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The Truth About Amazon's Drones

Stocks in this article: AMZN

BALTIMORE ( Stockpickr) -- The day before Cyber Monday, Amazon.com ( AMZN) CEO Jeff Bezos announced that his company was working on delivery technology that would disrupt the industry: autonomous drones that fly your Amazon orders right to your door.

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Amazon shareholders should be thrilled about the announcement -- but not because Amazon Prime Air could change how customers receive packages from Amazon. Instead, shareholders should be thrilled because Bezos & Co. generated some incredible buzz for Cyber Monday just by showing off some pricey toys.

The truth is, that's just about all Amazon's drones really are at this point. And for Amazon, that's probably a good thing; after all, introducing drone delivery introduces a host of problems.

I'm not just speaking as a stock analyst here; I'm also an active, licensed pilot. From both a regulatory and a practical viewpoint, Amazon Prime Air doesn't add up -- at least not the way that it was shown to us on TV.

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So today, I'll show you the truth about Amazon's drones. More important, I'll show you why Amazon has a much easier path to disrupting the delivery business after all.

Regulatory Hurdles

The most obvious barrier to drone delivery is regulatory. Recall, it took about two decades for the Federal Aviation Administration to OK the use of Angry Birds during all phases of flight on airlines. The FAA is probably the slowest-moving government agency -- and it's by design.

The FAA doesn't want any surprises when it enacts a new rule.

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That means that any big changes to the Federal Aviation Regulations are drawn out. While the FAA is mandated to integrate unmanned aircraft into the national airspace system by 2015, the agency is behind schedule, and most of the focus has centered around remotely controlled UAVs, not autonomous ones like the ones Amazon is touting.

The amount of additional testing required to demonstrate that Amazon's octocopters can safely self-navigate to the FAA's standards is going to be immense -- and very costly. Couple that with the fact that many of the more densely populated U.S. cities are blanketed with restrictive Special Flight Rules Areas (in New York and Washington D.C.) and heavily trafficked Class B airspace, and suddenly the regulatory challenges increase.

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