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Drone Delivery: Near or Far

The true status of UAV cargo delivery

November 1, 2016

Nevada-based drone startup Flirtey has worked closely with the FAA to accomplish a great deal of drone delivery "firsts" in the U.S. — but is it enough to compete with the big guys like Amazon.com?
On Oct. 31, Flirtey broke aviation records yet again by performing the first drone delivery in Silicon Valley.

In just this past year, the Nevada-based startup has executed the United States’ first FAA-approved drone delivery, the first door-to-door, ship-to-shore, and now store-to-door — and its multirotor was accepted to the Smithsonian National Air and Space Museum.

But in 2013, Amazon.com promised us regular door-to-door delivery, and three years later, we have yet to hear the whir of drone propellers dropping off our impulse buys.

This brings up some important questions: What is the current state of the drone delivery industry? Why is drone delivery taking so long? If we successfully cargo-delivered men to the moon 47 years ago, what’s so tricky about flying micro robots? In order to answer these questions, we’ll have to dig deeper into some more specific topics.

Micro (UAV) managing

Let’s address the painfully obvious conversation we need to have: What is a drone?

The terms drone and unmanned aerial vehicle (UAV) have, for the most part, become synonymous with one another. Let’s break down some of the distinctions between the two. 

A prevailing connotation of drones is unmanned aerial vehicles in a military or commercial context. These drones are priced high — in the range of hundred-thousands to millions of dollars. Aircraft such as these have been around for many years, but have not had a large effect upon the current micro UAV revolution. Think drones like Reaper, Predator, and Pegasus.

But for some, drone also refers to remotely operated vehicles that don’t fly, which includes underwater and terrestrial devices. Luckily, the term UAV rules these out – while drone does not. Non-aerial drones include autonomous submarines, undersea rovers, and R/C vehicles.

The catchall micro UAV category can be loosely defined as anything that is priced at less than hundreds of thousands of dollars, flies, and is either piloted by an autopilot system or remotely operated. This final group is the category we’ll focus on.

There are hundreds of manufacturers and companies competing in this space, with a new contender seemingly every week. The smallest micro UAVs are a couple of centimeters in diameter, and often cost less than $50. The largest micro UAVs can reach several meters in diameter.

Amazon.com and UPS’ vertical takeoff and landing (VTOL) UAVs qualify as micro UAVs, but so do fixed-wing carrier drones used by Zipline or the humanitarian nonprofit Uplift Aeronautics. So do the multirotors we’re most familiar with, both DIY and manufactured. The classification of micro UAV is expansive and inclusive, but the important takeaway is this: In terms of drone delivery, most companies look toward micro drones to make it happen.
Big players

The landscape for UAV delivery is occupied by two parties: logistics companies and technology companies.

The biggest players working on UAVs for logistics are Amazon.com, DHL, UPS, Swiss Post, Google, FedEx, and Maersk. Well established, these companies have millions of dollars to invest into the drone delivery sphere, which means they have the resources to allow for failure.

Their counterparts are younger and smaller tech companies, like Matternet, Flirtey, and Zipline, with little to no logistics experience.

With comparatively little resources, choices such as whether to build a fixed wing, multirotor, or VTOL UAV have the potential to make or break the future of a drone delivery startup. Despite being venture-backed, these smaller tech companies are unable to compete monetarily with the large logistics companies.

This division in the industry has caused some interesting effects. But first, let's take a look at the current regulatory environment.
Illustration by Rick Johnson
Ready for takeoff?

During the past few years, companies hoping to use drones for commercial applications have had to work closely with the FAA in ways that were often time-consuming and challenging. The old process of commercial exemptions, Section 333, required companies like Flirtey to jump through a great number of regulatory hoops to get to where they are today.

As the FAA cements new commercial UAV operating rules, known as Part 107, we’re beginning to finalize new categories and regulations within the micro UAV group. Since the majority of drone delivery companies in the U.S. fall under these regulations, entry into the commercial UAV market is getting easier.

