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TheStreet Open House

The Truth About Amazon's Drones

Stocks in this article: AMZN

The costs will be material, and so will the load on the airspace system; it would take around 1,500 drones to replace every semi trailer that comes out of an Amazon distribution center.

That means that margins are also a consideration. While AMZN's five-pound payload covers the majority of its shippable offerings, it doesn't cover the majority of the offerings that have the most margin available to cede to a costly new shipping method. Amazon's highest-margin products are things that don't get delivered at all, such as eBooks and Amazon Web Services.

Capture the Drone

We shouldn't forget about the challenges along the trip.

Some drones will be intentionally damaged and stolen. Weather will ground others. And accidents will take out more of them.

When drones reach their destinations, will Amazon be on the hook for maiming children and animals with eight sets of spinning rotors? Or will it add cost and decrease payload by adding guards to its octocopters?

Since Amazon Prime Air will be marketed toward customers who live in densely populated areas (10 miles from a distribution center), what happens when someone who lives in an apartment on a busy street makes a Prime Air order? Does it get dropped 10 yards from the door to the building?

A System That Works

All of the drone talk seems even crazier when you consider the fact that Amazon is investing huge amounts of money in its own present-day delivery infrastructure. Amazon Fresh, a grocery delivery service, sports a growing fleet of trucks making same-day deliveries to customers in Los Angeles, San Francisco and Seattle.

We already have a mature road infrastructure in the U.S., with increasingly fuel-efficient trucks that can carry hundreds of packages in a single run. Better yet, by keeping delivery in-house with its own trucks, Amazon can also handle hassles (like returns) more easily than ever before. If Amazon is thinking about moving its distribution centers closer to cities, cutting out the middleman with Amazon Fresh makes far more sense than drones ever did.

In fact, if the firm is so bent on cutting humans out of the delivery process, autonomous delivery trucks make a lot more sense than drones do too. After all, our road system is meticulously mapped, road conditions are far more predictable and consistent than air conditions are, and trucks don't need to return home after every delivery.

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