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

When Amazon began its journey the company was initially an online retailer. In the absence of economic opportunities was the possibility of enhancing the buying experience by broadening customers’ choices. The first internet-based bookstore was about recognizing that back in 1995, you could not go to any bookstore around the world and be able to review or purchase the millions of books in circulation. Since the beginning, Amazon was focused on creating the best customer experience through a deliberate concentration on convenience as well as the goal of leading other technological advances as the close of the 21st century was near.

I believe it’s reasonable to claim the late Jeff Bezos and many others who were among us, believed the 21st century would feature the convenience of flying cars, the convenience of getting your annual health check-up without needing to visit the doctor’s office, or being able to order a ride to anywhere in your town at the click of a button.

When I was a kid, most of these technological advancements were the plotlines of The Jetsons and other science fiction. Technology has brought almost all of these stories a reality but I’m sure Elon Musk is working towards developing flying cars.

Amazon has pioneered a number of technological advances through the vast array of products they offer. Visit:- https://www.cruxfinder.com/

When it was first founded, the company was focused on making every book available to buy online, but the focus has shifted to “selling everything to everyone.” Over the past 16 years they’ve come closer to achieving that final goal.

Their most recent and perhaps the most ambitious project, Amazon Prime Air, will revolutionize ecommerce as well as logistics and distribution. Amazon Prime Air extends the items that they can sell. With a mission to lead technological advancement with regards to Unmanned Aerial Vehicle (UAV) delivery, Amazon Prime Air will increase the quality of all their other offerings by allowing customers to receive the products they purchase much quicker thus enhancing customer satisfaction. Amazon customer experience.

Skeptics (including me) have asked how large is the base of customers that would use such a service and what would make someone want a drone to come anywhere near their house. Drones are definitely getting a bad rap, and rightfully so, but most of those concerns are out of place within the APA discussion as they aren’t armed with any kind of weapon. UAVs do not come with cameras or missiles that are attached to their drones.

The real issue is do this product line and technology have a customer base or satisfy any requirement other than the “coolness” factor? Let’s take a look at our data suggests:

Amazon has been working on UAV technology for a while but it wasn’t until November of last year that the Federal Aviation Association (FAA) announced a plan to create an international standard for the commercial use of Unmanned Aircraft Systems (UAS). It is obvious that Amazon needs to launch an outreach campaign in order to introduce the term “U.A.V.” into the discourse of the general public in place of “drone” in regards to APA in order to improve the public’s perception once they launch the platform. As per the FAA’s UAS commercial integration strategy, they have plenty of time.

Below is this FAA UAS integration timeline. It is broken down into three phases:

The first stage, Accommodation, extends into 2015. In this time I am convinced that Amazon will be working to obtain the Certificate of Airworthiness (COA). Phase two, Integration is scheduled to run until the year 2020, and in the next phase, I believe Amazon will focus on beta testing in a few markets. The third phase, Evolution, extends past 2021. Amazon could have created a UAV ready to interact with the public but also an UAS which integrates the different aspects of storage, fulfillment and distribution. At this point, they can assume that they will face numerous competitors who could utilize UAVs as a method of logistics such as Fedex, UPS, other online retailers, as well as large box stores like Walmart and Target. Thus, the primary goal for Amazon is creating a UAV/UAS which will be the safest and most reliable, and that does not only conform to FAA requirements but even exceed their requirements with the aim for Amazon Prime Air becoming synonymous with UAV delivery. The FAA has made it clear that it is not a question of whether but when. And if Amazon sticks to its plan, it could create a totally new method of delivery.

Google Trends

The day following Amazon Prime Air was announced on the television show 60 Minutes happened to be the biggest consumer holiday of all time “Cyber Monday.” It was also the first time Cyber Monday surpassed Black Friday in terms of sales. Utilizing an Google Trends tool I was able to gauge consumer interest. Google Trends, a tool that lets users gain insights into Google search results by comparing search phrases. This graph “Cyber Monday” was at 100pts with “Amazon Prime Air” and “Amazon drone” representing 75 and 74 points , respectively. In other words, for every four people who searched for Cyber Monday deals, 3 searched on Amazon Prime Air. It is reasonable to say that for every four people who purchased for a purchase on Cyber Monday, 3 would have purchased from Amazon Prime Air!

The research shows that there is some curiosity, but whether this is an accurate reflection of the actual opportunity remains to be verified. However, a figure of three out of four consumers is definitely a sign of further study. The economics and potential of this new business line should be analyzed. Amazon Prime Air’s current prototype is able to pay for shipments that is 5 lbs or less, which qualifies 86% of their orders as being eligible for Amazon Prime Air. According to the sources the company’s free shipping policy on certain purchases cost the company approximately $6 billion last year and with FedEx and UPS (their suppliers of shipping) increasing the rate by 4.5 percent, they can predict that this amount will rise and will continue to rise over the course of time. The information on the Amazon Prime Air R&D budget is not publicly available therefore I had to get imaginative and make some assumptions. I came up with the opportunity cost by multiplying 86 percent of their shipping total which at its peak represents 13.5MM by the cheapest ‘one day shipping’ rate which is the most similar service in comparison to Amazon Prime Air and then the most expensive ‘one-day shipping rate’. This resulted in an amount totaling $52-103 billion. I took this one step further by considering Amazon’s customer-centric philosophy in addition to their existing business plan, which is based on low margins. Even at an 2% profit margin, they would still net 1 to 2 billion dollars. The potential is so huge that Amazon could be either the largest consumer of UAV delivery, or a major service provider with UAV delivery.

 

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