How Much Would You Pay for Drone Delivery?

On May 30, Amazon announced that “the FAA has given Prime Air additional permissions that allow us to operate our drones beyond visual line of sight, enabling us to now serve more customers via drone and effectively expand and scale our drone delivery operations.” Here are some excerpts from the blog post:

To obtain this permission, we developed a BVLOS [Beyond Visual Line Of Sight] strategy, including an onboard detect-and-avoid technology. We’ve spent years developing, testing, and refining our onboard detect-and-avoid system to ensure our drones can detect and avoid obstacles in the air.

This new authorization and new permissions allow us to expand our delivery area in College Station, Texas. It means more Amazon customers than ever before will be eligible to choose from thousands of items for drone delivery, including household essentials and beauty and drugstore products. Later this year, drone deliveries will begin integrating into Amazon’s delivery network, meaning drones will deploy from facilities next to our Same-Day Delivery sites, which will provide Amazon customers with faster delivery of an even greater selection of items.

Amazon’s goal is to “deliver 500 million packages, per year, by drone, by the end of this decade.” 

At the moment, however, drones are a very expensive mode of delivery, especially if you’re using it to deliver low-cost goods. As Liz Young highlighted in the Wall Street Journal last week, “[drone] deliveries cost significantly more than using a car, bike or van to deliver goods, partly because of federal regulations requiring each drone to remain within sight of a human employee, logistics experts say.” Here’s an excerpt from the article:

A report by consulting firm McKinsey last year said delivering a single package by drone costs $13.50, compared with $1.90 a package using a delivery van, assuming the vehicle carries 100 orders, and $3 for an electric car handling five packages. The report said the cost would drop to $1.80 a package if drone operators could instead have each employee monitor 20 drones at once. 

“It’s all a question of how many people do you have involved in the drone delivery,” said Robin Riedel, a partner at McKinsey. If drone operators can reduce the labor required for each delivery, “the costs go down pretty tremendously,” he said.

Would you pay $13.50 to get a $2.49 tube of toothpaste delivered by drone? If you’re a retailer, would you eat the cost or greatly subsidize it to make it happen? I certainly wouldn’t.

To make the economics work, you need to get approval from the FAA to operate beyond visual line of sight (which Amazon and others have now received) and you need to develop an operation where a single employee can monitor 20 or more drones at once, according to McKinsey.

Back in February 2013, more than 11 years ago, I wrote the following in “Drones – The Birth Of A New Transportation Mode”: 

I believe we’re witnessing the birth of a new transportation mode, one that will take many years to develop and mature (but will probably happen sooner than we think), and one that will make our current discussions about driverless cars and same-day delivery sound silly in retrospect. Aside from 3D printing and teleportation (if it ever happens), drones have the greatest potential to truly transform the way we transport goods.

Later that year, as I highlighted in “Amazon To Deliver Packages Using Drones,” Amazon introduced Prime Air on the television show 60 Minutes.

I was right in 2013 that drone delivery would take many years to develop and mature, but wrong that it would probably happen sooner than we think. A lot of progress has certainly been made over the past decade, but if we are witnessing the birth of a new transportation mode, grab some coffee and something to eat because considering the current costs involved (and other technological, regulatory, and societal hurdles remaining), we’re going to be in the waiting room for a while longer.

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