Amazon Prime Air: Drone Delivery Coming to a City Near You

When Amazon was first launched in 1999, it was initially an online store. Beyond the realm of economic potential was the possibility of improving the customer experience by expanding the customer’s choices. The idea behind the first ever online bookstore was about recognizing that in 1995, it was impossible to go to any bookstore around the world and be able to read or buy the thousands of books available. From the beginning, Amazon was focused on providing the best customer experience, with a clear emphasis on ease of use and the idea of introducing new technological advances as the close of the 21st century drew near.

I think it’s safe to claim the late Jeff Bezos and many others like me believed that that the future of technology would bring the ease of flying cars and the ease of having your annual check-up without having to go to the doctor’s office or request a ride anywhere within your city at the touch of one button.

When I was a kid, most of these technological advancements were stories from The Jetsons and other science fiction. Technology has transformed the majority of these stories a reality and I’m certain Elon Musk has been working towards creating flying cars. Visit:- https://www.cruxfinder.com/

Amazon has been the pioneer in a variety of technological advancements through their extensive product lines. Since its beginning the company was focused on making each book available to purchase on the internet, however their mission has evolved to “selling everything to everyone.” In the past 16 years, they’ve come closer to achieving that target.

Their most recent and perhaps the most ambitious venture, Amazon Prime Air, is set to revolutionize e-commerce as well as distribution and logistics. Amazon Prime Air extends the items that they can offer. With the goal of being a leader in technological advancement with regards to Unmanned Aerial Vehicle (UAV) delivery, Amazon Prime Air will improve all their other products by allowing customers to receive the items they purchase much quicker and thereby improving customer satisfaction. Amazon customers’ experience. Some people (including me) have been wondering what is the number of customers who could benefit from such a service and what the reason for anyone to want a drone to visit their home. Drones certainly get a bad reputation, and it’s not without reason however, the majority of those questions are not relevant in the APA discussion since drones are not weapons. UAVs do not come with cameras or missiles connected to their drones. The real issue is whether this particular product line and technology have a user base or satisfy any needs other than the “coolness” factor? Let’s take a look at what the numbers say:

Amazon has been developing UAV technology for a while however it was not until the end of November of the previous year that the Federal Aviation Association (FAA) announced plans to develop an industry standard for commercial usage of Unmanned Aircraft Systems (UAS). It’s obvious that Amazon must embark on an aggressive public relations campaign to introduce the term “U.A.V.” into the public debate instead of “drone” in regards to APA because it will improve the public’s perception after they have launched the platform. According to the FAA’s UAS commercial integration strategy the UAS will have plenty of time to integrate the platform.

This are this FAA UAS integration timeline. It is divided into three phases:

The initial stage, Accommodation, extends into 2015. In this period I think Amazon will be working to obtain its Certificate of Airworthiness (COA). Second phase: Integration will last until 2020. In this stage, I think Amazon will primarily focus on testing its beta version in select markets. The third and final stage, Evolution, extends past 2021. Amazon will have not just created an UAV that is ready to communicate with the public , but also an UAS that integrates all aspects of fulfillment, storage and distribution. At this point, they could anticipate that there will be numerous competitors that will make use of UAVs as a method of logistics, such as Fedex, UPS, other online retailers, as well as big box stores like Walmart as well as Target. Therefore, Amazon’s primary focus now should be developing a UAV/UAS system that will be safest and the most secure, and will not just comply with FAA standards , but also exceed their requirements with the aim to have Amazon Prime Air becoming synonymous with UAV delivery. The FAA has stated that it’s not a question of if but when. If Amazon adheres to its plans, it may create a totally new method of delivery.

Google Trends

The day following Amazon Prime Air was announced on the program 60 Minutes happened to be the biggest holiday for consumers of this year “Cyber Monday.” This was the very first year that Cyber Monday surpassed Black Friday in terms of sales. By using Google Trends, the Google Trends tool I was in a position to determine the level of interest among consumers. Google Trends can be described as a research tool that lets users gain insights into Google search results by comparing search terms. This graph “Cyber Monday” was at 100 points, with “Amazon Prime Air” and “Amazon drone” representing 75 and 74 points , respectively. For every 4 people who searched for Cyber Monday deals, 3 were searching specifically for Amazon Prime Air. It is reasonable to claim that for every 4 customers who bought something during Cyber Monday, three would have purchased from Amazon Prime Air!

The data suggests that there is a certain amount of consumer curiosity, but whether this is actually a reflection of the actual opportunity remains to be verified. However, a figure of three out of four consumers certainly suggests further research. The potential and the economics of this business model should be analyzed. Amazon Prime Air’s prototype has a maximum payload of 5 pounds or less, which is enough to qualify the majority of deliveries as being eligible to be eligible for Amazon Prime Air. According to sources the company’s free shipping policy for certain orders cost Amazon around $6 billion last year. With FedEx as well as UPS (their suppliers of shipping) increasing their rates by 4.5 percent, they can expect that the cost will increase and will continue to rise over the course of time. The information available on the Amazon Prime Air R&D budget is not available publicly, therefore I had to be imaginative and make some assumptions. I calculated the opportunity cost by multiplying 86 percent of their daily shipping rate, that at its highest, is 13.5MM with the lowest ‘one-day shipping’ rate , which is the most similar service that is comparable to Amazon Prime Air and then the most expensive ‘one-day shipping rate’, and capturing the sum of $52-103 billion. I took this one step further by considering Amazon’s philosophy of customer-centricity as well as their business strategy, which is based on low margins. Even with an 2% profit margin, they could still earn 1 to 2 billion dollars. The potential is so huge that Amazon could be either the largest user of UAV delivery, or a major supplier for UAV delivery.

 

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