Amazon took over the 24-hour news cycle last night with the unveiling of Prime Air, an aerial drone that can fly Amazon packages straight to your front porch. The world's largest online retailer duped 60 Minutes and a fawning Charlie Rose -- who doesn't appear to know the meaning of the word "vaporware" -- into turning the venerable CBS news mag into the spearhead of Amazon's latest and greatest Cyber Monday marketing campaign.
The truth is that no one who buys discounted merchandise on Amazon today will have it delivered by drone, and such deliveries won't happen for years -- if they happen at all. It's not just that the technology isn't up to the task yet. It's not just that federal regulations prohibit such flights over populated areas. It's that drone delivery doesn't make economic sense for Amazon, and it will never make sense unless the company completely overhauls its operation.
The first clue to the dubiousness of Amazon's drones comes from the 60 Minutes piece itself, and it comes despite the fact that 60 Minutes didn't question the plausibility of "Prime Air."
At one point during the piece, Rose points out that Amazon spent five years piloting its same-day delivery program in Seattle before branching out to one more city, Los Angeles, earlier this year. That's an awfully long time, and the program, known as Amazon Fresh, uses plain old trucks to deliver groceries and other items, not drones.
The company took so long to expand the program, Bezos tells Rose, because it was trying to figure out "how to make it make financial sense." Bezos showed Rose what was really what, but Rose didn't see it. "What's not to love? You order your groceries online, and we deliver 'em to your door," Bezos told Rose before erupting into his famous laugh. "But that's very expensive."
Though Bezos and the 60 Minutes piece didn't go any deeper, the point here is that same-day delivery is expensive because it requires a fundamentally different logistics model. Amazon and every other big retailer relies mainly on a "hub-and-spoke" model of distribution. A large central warehouse serves as a hub from which orders travel in different directions, or "spokes." A typical Amazon order will go from a distribution center -- the Amazon hub -- to a UPS or FedEx sorting facility (another hub), from which they are then divvied up among trucks to make local deliveries.
Same-day delivery, on the other hand, requires a point-to-point model. In the hub-and-spoke model, the additional steps of connecting with a same-day shipper take too much time to actually make a delivery on the same day. Instead, merchandise must travel straight from its origin to the customer, which at any kind of distance becomes deeply inefficient.
In San Francisco, for example, the nearest Amazon distribution center is roughly 60 miles to the east. To have a single order brought that far by truck on the "on demand" timetable required by same-day delivery is prohibitively costly compared to the 120 packages an average UPS truck can hold. Amazon Fresh appears to be mitigating some of this cost by relying in part a hybrid peer-to-peer model, where some of the groceries are coming from local stores, and by charging a $299 per year subscription fee. But whatever the case, the company had to find a way of tweaking its larger model, and that took time -- a long, long time.
Wouldn't a lightweight electric drone make all these concerns beside the point? Wouldn't it be far cheaper to run a drone carrying a single order rather than a gas-guzzling truck? In terms of fuel, it might be cheaper. But that's debatable, and besides, there's more than gas to consider. Other costs would quickly mount.
As Bezos himself says in the 60 Minutes piece, these drones have a radius of about 10 miles. He claims that significant portions of urban populations would be within reach of the drones, but Amazon's entire warehouse-building strategy has been to put these "fulfillment centers" in the hinterlands, close enough to make standard delivery quick and cheap, but also far enough away that the million square feet of land required for the warehouses is also cheap. Building distribution centers in dense urban areas to make drone delivery feasible would be a massive cost that would go entirely against Amazon's current business strategy.
Even if Amazon expands the range of the drones, the math behind its marketing claims still doesn't make a lot of sense. If a drone could travel the 60 miles to San Francisco, for instance, it would have to fly at 120 mph to make the promised 30-minute delivery time, not even counting time needed to fill the order in the warehouse. Taking, again, the 120-package UPS truck as the counterexample, the image of 120 drones flying at 120 mph to San Francisco starts to look a little less efficient. And don't forget they have to bring those little plastic boxes back.
Another cost that mounts quickly for online retailers: screwed-up orders. Whether it's spent on returns or fielding customer service calls, any time spent on business processes outside of basic order and delivery is money lost for a retailer. While maps are becoming ever-more granular, Amazon would have to engineer some serious precision into its drones in order to avoid, say, messing up an order to my house. I do believe Amazon could teach a drone to leave a package inside my front gate instead of outside. But the UPS driver just knows. The denser the area receiving the delivery, the more problematic this becomes, unless Amazon figures out a way for the drone to fly straight to a doorman's desk.
None of these logistical concerns even begin to address the question of liability and public perceptions around new technology. One kid hit in the face with an Amazon drone and Bezos' fortune likely shrinks. Even in as hotly contested a space as online retail, is drone delivery really worth all the heavy lifting required to insulate Amazon against safety concerns?
No doubt, Amazon is aware of all these issues and more. And if any company could inspire the confidence that it has the computing power to hack solutions, it's Amazon. In fact, the company already has a drone army. In 2012, Amazon bought Kiva Systems for $775 million. Kiva makes warehouse drones that roll around on the ground. In theory, they're way more efficient than their human counterparts.
But the bigger point here is that Amazon's warehouses, as the 60 Minutes piece amply shows, are still mostly operated by good old fashioned people.
I'm not a technophobe. I love the idea of an efficient swarm of emission-free unmanned aerial vehicles getting trucks off roads and freeing up my time that I would otherwise spend driving to stores or waiting days for online orders. Plus, it's just cool. Sam Lessin, a director of product at Facebook, predicts that networks of drones both in the sky and on the ground will start to chip away at the consumer cash economy altogether by making access more appealing than ownership.
"Drones (and self driving cars) are the key to the 'sharing' economy where people don't have to 'own' anything anymore," Lessin wrote on Facebook today. "They can just request things when they need them, get them instantly, and return them when they are done."
Amazon, however, is the opposite of the sharing economy. It's a highly centralized monolith that depends on the traditional buy-and-sell model of American consumerism for its power. Drones for Amazon, at least today, aren't about owning the future. They're about owning the Cyber Monday news cycle, a goal they've achieved with great success thanks to 60 Minutes' uncritical help. Amazon already doesn't need much assistance to dominate a "holiday" that is itself a pure marketing fiction. As the dominant online retailer by far, online shoppers are going to go to Amazon today anyway.
But as a company never satisfied with merely winning, Amazon has successfully obliterated any publicity its competition might otherwise hope to receive. Is anyone talking about Walmart, Target, or Costco today? For the price of a single gee-whiz 80-second marketing video -- parts of which Amazon managed to air on CBS in the 60 Minutes piece without having to pay a dime in ad dollars -- Amazon ensured that the only retailer anyone is talking about on Cyber Monday is Amazon.
