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How Will Drones Change Commerce?

2021.12.27

For about five years, there has been talk that Amazon was about to launch drone delivery and that drones would solve the last-mile problem in logistics — yet just today, a delivery driver brought me an Amazon package.

In the first half of this article, we introduce each company's approach to drone delivery, and in the second half, we explore what changes may result — with a particular focus on the impact on the commerce sector.

What Each Company Is Doing

Amazon

In 2013, Amazon CEO Jeff Bezos first announced the vision of delivering packages in under 30 minutes using drones.

That project is now known as Amazon Prime Air.

Then, in early September 2020, Amazon — following Wing, FedEx, and UPS — received approval from the U.S. Federal Aviation Administration (FAA) to operate as an air carrier for drone delivery.

However, at the same time, Amazon reportedly laid off more than 100 employees from its Prime Air drone delivery team in the UK and scaled back the operation.

Going back a bit further, in 2016, Amazon filed a patent for drone delivery from a flying warehouse — a concept I remember thinking was remarkably ambitious at the time.

JD.com

In February 2021, JD.com's CEO announced plans to build 185 drone-dedicated airports in Sichuan Province and 100 in Shaanxi Province, which would complete a delivery network capable of reaching any city in China within 24 hours.

The company also outlined plans to build drone dispatch centers — essentially a drone version of a taxi dispatch hub — to develop the infrastructure for drone delivery.

Additionally, in 2019, JD.com announced a partnership with Rakuten to offer unmanned delivery services in Japan.

Wing

Wing, a subsidiary of Google's parent company Alphabet, began testing drone delivery in Australia in 2017 and in August 2021 reached 100,000 deliveries, making it the world's largest residential drone delivery service.

Initially, the service operated on an Amazon-style fulfillment center model, where retailers placed their products at Wing's distribution centers and drones delivered them to customers.

However, in October 2021, Wing announced a new service that would deliver directly from shopping malls to homes by drone.

Shopping mall rooftops have a great deal of unused space, which turns out to be ideal as drone landing and takeoff zones.

Total delivery time is 10 to 15 minutes, with the drone's actual flight taking only 2 to 3 minutes of that.

Incidentally, Wing's drones are shaped like an airplane.

Challenges in Drone Delivery

As noted above, major tech companies are entering the drone space one after another — so why hasn't it become more mainstream yet? What challenges remain?

Regulations

With regulatory frameworks for drones still unclear across various government agencies, large-scale commercial drone delivery remains difficult. For now, companies are running limited trial operations in restricted areas after obtaining the necessary approvals from relevant authorities.

It is reminiscent of the current state of autonomous vehicles.

Obstacles

In urban areas, drones must navigate around high-rise buildings and power lines.

Battery

If obstacles are the challenge in urban areas, battery life becomes the challenge elsewhere.

Covering longer distances requires larger battery capacity, which increases cost, weight, and charging time.

Birds

Birds frequently attack drones to defend their territory, and this has become a significant challenge for drone delivery.

Due to repeated incidents of this kind, Wing temporarily suspended its drone delivery service.

Weather

Drone delivery becomes difficult in rain or strong winds.

You might think it would be fine to only use drones on good-weather days, but adjusting the number of delivery personnel based on weather conditions is not straightforward.

Theft

For would-be thieves, intercepting a drone's cargo could easily seem easier than stealing from a human delivery driver.

Weight Limits

Drones cannot carry heavy items.

In the past, you could simply load anything onto a truck — but with drones, you need to select the delivery method based on the weight of the item, which requires significant changes to existing logistics operations.

Benefits

Despite the many challenges, there are good reasons why companies continue to pursue drone delivery.

Environment

Since drones run on batteries, they produce no exhaust emissions during delivery.

Labor and Cost

Particularly in the United States, labor shortages and rising demand have driven delivery costs higher year after year.

If drones can be utilized effectively, labor costs could be dramatically reduced.

Speed

No matter how you look at it, delivery speed matters.

I still remember the impact of using Amazon's next-day delivery for the first time — but if delivery times were to drop to just a few tens of minutes, that would be an entirely different experience altogether.

Furthermore, since there is no traffic congestion to contend with, arrival times would be far more predictable.

Survey results also show that the top expectation for drone delivery is shorter delivery times.

Beyond improving the customer experience, there are many goods that genuinely need to arrive quickly.

Non-perishable food items and pharmaceuticals are ideal candidates for drone delivery.

In fact, drones are already being used to transport vaccines and blood for emergency transfusions.

How Will Commerce Change?

If drones bring major changes to logistics, commerce will inevitably undergo significant transformation as well.

Let's imagine what new experiences might be in store.

Things People Buy at Convenience Stores and Pharmacies Will Move to E-Commerce

Even in today's world where e-commerce is widespread, convenience stores and pharmacies still fulfill demand that online shopping cannot meet.

When you're thirsty and want a coffee, or you've just run out of toilet paper, turning to e-commerce for next-day delivery simply isn't an option. (Uber Eats is going after that demand, of course.)

But if drones can deliver in 10 minutes, you could actually get your item faster than going out to buy it yourself.

Daily Scheduled Delivery Becomes Practical

No matter how small a package is, as long as a person is doing the delivering, there will always be some shipping cost — which is why we're forced to consolidate purchases and shipments as much as possible.

But what if shipping were nearly free?

A drone arriving at exactly 7:00 AM every morning with a piping-hot coffee and a freshly made sandwich becomes a realistic possibility.

An E-Commerce Experience Built Around Returns Is Coming

One of the biggest current challenges in e-commerce is that products are hard to try before buying.

Some e-commerce businesses do offer free returns or trial use, but the shipping costs associated with returns are a headache for merchants, and customers still find the process inconvenient.

However, if drones become widespread, the e-commerce experience may evolve to make returns the default assumption.

Imagine browsing Nike's website for shoes, adding several pairs to your favorites, and then 10 minutes later a drone arrives at your home with all of them. You try everything on, and the drone takes back whichever pairs you don't want to keep.

Or picture hosting a home dinner party where beautifully plated meals from a fine-dining restaurant are delivered to your door — and after eating, you don't even need to wash the dishes because a drone comes back to collect them.

Just imagining it sounds like a wonderful experience.

Buy Anywhere, Deliver Anywhere

With drones and GPS, you could receive a delivery no matter where you are.

Forgot your sunscreen at the beach in summer? No problem. A drone will deliver it right to your beach umbrella.

Drones might even roam around selling (or flying around with?) products.

From drones selling umbrellas when it starts to rain, to drones doing door-to-door sales of health foods — there could be all sorts of use cases.

Thoughts

When it comes down to it, I think the significance of drone delivery is that it dramatically lowers the barrier to moving physical goods.

Until now, either people transported goods, or people went to physical stores to get them — but perhaps we're entering an era where products come out to meet you at home.

As the line between e-commerce and physical retail continues to blur, designing a compelling purchasing experience will become even more important in e-commerce, just as it is in brick-and-mortar retail.

Additionally, with traditional e-commerce, next-day or two-day delivery has been the norm, and some delay in fulfillment processing may not have significantly affected the customer experience.

But once drone delivery becomes a reality, just as Amazon once made next-day delivery the expected standard, delivery within minutes will become consumers' new baseline expectation.

When that happens, logistics and warehouse operations that can support those timelines will become critically important from a customer experience perspective.

References

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