Let me show you something. Oh man, oh my. God This this is. these are octocopters.

Yeah, these are, uh, effectively, drones. but there's no reason that they can't be used as delivery vehicles. Don't want anybody to think this is just around the corner. This is years of additional work from this point.

Years 5 10 I'm an optimist Charlie I Know it can't be before 2015 because that's the earliest that we could get. The rules. Uh, from the FAA My guess is, that's that's probably a little optimistic, but could it be? You know, Four five years I think so it will work and it will happen. and it's going to be a lot of fun.

That was Amazon CEO Jeff Basos in 2013 saying that within four to 5 years, the E-commerce giant could start delivering packages to customers within 30 minutes using autonomous drones. Amazon alone spends many billions of dollars every year to employ hundreds of thousands of delivery drivers. An autonomous drone doesn't get paid and doesn't take breaks. So it's unsurprising that Amazon wanted to develop this new technology.

Over the past decade, the company spent over $2 billion on the project. Today has been a complete flop. as of May 2023. They've delivered a grand total of 100 packages into two experimental markets.

Other companies including Walmart and Google have also invested in drone delivery and have made slightly more progress than Amazon, but we still appear to be years away from widespread adoption. Drones are relatively mature technology. even individual hobbyists can buy a quadcopter for a few hundred. In this video, we'll look at the Practical challenges of drone delivery.

If you're waiting for drone delivery to bring a pizza to your front door, you shouldn't hold your breath. When Amazon unveiled its drone delivery Ambitions in 2013, they admitted that it would be four or 5 years until they could achieve the necessary permitting and perfect the technology. The real Innovation was happening on the other side of the world. In Siberia In 2016, the Russian Postal Service announced that they would soon start using drones to deliver packages across the vast country.

And sure enough, just 2 years later, in 2018, after strenuous testing and groundbreaking technological development, they had finally made a drone capable of delivering packages autonomously. This promised to connect even the most remote communities in Russia with fast and affordable. Postal Service The town's folk of the Siberian city of Ulan Ude gathered around the city center to watch history being made with the drones made in flight. So what went wrong according to the company that made the $20,000 drone Wi-Fi Signals in the residential area disrupted the drone's communications, causing it to lose control.

The main impediment to drone delivery is safety concerns. Drones travel at high speeds, and if they lose control, they can pose a severe risk to pedestrians on the ground. For example, in 2016, a drone hobbyist in Canada was filming a 5K run while his drone was flying 10 m above the ground. He lost control and it fell down on a woman's head causing a spinal injury.

She was rushed to a hospital and was lucky to not suffer paralysis. The Drone in question was a DJI Phantom 3 which weighs just 2.7 lb. Delivery drones are by necessity, far larger. For example, the Dr Dr Delivery Company Wing which is owned by Google weighs 11.4 lb and can carry a package up to 2.6 lb with a full payload.

It weighs about 14 lbs more than four times the DJI drone which caused a spinal injury. Anything that flies in the sky poses risk to people on the ground as well as other aircraft. Because of this, air traffic is highly regulated. in the US.

The FAA employs 11,500 air traffic controllers to manage 45,000 flights per day, both large commercial airliners as well as private planes and helicopters. Amazon delivers over 13 million packages per day in the Us alone. Obviously, it would be infeasible to have an air traffic control system for drones in the same way that there is for manned aircraft. For drones to be economically viable, they need to be autonomous.

One operator needs to be able to manage multiple drones at a time. Otherwise, it would be cheaper to just deliver the packages by. Van. Currently, Amazon's drones fly under FAA Regulation part 107.

This restricts them to Flying below 400 ft to avoid interfering with Man aircraft which fly much higher. This isn't a big deal as these drones don't need to fly that high anyway. The bigger issue is that part 107 restricts drones to fly within visual line of sight to the Drone operator. This basically defeats the whole purpose Amazon has to have an employee watching the drone at all times.

It would be easier if that drone Observer would just deliver the package himself. The purpose of Amazon's current drone operations is to perfect the technology and eventually get regulatory approval for the drones to fly. Beyond Visual line of sight. At this point, they could theoretically become cheaper than human delivery.

