German delivery company DHL, which launched its “parcelcopter” research project in Dec 2013, announced a regular drone delivery service for the first time last week.
DHL will fly the drones along the 7.5 miles stretch from the passenger port of Norddeich to a chosen launch pad in Juist. After that, a local courier service will transfer the goods to the customer. The drone, however, will only operate if the weather permits. It is designed to fly for 45 minutes and will be under constant supervision of a ground station.
The service will improve the availability of medicines and other urgent goods on the island. The island can only be reached by aircraft and ferry as it is a car-free zone.
Both Amazon (AMZN) and Google (GOOGL) have been contemplating such a service for some time, but their efforts have not resulted in any commercial service as yet. Part of the problem is their size and the regulatory scrutiny that they naturally receive as a result. Unmanned aircraft are subject to greater restrictions in both the U.S. and the UK. So it’s not that easy for these technology giants.
The other thing is the difference in their business models. Amazon is a retailer and logistics is a growing ancillary function. The reason it wants to use drones for parcel delivery is to bring down costs. This requires a certain amount of scale. DHL's service for remote areas would not serve its purpose. For Amazon to have an effective drone delivery service, it would need to send out a large volume of drones that have to fly in close proximity of civilians. This makes it harder for a company like Amazon to get regulatory approval.
Moreover, Amazon would benefit from the service only if the drones are able to carry a good bit more than the 1-1.5 kilos the DHL drones are carrying. Constant monitoring would also drive up its wage costs and therefore make the exercise less attractive for Amazon.
When Amazon proposed a drone delivery service called “Amazon Prime Air”, no one took it seriously. When Amazon said that the full-fledged launch of the service was still a few years out, it probably wasn’t because it couldn’t have a similar service as DHL but because it needed something different to serve its own purposes.
And same is the case with Google. The search giant is currently retailing digital goods through its Play store and testing same day delivery through its Shopping Express service. While AmazonFresh involves the delivery of groceries, companies like Google and eBay (EBAY) have limited themselves to same-day delivery of durable goods.
But for all these players, drones are required for cost reduction, not to serve remote areas. So Google’s efforts are also not expected to be commercially viable for a few more years.
Regulation in the meantime is likely to improve however. Companies are making progress on that front and the benefits of such a service are becoming more widely visible. For instance, six movie and television production companies have managed to convince the Federal Aviation Administration (FAA) that they can safely use drones while filming scenes in the U.S. Domino's Pizza Inc. (DPZ) has also tested drones in 2013 for delivering pies.
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