Amazon has announced plans to take to the skies with a fleet of delivery drones, which would send customers’ orders directly to them within 30 minutes of an order being placed. The idea seems impractical, potentially dangerous and extremely unlikely to actually happen, but the retail giant could benefit from a perceived emphasis on innovation.
Amazon CEO Jeff Bezos announced the drone delivery project on CBS’ 60 Minutes and it has attracted wide media attention. He revealed it was still very much in the development phase, and didn’t expect the service to go into operation for a number of years.
Drones will be able to deliver packages weighing up to 5 pounds, which covers 86% of all items the company handles, according to Bezos. The devices, which are currently being tested by Amazon, have eight helicopter rotors, stand on four legs, and can cover a 10 mile radius from the delivery center they start out from.
But the idea has almost too many flaws to list. The notion of hundreds of drones flying around a city would cause major security concerns for the Federal Aviation Administration (FAA), which already has stringent rules on small flying vehicles. The drones could even pose a terror threat, should someone deliver explosives via the same medium.
Despite this, the announcement of project will work in the favor of Amazon, according to analysts. “To be in the news and be seen as innovative, especially when you are technology-centric like they are, is probably good for the brand, so I don’t see any downside to this,” says Rob Enderle, principal analyst at the Enderle Group. “The only downside to this would be if they actually rolled this thing out and we have drones either running into airplanes, colliding with cars and windows, which would be likely, and falling out of the sky. That would do tremendous brand damage.”
During Bezos’ appearance on 60 Minutes, he appeared keen to show just how important innovation remains to the company. “We like to pioneer, we like to explore, we like to go down dark alleys and see what’s on the other side,”he said. The drone announcement almost seemed like a publicity stunt, by a man not known for courting media attention previously. The motive for Bezos’ out-of-character actions is unclear.
Amazon shares didn’t react a great deal during today’s trading in New York, ending the day down 0.34%, and slightly outperforming the Nasdaq. But the company’s ability to capture the imagination of the media and customers alike could prove to be the most interesting and long-lasting takeaway from the project.
Amazon’s third quarter earnings report reveals a company making progress towards profit, but not yet achieving it. The e-commerce giant recorded a loss of $41 million, or 9 cents per share, over the three months up to the end of September — a big increase from last year, when the company lost $274 million over the same period. Revenue increased 24% in the third quarter to $17.09 billion, compared with $13.81 billion a year ago.
Delivery is one of the largest expenses Amazon incurs, and the company has invested heavily in new high-tech warehouses this year. Fulfilment costs, which covers distribution, increased to $2.034 billion in the third quarter of 2013, up from $1.51 billion in the same period in 2012. In the past, the company has sought new ways to make these distribution centers more efficient, as boosting performance could trim costs and increase thin margins. The Amazon drone delivery fleet clearly represents the more ambitious side of this effort.