Amazon, Domino's and the future drone delivery market

Timeline for Drone Delivery

What is Drone Delivery?

Drone adoption is growing rapidly among both consumers and companies, and the retail industry is leading the way in that adoption. Drones could serve different purposes for retailers, but drone delivery (which is exactly what it sounds like: products delivered by drone) is the most well-known and readily apparent.

Drone delivery services show enough potential that Amazon, Alphabet, and other tech giants are hailing it as the future of e-commerce fulfillment. Many major retail and logistics companies around the world are testing drone delivery services and drone delivery systems to solve the problem of "last mile" deliveries.

And some companies have already taken the first step...

First Drone Delivery - A Domino's Pizza

Drone delivery pizza became a reality in November 2016 when Domino's, with its drone delivery partner Flirtey, dropped off an order at a customer's door at 11:19 a.m. in Whangaparaoa, New Zealand, 25 km north of Auckland. (If you're curious, the first pizza drone delivery was an order of a Peri-Peri Chicken Pizza and a Chicken and Cranberry Pizza.)

A team of drone experts and a pilot autonomously controlled Flirtey's DRU Drone through GPS navigation to drop off the pizzas.

Amazon Experimenting with Drone Delivery

Pizza drone delivery is one thing, but when the largest e-commerce company in the world starts toying with the idea of using UAVs to fulfill orders, that's another story entirely.

Amazon plans to deliver customers' orders within 30 minutes through its Prime Air delivery program, which would blow away its two-day Prime shipping and two-hour Prime Now deliveries.

And the benefits would be tangible both for customers and for Amazon itself, which would reap the rewards of reduced drone delivery cost. A 2015 study by ARK Investing Group estimated that drone delivery would cost Amazon less than $1 per shipment. BI Intelligence, Business Insider's premium research service, estimates that Amazon spent approximately $5.75 on shipping per package in 2016. This price reduction becomes even more beneficial considering Seeking Alpha's prediction that Amazon drone delivery costs could hit $9.19 per delivery, which would eliminate any savings compared to FedEx or UPS ground shipping.

As a result, Amazon has been trying to get out ahead of the drone delivery market by launching its Prime Air program in 2013. The e-commerce giant tested its first drone deliveries in the U.K. in 2016 with just two customers who lived nearby an Amazon fulfillment center near Cambridge. Amazon has also dropped hints that Prime Air tests could arrive in the U.s., including a demo drone delivery at its robotics conference in March.

Delivery Drones Pros & Cons

Delivery drones have both pros and cons, even though the benefits might be more readily apparent off the bat.

Pros

As discussed above with Amazon, companies would save money on shipping costs, which would in turn reduce costs for consumers.
Consumers would receive their packages far more quickly and reliably, which would build consumer trust and encourage repeat purchasing.
Shareholders of companies who employ drone delivery to cut costs would likely see some of those savings trickle down to them.

Cons

Delivery people would lose their jobs to automation, and those who don't would be severely limited in their career prospects with their companies.
Consumers could raise privacy concerns, as drones would likely use GPS and cameras to find homes and deliver packages.

Is There a Future in Drone Delivery Companies?

Yes, but not immediately. BI Intelligence maintains that mass adoption of drone delivery will occur, but not until after 2020 thanks to regulatory barriers, technical issues, and consumer acceptance.

In the U.S., the Federal Aviation Administration has allowed some drone delivery tests. but has been far more relaxed when it comes to aerial construction site surveys and oil rig inspections. A major issue for drone delivery projects in the U.S. is the FAA’s line-of-sight rule, which requires that pilots be able to see their drones when flying them. This makes it impossible to test commercial drone deliveries over long distances.

But the regulatory problem is not limited to the U.S., as China has yet to enact permanent drone regulations.

Technical issues are also holding back drone delivery adoption. Drone technology overall is still developing, and there's work to be done before regulators approve widespread drone delivery in residential areas. Companies have yet to also figure out the safest and most efficient way to have drones deliver to people's homes. Do they actually land on front porches, or do they deploy packages via parachute? What about homes with front lawns vs. apartment buildings?

Finally, consumer acceptance is still an issue. Only 32% of more than 1,200 US consumers surveyed by the US Postal Service last October said they believe drone deliveries will be safe. The respondents’ perceptions of different companies — including Amazon, Alphabet, FedEx, and UPS — also dropped significantly when thinking of them as drone delivery providers.

These hurdles will drive a slow-but-steady march toward the reality of drone delivery, and mainstream adoption of drone delivery will take place in stages over the next few years. In particular, BI Intelligence expects tests to gradually progress as regulations are put in place and drone technology improves.

More to Learn

The potential for drone delivery is vast, but it will take time to get there. That's why BI Intelligence has spent months compiling a detailed collection on drone delivery called The Drone Delivery Report: Opportunities and challenges for retailers at the frontier of delivery.

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