Amazon Delivery Drones: Pie In The Sky

| About:, Inc. (AMZN)

No doubt Amazon AMZN managed to garner a lot of attention over the weekend with the launch of Prime Air. They even gave us a cheeky video showing us the test vehicle in use.

Mr. Bezos was quick to stop customers frantically searching for the 30 Minute delivery by adding that this technology was 5 years away from mainstream use but also stated that this wasn't some pie in the sky idea and that it would definitely be possible.

I would agree with Mr. B that this concept is possible. I've got a miniature helicopter in the office (much to the annoyance of my colleagues) and a slightly better one at home. They have already proven as David Blaine found out when someone choppered a happy meal around his famous 'living in a box' stunt.

My thoughts however are that this technology, while completely feasible is most likely uneconomical, from a number of standpoints.

1. The numbers don't add up.

When you think about what Amazon sells, you will quickly come to the conclusion that the most common items bought are books, games and media which typically cost $10 - $40. The delivery network works so well because the current technology can operate efficiently and at a low cost. The Boeing 747, for example, can carry 124 tonnes of cargo. Considering a book weighs 300 grams the Boeing can carry 413,000 books per flight. As a rough guide, a Boeing 747 also costs about $30k to fly per hour on a charter (ie more expensive than standard), which equates to roughly 7c per book of transportation charges for a short haul package. Of course you would also have to include the cost of transportation to hubs and then to home which would be more costly but rough estimate of 40c all in cost is probably a safe estimate.

The capital outlay for one plane is paid for by a huge raft of deliveries per week and made economical by being part of a integrated logistical network. A custom made chopper made to deliver involves adding more infrastructure and software to the back end of Amazon delivery network and the payback period when you sell books not jewellery would be excessively long.

It's not just the chopper itself that needs to be bought, but at the moment, Amazon relies on hub sites of logistical companies, keeping its operations concentrated in few locations. Is there such a demand to role out spoke delivery sites which cost money in order to have capacity to provide this service, which also costs money?

2. Too many legal issues

Imagine for instance that the economics are there, Amazon set up and suddenly your local branch of Amazon is abuzz with hundreds of choppers zipping and zagging around your local skyline. Would this be allowed or wanted? How would you feel if lots of little chopper suddenly appeared buzzing around everywhere?

What if one was to crash or to drop a package, who is responsible for any injury, damage or worse?

3. Do we really need it.

I would understand completely if the person implementing choppers was an organ transplant service where people are willing to pay good money to have something vital delivered in a short amount of time.

Maybe there is a market for a Russian oligarch who is willing to pay to get the latest Cartier necklace delivered to his boat on the Aegean to surprise his thirteenth wife.

The reality is do I or anyone really want to receive our Amazon gifts in 30mins? Well, yes...if it was no additional charge. Would I pay $3 - $5 to receive a package even quicker than one or two days? Maybe but most likely not.

Would I pay $10,$20, $50 for this privilege? No.

Concluding I think this is a great ploy by Mr. B, a really nice bit of publicity and a really great idea of the future but to be honest I think we can leave this idea to the RC helicopter enthusiasts

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.