The Grand Vision for how it will work, is that you put a landing pad on your front lawn where the Drone will drop the package. The Drone can leave the warehouse and be able to navigate to your landing pad with no manual steering and then return to the warehouse. The Drone has cameras which allow it to identify obstacles and change its flight path to avoid them. For any drone operator to gain FAA approval to fly without a human operator watching it at all times, it must show that it can avoid obstacles in a wide range of potential scenarios.

This is called Beyond Visual line of sight. That's what Amazon has been trying to do for the past 10 years with limited success according to a Bloomberg investigation. During a 4-month period in 2021, there were five crashes at Amazon's testing location in Oregon, one of which caused a fire in the surrounding. Shrubbery It ultimately caused a brush fire over 25 acres that had to be put out by the local fire department.

One of the problems with Amazon's drones is their large size and weight. They weigh 85 lbs, which is necessary to be able able to carry a 5lb package up to 7 mil. They created complex propeller designs to maximize the Drone speed and power. These have created complications with frequent failures and crashes.

They are still years away from getting FAA approval for Beyond visual line of sight flying. The Amazon drone program has been a complete disaster, relegated to experimental deliveries in just two locations the small towns of Lockford California and College Station Texas. As of March of this year, there were only two homes signed up to receive drone deliveries in Lockford Amazon has had to entice them to order more frequently by offering free gift cards as they weren't ordering very often. Amazon isn't the only Tech Giant tinkering with drones.

A subsidiary of Google called Wing has made over 350,000 food deliveries in a select few markets in the US Australia and Finland. Unlike Amazon, they have received approval to fly their drones Beyond visual line of sight and select experimental markets. The drone at Self is autonomous, but there is a human operator monitoring the drones remotely from the control center. Here's a short video posted by an Australian YouTuber who ordered food using the service and here we go.

It's on The way 10:26 a.m. arrival time it's 10:04 so let's check it out. Get a biscuit soon! Okay, so here the Drone comes. You will definitely hear it coming.

It's uh, quite loud. Um, but it is so cool. What the heck? Drop it. What? Look at that this one is.

guys. the Gr are different. Look at it. It's what? Tim to yeah.

Cool. Oh, earlier in the video we said that drones need to be approved to fly Beyond Visual line of sight to be economically viable. This is a necessary but not sufficient condition. Wing Can fly Beyond Visual line of sight, but it's unlikely that it is economically viable in its current form.

Here's how it works: Wing has a central control center called The Nest This is where the drones are loaded with food and sent off to the customer's home. The maximum distance it can travel is 6 miles, which takes about 5 minutes. Importantly, the customer must live in a single family home with a large enough yard to act as a drop off point. After delivering the package, the Drone returns to the nest to recharge its battery because of the need to return to the centralized.

Nest You can only order food from a few select retailers who happen to be located adjacent to the nest. This tends to be packaged food like pastries and soda from a convenience store. Because of the weight limit of just 2.6 lb in the small size of the package, you cannot order a full meal for one person, let alone an entire family. So how much would someone be willing to pay for this very limited drone deliv delivery service? It's hard to say because currently Wing charges $0 per order.

They charge the customer the same retail price that they would pay if they came to the store in person with no added delivery charge. Wing has managed to fulfill 350,000 orders since 2019, but it has still not been generating Revenue Their early experimental markets have been a loss leader. To test out the technology, we saw a similar Dynamic with Amazon which was forced to give free gift cards to induce people in Lockford California to order more frequently. Eventually, they'll start charging delivery fees.

The fees will need to be competitive with existing food delivery methods to see widespread adoption. Drone delivery can only operate in Suburban areas. The maximum distance is 6 Mi so the average distance would likely be around 3. Mi traveling by Road You can't drive in a straight line so that 3M trip will take you maybe 5 m of driving at 30 mph.

That will take a delivery driver about 9 minutes. So 18 minutes for the round trip door. Dash pays their drivers a base rate of $14 per hour so that 18-minute trip will earn them a little over $4 But a food delivery driver can go to any restaurant and carry far more than 2.6 lb, making it far superior to drone delivery. The people currently using Wing in its experimental markets are ordering Goods which are very cheap, just costing $1 or2.

