Amazon is so secretive that Wall Street analysts have all but given up asking about key financial details like how many Kindle devices the company sells or how many Prime members it has. Yet Amazon turns garrulous as a preteen when it comes to its aerial research-and-development project. And there is a sly motive behind the company’s selective chattiness.
Amazon interrupted the Thanksgiving holiday hangover to unveil its latest iteration of drones the company hopes to use someday to deliver packages to American homes in 30 minutes or less. The company’s newest Web video, featuring pricey TV talent Jeremy Clarkson, made it seem trivial for a drone to land with precision at a customer’s house and gently plop its payload on the lawn. The drone video on YouTube had been viewed more than 1.7 million times by midday Monday.
“I know this looks like science fiction. It's not,” Amazon CEO Jeff Bezos has said about his drone delivery project.
At the moment, in fact, the drones are more fiction than fact. Delivery by drones isn’t likely to be legal in the U.S. for the foreseeable future, and such package drop-offs are not technically feasible now.
Every time you see a headline about Amazon’s drones, then, think about the business strategy behind the company’s well-timed reveals aimed at customers, regulators and the shipping companies on which Amazon is reluctantly dependent.
First a word about those shoppers. Amazon wants to use the holidays as marketing moment to lure more people to sign up as Prime members. Releasing cool, TV-ready drone videos in time for Cyber Monday unleashes more free publicity than Bezos’s billions could buy. When Amazon’s drones are mentioned at the top of the “Today Show,” as they were Monday morning, you know the company is on to something. It’s not the first time Amazon has chosen the holiday kickoff for this purpose. On the eve of Cyber Monday two years ago, “60 Minutes” aired an interview with Bezos in which he showed Amazon’s drone prototype for the first time.
Amazon’s periodic drone reveals also keep the company in the minds of regulators as they grapple with how to govern unmanned flying objects zipping above American cities. The Federal Aviation Administration has banned most uses of drones for commercial purposes until the agency finalizes rules for drones in the next half year or so. The proposed FAA rules, if they hold, likely make it impossible for Amazon drones to do widespread package drop-offs unless there is human supervision of every delivery. Significant technical barriers to drone deliveries also remain, ranging from rogue birds to balky GPS.
Amazon is careful to say drone delivery is years away from reality, yet the company is using the visibility of its drone project -- and the company's money -- to keep the pressure on Washington. Amazon has spent $6.35 million on lobbying this year, already more than the $4.94 million in 2014 expenditures, according to data from the Center for Responsive Politics. About $250,000 of the money was specifically marked for Amazon Prime Air, the company’s drone delivery subsidiary. Even Amazon’s drone website gives a subtle nudge to the rule makers, noting that Amazon Prime Air “will deploy when we have the regulatory support needed to realize our vision.”
Displays of Amazon's prowess even send a message to shipping companies like UPS and the U.S. Postal Service, whose trucks are jammed with Amazon boxes these days. Two years ago, UPS and FedEx were overwhelmed by last-minute holiday packages, and some people were left with bare spots under their Christmas trees. Amazon had to extend credits to unhappy customers. It’s useful for Amazon to have the specter of taking over delivery duties itself if its package partners don't hold up their end.
Especially given the hurdles to drone deliveries, Amazon’s continued pursuit of the project is a reminder of Bezos’s determination to speed package delivery to give people more reasons to shop from the sofa instead of dropping by the store. Amazon has also been using couriers on bicycles and in cars to deliver items in one to two hours in a handful of cities, and the company has tested its own delivery trucks to take more control over the final leg to the consumer.
Amazon’s obsession with paring delivery time hasn't been cheap. Amazon's fulfillment costs — or what the company spends on its packaging-and-distribution centers and related costs – were $8.87 billion in the nine months ended Sept. 30, or 12.4 percent of the company’s net sales in the same period. In 2012, fulfillment costs were 10.5 percent of net sales.
Displays of Amazon's logistics muscle are useful, even if people don't need to look skyward for Amazon's drones anytime soon. Taking the drone army out for a photo op every once and a while keeps shoppers and regulators on notice.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
To contact the author of this story:
Shira Ovide in New York at firstname.lastname@example.org
To contact the editor responsible for this story:
Daniel Niemi at email@example.com