Drones…in 30 minutes or less.
Why instant delivery could transform e-commerce.
Last night, Jeff Bezos announced an ambitious new add-on to the popular Amazon Prime service: an option to have an autonomous drone deliver up to a 5-lb. payload directly to your home within 30 minutes. The program called PrimeAir is scheduled to roll out in 4-5 years, and I think it will cause a step function change in e-commerce adoption.
To date, e-commerce has been moderately successful in the U.S., linearly progressing to just under 6% of overall retail sales in Q3-2013. We have seen significant companies built in e-commerce in our own portfolio (e.g. Rent The Runway, thredUP) and others (e.g. Warby Parker, Zulily) and continue to get excited about new opportunities.
Yet, the market is transforming more slowly than, say, the breakneck shift from web to mobile. One justification is that instant gratification comes far more easily to pure software than it does to physical products, and as such the e-commerce consumer still suffers from a sub-par experience.
To the contrary, when a consumer product nails instant gratification, it quickly steals market share from its competitors. See, for instance, the effect that page load times have on the way consumers experience the web. Studies like the below are published all the time, the conclusion being that consumers hate to wait and will take their business elsewhere if need be:
The increasing speed of the web (and now mobile) has definitely contributed to the rise of e-commerce to date. It’s now pretty simple to find what you want. Getting the product to your house as fast, however, is another story.
That’s why I think PrimeAir is such a big deal: it will bring instant gratification to e-commerce. It is that feeling you get after a long day when you see what’s on Netflix and start streaming instantly, or when you download a new audiobook on your walk to the subway, or when you call an Uber after a long night out.
If the delivery bottleneck is broken for e-commerce, it will unleash a whole new wave of innovative companies. When you can get something within 30 minutes of your order, you will start thinking differently about what you buy and where. I have no doubt that the paltry 6% of retail today sold online domestically will at least double as a consequence of getting the consumer experience right with instant delivery.
Drones are a compelling way to implement this vision, but not the only one. What makes them a good starting point is their straightforward potential for autonomy. In many ways, a drone navigating itself between a distribution center and your home has a lot easier time than a Google self-driving car doing the same. Moreover, the economics for small packages must be far in the drone’s favor.
I have to believe, however, that we’re still going to be relying on grounded transportation for those heavier items. My platform bet in that case won’t be Amazon; it will likely be Uber, Google, or another company with a fleet of cars that have excess capacity during the middle of the day. Maybe Amazon itself will get into the ground delivery business, buying a company like UPS or launching its own fleet of trucks and city vehicles.
It is looking more and more like the next battleground in e-commerce will be logistics. The winners in the next 10 years will be the companies that embrace new delivery methods as a means to differentiate and deliver instant gratification to their customers, who will spend more and more of their wallet on online goods…perhaps delivered by your friendly, neighborhood drone.