These rules are a work in progress and will grow as the industry matures, but the industry and legislators have a long way to go before they can anticipate the entirety of UAV applications. What has become clear, however, is that we are currently riding an emerging market cycle.

Amazon.com announced in late 2013 that it would soon be using UAVs to deliver packages directly to consumers, which immediately set off a media frenzy that continues to this day. This announcement also set the tone for the cargo UAV industry as a whole.

Expectations were set high: Delivery drones were on their way and would be a regular part of consumer’s lives in a few short years. Well, it’s been over two years, and the vision has yet to materialize.

We’ve been following a typical Gartner Hype Cycle, where a technology trigger sets off a meteoric rise of inflated expectations. The trigger was the various proof-of-concept videos and patents that claimed unrealistic and ambitious timeframes.

At this point, it’s difficult to tell where in the cycle we fall. The release of Part 107 was discouraging for some, perhaps signaling a downturn into a trough of disillusionment. Restrictions on flights beyond visual line-of-sight (BVLOS) and during evening hours were some pain points in the new regulations.

But for many, expectations only continue to grow. A recently filed patent from Amazon.com details potential UAV “docking stations” to be installed on light poles or cell towers to recharge delivery drones. Many companies and consumers still hold out some hope (and hype).
Amazon.com has set the bar high for other micro UAV delivery efforts with its promotional and proof-of-concept videos, photos, patent for remote docking stations, and presence in the press.
Making a market

While the logistics companies quietly experiment, the technology companies carefully deploy. Matternet announced last year that it’s selling the Matternet ONE for $5,000 to carry 2.2 pounds up to 12 miles. They’ve run missions in Haiti, Bhutan, the Dominican Republic, and Papua New Guinea. And Zipline is in Rwanda setting up the first medical UAV infrastructure.

But competing with and outlasting the big guys who have extensive manpower, capital, and reach has been tough. For many of these small tech companies, the disillusionment arrives quickly. One of the biggest micro UAV companies to publicly go through this stage was the well-funded DJI competitor, 3D Robotics (3DR). The company started in the consumer sphere, but has now shifted to catering to the commercial market, and is in the process of another round of fundraising.

However, it’s not just 3DR that has struggled to find a place in the micro UAV market. Many UAV companies’ CEOs  are still trying to find market fit. Drones for agriculture went through this dilemma, drones for monitoring are still working to get their tech up to the reliability demanded from their potential customers, and cargo UAVs still struggle in the space as well.

It seems as though the prototypes are good and ready, but scaling the systems has been a challenge. The disillusionment deepens.

The concept of micro UAV delivery appears clear enough, but implementation is remarkably complex. First there is the tech itself — the reliability, the manufacturing, the supply chain, the scaling. Then there are the regulations and legal challenges involved. And finally, finding customers has been a problem for the industry leaders in this space.

However, if we look ahead, Gartner’s Hype Cycle says we will eventually reach the Slope of Enlightenment, heading for the Plateau of Productivity— and the industry numbers there look productive indeed. The top market research firms tell us that the commercial drone industry will be worth billions by 2020.  Quotes range anywhere from $2 billion to $20 billion, but what they do agree upon is that the market is going to be huge. And a big piece of that is going to be cargo delivery.
Illustration by Rick Johnson
Going door-to-door

ARK Investment Management calculates that Amazon.com can get its delivery cost down to $0.88 per delivery while using micro UAVs. This means that the 30-minute delivery time that Jeff Bezos, Amazon.com’s CEO, dreams of would not only be faster, it would also be more economical for both the company and the consumer.

However, profit margins will suffer as a result. UPS charges almost $13 for same-day delivery, but UPS itself only pays about $2. If ARK’s calculation is correct, then Amazon.com is only looking at a profit margin of $0.12 per delivery versus UPS’s $10.92.

