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  • I thought it a PR stunt from the get go

    He's got his advertising on TV free of the networks covering this, with people proclaimintg "innovation". If in the end nothing is said or done, we all remember "Amazon".

    Too many hurdles and liabilities to make this a reality. And how do you keep these things from being stolen once they land? got to be some expensive parts inside of them.
    William.Farrel
    • complete pr stunt. shows how low 60 minutes

      has sunk since CBS got out of the news business. Any time a tech company starts telling you in 2013 what they hope to be doing in 2019 it's guaranteed pure pr bs.
      Johnny Vegas
      • Not half

        On Bloomberg we had a couple on analysts talking

        Bozo was the new Steve Jobs because of this fabulous innovation, ignoring the fact that it doesn't exist.

        And there was general consent that "these amazingly profitable companies" (meaning Amazon and Apple) are powered by such innovation.

        Let's be clear.

        - This may become an innovation in a few years. Now, it's a hair brained idea.

        - amazingly profitable Amazon is making about 20% more profit per year, than Apple makes each and every day.

        - to justify its current share price, Amazon needs to grow x100 at current profitability without its share price rising.

        - or it could make 100x as much on each sales

        - or it could grow by a factor of 10x AND make 10x as much on each sale.

        ... All to justify the CURRENT share price.

        Amazon is just traders playing Chicken.

        It will explode. It's only a matter of who is holding at the time.
        Henry 3 Dogg
        • No, harebrained

          Not "hair brained," but "harebrained," meaning having no more sense than a hare (i.e., a rabbit). http://www.thefreedictionary.com/harebrained.
          bmeacham98@...
        • Henry, I disagree with all your points. Here's why:

          Here's my take on each of the points you made:

          1. Henry: This may become an innovation in a few years. Now, it's a hair brained idea.
          Me: Are there any other innovations you can think of (which are taken for granted toay) which also started off as hare-brained ideas?


          2. Henry: amazingly profitable Amazon is making about 20% more profit per year, than Apple makes each and every day.
          Me: The outlier is Apple, not Amazon. More companies in the world make profits closer to Amazon's level than Apple's level.

          3. Henry: To justify its current share price, Amazon needs to grow x100 at current profitability without its share price rising.
          - or it could make 100x as much on each sales
          - or it could grow by a factor of 10x AND make 10x as much on each sale.
          Me: Amazon doesn't NEED to justify its share price to anyone. People buy Amazon stock with real money - that's sufficient justification. If you don't think it's justifiable, your view is equally valid, and there is no compulsion for you to buy. Warren Buffett thinks the same way - don't buy into a business that you don't understand.

          In my view, Bezos took a risk with a nascent business, stepped in early, and made it work with some audacious ideas. If that model has proved successful for him in the past, he'll obviously do it again, like any good businessman would. And the best part (for him) is that with the growing size of his existing businesses, each succesive risk is smaller and smaller as a percentage.

          I say, more power to him and others like him!

          Footnote/Disclosure: I have no business relationship with Amazon whatsoever (except for having bought approx $1000 worth of stuff from them during the last 5 years).
          jaykayess
          • premium on current earnings

            His point is that people are paying a premium based on current earnings. If those earnings don't continue to rise they are due for a crash. the life cycle of any company shows that eventually earnings growth start to slow. Then the premium that people are willing to pay for those earning goes away and thus a crash.
            apoteke
        • Profit..

          Haven't they LOST money 3 out of the last 4 quarters?? Last quarter they lost 9 cents per share.

          http://www.businessweek.com/articles/2013-10-24/same-old-amazon-all-sales-no-profit
          Johnpford
    • Say what???

      Amazon spent millions on the project as a PR stunt? Trust me, there are much cheaper ways to go about it if that was the goal.
      NoAxToGrind
      • Millions?

        I read a comment on another article that said anyone could make that video for $1500 and that is basically true. Is there any evidence they spent millions?
        rfoto
      • Who said they spent millions?

        Amazon?
        thekman58
      • I've spent enough time in the R/C world

        to realize what we saw didn't cost millions.

        That is unless Amazon paid a million dollars for each helicopter, at which point I have to ask "how can I get that job?"
        William.Farrel
        • And your hobby store

          toy can accept GPS coordinates from Amazon's IT infrastructure and fly autonomously in a city, with obstacles and other air craft, review it's landing spot and land, drop it's payload and return to home again? Somehow I don't think so...
          NoAxToGrind
      • Air delivery..

        Will not work if there is any kind of wind. Ask anyone who has tried to fly a RC copter.
        Johnpford
        • Not saying I know, but...

          I think most drones are built on a platform of a Quad-copter, or Hexa-copter for more lift and to support a larger payload. I hear it also makes them amazingly stable for low to mid winds. No doubt Amazon would have a mini-weather station feeding data into the drone service station before sending them on missions.
          gmoney1911a3
    • Target Practice

      They're going to use these drones as target practice in Texas. Also, how do service apartments with these things (where would they land)?
      Eleutherios
      • Early Stages.

        This technology is meant for an Opt in service. If your delivery fits the parameters and you dont mind having a drone drop your package off then they will exploit that market.

        Its potentially a multi billion dollar a year business. Once it truly catches on and technology expands in coming years door to door bot derives are well within reality.

        A human costs a ton of money during their career and in these jobs cost more in pensions. Remove the human for the cost of a drone and recoup the money in deliverers and stock value.

        States like Florida and Texas will refuse to accept these until it becomes financially irresponsible to continue in traditional means.
        Aidan Nevins
    • Reality will set in.

      Gps tracking...once it goes down and doesn't return issue a ticket to that customer.

      If you think its a PR stunt then take a look at the amount of money the Postal service spends on its pensions, then realize that life expectancy and working age is increasing. Remove the human from the delivery and expand profits by billions.

      It will catch on and in one move UPS, FEDEX and Amazon will deliver to your door via drone.
      The cost is not an issue neither is cost of loosing a drone. they might cost 10k but these companies are worth much more.
      Aidan Nevins
    • Why wait for the drones to land?

      I think in this day and age people may not wait for them to land. Imagine people shooting them from the sky to see what is in the packages.
      obx_bum
      • Or stealing somebody else's package when you see a drone fly by, or...

        or getting hit by the copter blades while it's landing and suing the delivery company. I like the idea, but these ARE all real possibilities.
        gmoney1911a3
    • "too many hurdles?" no.

      Granted, there are significant hurdles to overcome, but 'too many'? Perhaps at this precise moment, but certainly not for much longer. Time and time again somebody says 'it's impossible', and then shortly after, someone goes and makes it a reality - and a few years later, not only is it common place, but it's dirt cheap, and even better solutions are being developed. This will happen - if not Amazon, then some other company. And the time frame may well be within what was indicated in the interview - though it may be a couple more years before it's viable on a large scale.
      nrogers81@...