Drones Could Make Amazon’s Dream of Free Delivery Profitable

(Source: theverge.com)  

Amazon is famous — perhaps infamous — for creating a huge core business, with brutal margins, that produces little to no profit. Yet it announced yesterday that it would roll out free shipping to all its customers on items that weigh 8 ounces or less with no minimum order size. At a glance, it seems like yet another move by Amazon to tighten its death grip on the $304 billion online shopping industry at the expense of the bottom line, but that might not be the case soon: if the company can manage to make its Prime Air drone delivery program a reality, delivering lightweight goods could actually become a weirdly profitable part of the business.

Granted, there are still many technological and regulatory hurdles Amazon will need to surmount before Prime Air takes flight, even taking into consideration the progress we’ve seen in the industry and from the FAA over the last year. But let’s set those obstacles aside for a second to consider an interesting hypothetical: in a world where the FAA trusts semi-autonomous drones to fly over populated cities, do the economics of drone delivery make any sense? An analysis from Tasha Keeney at investment firm Ark offers a compelling argument that drone delivery could provide a path to substantial profits.

Amazon is on track to generate roughly $60 billion in revenue across North America this year, and the average order size for two items is around $60, so Keeney make a rough estimate of 1 billion orders and 2 billion items shipped each year. Amazon founder and CEO Jeff Bezos has said that 86 percent of Amazon deliveries are the under 5-pound weight limit a commercial drone could reasonably carry. Keeney cuts that number down considerably, estimating just a quarter of orders will be both under 5 pounds and within a 10-mile range of a drone base station.

Continue Reading at theverge.com…