The investment management company assumes that 6,000 operators, earning $50,000 per year, will each operate 10 to 12 UAVs. Each aircraft will make about 30 deliveries per day.

Considering these factors, costs for Amazon.com are substantial. And ARK ignores additional costs such as depreciation, maintenance of the fleet, and the creation of new fulfillment centers.

But Amazon.com’s business model has never been about short-term profits.  It’s safe to say that the company would be interested in further building out this system, betting that in the future they would be able to automate most of the process, keeping costs down by decreasing the number of operators required, and bringing the system to scale.
Quid pro drone

What does the data tell us the space looks like? With news stories on drone delivery emerging on a near-daily basis, many with conflicting information, it can be difficult to understand exactly where the industry stands. Analytics from data visualization software like Quid can help us find connections in all the information.

Quid's new data processing application, which scrapes news websites and blogs to identify keywords, phrases, people, companies, and institutions, compares words from each document to create links between them based on similarity in language.

When running a query search for UAV Cargo, Quid gathered 230 companies by primary mention, and, unsurprisingly, Amazon.com is the king of coverage. With a whopping 31%, Amazon.com takes the lead, followed far behind by other large corporations like DHL Express (2.7%) and Google (2.3%). Only two UAV startups (Matternet and Starships) made the top 10.

This data shows that very few companies are able to control the cargo UAV narrative. Smaller, scrappier startups like Matternet, Zipline, and Flirtey focus entirely on this market, pulling serious media stunts, and yet the big guns like Amazon.com, Google, and DHL continue to dominate the conversation ― at least on the internet.
Smaller companies like Zipline (pictured here) and Matternet preferred testing their UAV delivery platforms overseas, often delivering humanitarian aid to hard-to-reach locations.
The (successful) startup perspective

Flirtey CEO Matt Sweeny is not fazed by the difficulties facing smaller UAV tech companies. His company has continually been breaking UAV records in the U.S. since its founding in 2013.

From the get-go, Sweeny has been working on public perception. The company name, Flirtey, was an attempt to combat the militaristic perception of UAV, and add a “fun, playful, and personable” feeling to the flying robots.

In fact, he says modern commercial UAVs have a lot more in common with model aircraft than their multimillion-dollar military drone siblings. It has been easier to scale hobby components up, rather than scaling military technology down. With the rise of affordable autopilots and miniaturization of tech like GPS and gyroscopes, we’ve seen rise the modern age of miniaturized, autonomous aircraft.

Autonomy continues to challenge micro UAV delivery. Hobby aircraft are not known for their reliability. Prototypes are fairly easy to build: You can order online all the components for a cargo UAV from China for less than $200, and with a few weeks of tinkering, you’ll have a working drone.

But that aircraft (or, presumably, its pilot) is nowhere near ready to fly in the U.S. airspace, around people, or beyond visual line-of-sight. It does not have the redundant systems, quality, robustness, repeatability, or reliability, nor is it part of a reliable overarching control system.

The tale in the media has been one crafted by hype and expectation: Drones are cheap, easy, and in the final stages prior to systematic deployment. But it’s the system that is yet to be deduced.

This system is vital because drone technology doesn’t exist in a vacuum. The UAV itself is only a piece of the puzzle. Regulations, launch and landing systems, government relations, deployment strategy, in-country operations, maintenance processes, customer service, and public perception are key hurdles to overcome as well. It’s the entirety of the puzzle, not the individual pieces, that pose the greatest challenge.

But companies continue to push forward: Sweeny’s goal is to have Flirtey delivering packages to American homes in a year’s time. In three years, he’d like to do it at scale, and in 10 years, he foresees the ability “to deliver anything, any time, anywhere, globally.”

Until now, the narrative has been controlled by the large logistics organizations. We’ll see if the startups can compete, or perhaps surpass them. Only time will tell.

Note: A version of this story appears in the September/October issue of Drone360.
Featured image: Flirtey