Given the low value nature of their orders, it's hard to imagine they'd be willing to pay more than $1 for delivery. When Wing starts charging, it's hard to see how the economics can make sense. Wing's drone delivery nest currently support about 30 drones each. If each delivery takes 10 minutes and they operate at half capacity, they could generate $3 per hour.

It's unclear how long they need to charge between flights. If you operate 30 drones for 12 hours a day, that gets you $1,000 per day or $360,000 per year. This would be 90 deliveries per hour or more than one delivery per minute. You would probably need three people to load the food onto the drones, another two or three operators in a control room, another person to do maintenance, and a manager.

Then you need to consider the cost of renting the real estate, the massive upfront cost of the drones themselves, and the electricity cost. All Things Considered It's extremely difficult to see how you could hope to generate a profit. And finally, there are problems with noise and safety. Most of the communities hate the drones because of the Annoying buzzing sound the propellers make, which many compare to a swarm of angry mosquitoes.

The final issue is safety. Even with wing only operating on a small scale in a few select communities, there have already been serious problems. Last year, a wing drone in Australia crashed into power lines and caught fire, causing a power outage for 2,000 residents due to the limits of carrying capacity and range, Using drones for food delivery looks like a Fool's errand, but what about longer range drones that can deliver high value Goods to remote communities? Could this be viable? Earlier this year, the YouTuber Mark Rober released a video saying that the drone company zipline will change everything. Zipline has quickly become perhaps the single most hyped up drone company in the world.

Zipline plans to launch a food delivery service in the US similar to what Wing is attempting. They're currently running an experiment in Salt Lake City where you can pay $13 to have four cookies parachuted down to your lawn at the moment. this is the only item on their menu. I Expect this food delivery venture to be a failure for the same reasons that Google's Wing will fail.

Perhaps the more interesting part of Zip's business is medical deliveries. In Africa Since 2016, they've been delivering blood to remote hospitals which need blood transfusions on short notice. The drones drop the blood in a package attached to a parachute and can travel distances as far as 80 km. They've signed contracts with various African governments who pay them between $14 and $30 per delivery.

a hospital in a remote Village may need a specific blood type or other specialized medical equipment which they don't have on hand. In such cases, it can be worth paying extra for Speedy Drone Delivery even if it costs much more than groundbased. Transportation But has this been enough to turn that plan into a profitable business? It's not publicly traded, so we don't have access to their financial statements. The only publicly traded PurePlay Drone Delivery company is Drone Delivery Canada Corp which has a share price of 27 cents, a market cap of $ 60 million Canadian dollars, and appears to be on the brink of bankruptcy.

They've been operating for many years and follow a similar business model as Zipline. They work in remote communities in Northern Canada to deliver medical supplies and other high value items at fast speeds. This looks like the ideal environment for drone deliveries. some of the communities that they work with are located on Islands Sea ice makes it extremely difficult, if not impossible to reach the island during the winter.

In 2022, Drone Delivery Canada generated $826,000 of Revenue They had operating expenses of $14.9 million, giving them an operating margin of 1700% This business is obviously not viable to get a sense of just how negligible their revenues are. They spend $320,000 on shareholder information, which I believe is investor relations and possibly some other costs associated with being a public company. That alone takes up more than a third of their revenue. It's important to note that Drone Delivery Canada is not a new startup.

It was founded almost 10 years ago in 2014, yet it still produces minuscule Revenue with no foreseeable path to profitability. The problem is that the remote Canadian communities, by their very nature, have relatively little demand for deliveries. Drone Delivery Canada spends huge amounts of money setting up operations and employs large numbers of Staff But due to the low populations of these communities, the order frequency is very low. Even when the cost per delivery is high, they don't fulfill nearly enough orders to cover their significant fixed cost.

Over the past 10 years, Mega Cap tech companies and startups alike have spent well over10 billion in an attempt to make drone delivery a reality. On its face, it looked like it could have been an Innovative solution to bring down the cost of Last Mile delivery. However, as of 2023, persistent technological hurdles have thwarted the the economic feasibility of any real world applications. At some point, Venture Capitalists and big Tech will need to wake up to reality and stop throwing good money after bad.

All right guys, that wraps it up for this video. What do you think about Drone Delivery? Let us know in the comments section below. As always, thank you so much for watching and we'll see you in the next one. Wall Street Millennial Signing out.