During the late 1990s, when capital flowed freely to Internet startups and investors were pushing Amazon.com’s (AMZN) stock price into the stratosphere, Jeff Bezos was full of outlandish ideas for his company’s future. Colleagues called these reveries “fever dreams.”
At the time, Amazon was largely known as the biggest bookstore on the Internet. But Bezos had much grander visions of turning his company into the most dominant retailer in the world. One memorable fever dream involved storing products in the homes and apartments of local bike messengers in major cities. It was an answer to the logistics quandary called the “last-mile problem.” How could Amazon economically deliver products to customers’ doors without tacking on cumbersome shipping charges? Employees scratched their heads at Bezos’s proposed solution. They already had their hands full battling theft by workers in their warehouses. The notion of leaving inventory in random garages seemed insane.
Today, capital is again flowing freely in high tech, and Amazon stock is at an all-time high, trading around $400 a share. And Bezos—who was briefly humbled by the dot-com bust only to emerge more aggressive and ambitious than ever—is again dreaming big. On Dec. 1, he stunned the technology world and handily won the holiday retail public-relations war by revealing on CBS’s (CBS) 60 Minutes a plan to use unmanned aerial helicopters—“octocopters”—to fly small shipments to customers within 30 minutes. Bezos arranged for 60 Minutes to show clips from a video of a prototype octocopter completing a delivery. The video touting Amazon Prime Air was watched more than 10 million times on YouTube.
It seemed like another Bezos fever dream. There are formidable technological, legal, and cultural hurdles that drones must surmount before they can zoom over our kids’ heads to drop off a carton of milk on the front porch. Yet Bezos appears undaunted. “I know this looks like science fiction,” he told an astonished Charlie Rose. “It’s not.”
After Amazon’s December surprise, companies such as United Parcel Service (UPS) and Google (GOOG) quickly disclosed their own autonomous robot projects. But the news may tell us less about the future of e-commerce than it does about Bezos himself and his approach to dealing with the challenges facing Amazon.
In October the Seattle-based company announced plans to hire 70,000 temporary workers at its fulfillment centers for the holidays, up 40 percent from the previous year. It later disclosed a deal with the U.S. Postal Service to allow delivery to members of its Amazon Prime service on Sunday, a normally sacrosanct day of rest among logistics companies. In a less-heralded piece of news, Amazon increased the price threshold, from $25 to $35, at which a purchase can qualify for free shipping. One goal of the move is to push more customers into Amazon Prime, the $79-a-year, two-day guaranteed shipping program that motivates its members to indulge in individual purchases—a single box of wet wipes—instead of loading up a shopping cart before making a purchase.
Unlike other tech companies, Amazon has to rethink the physics of its operations with each fresh phase of growth. The supply chain that worked well in 2012 with $61 billion in sales might not work nearly as well five years from now, when Amazon revenue could push $200 billion. It’s difficult to conceive, for example, how the company could easily wrangle 200,000 temporary workers in the U.S. over the holidays—particularly if the job market heats up. To get ahead of its supply chain needs, Amazon last year acquired Kiva Systems, a robotics company whose roving autonomous ground robots could one day replace humans in certain roles in warehouses.
In the meantime, the company is facing mounting labor problems, including repeated strikes at its fulfillment centers in Germany. Several recent exposés have chronicled conditions in its warehouses, including a BBC report that alleged workers can suffer mental and physical illnesses from the arduous labor. Amazon responded that the safety of its workers is its top priority and that an independent health expert has visited its buildings and associates and concluded that there is not an increased risk of mental and physical illness.
The biggest challenge faced by an increasingly dominant Amazon remains the last-mile problem. With more and more Prime members ordering a single book or DVD instead of multiple products that can be combined into boxes, how can the company fulfill its promises and still make money? One answer is running its own trucks, which it does as part of AmazonFresh, a grocery delivery business in Seattle and parts of California. Yet five years in, the service is growing slowly. Operating trucks requires pricey drivers and fuel, and unlike a UPS or FedEx (FDX) van, which makes drop-offs and pickups, Amazon vehicles just deliver products. On the way back to the warehouse they’re mostly empty and thus inefficient.
This is where the drones come in. One of Bezos’s signature strengths is combining technology and a penchant for bold, risky bets that disrupt otherwise languorous industries. He did so first in retail, and then in the book publishing industry with the Kindle. An army of unmanned octocopters darkening the skies over major cities could take expensive trucks off congested streets, help solve the last-mile problem, and give Amazon Prime members a way to indulge their basest shopping impulses—all of which could prove hugely profitable.
Getting there, as Bezos himself conceded on 60 Minutes, will be an enormous challenge. Autonomous delivery drones will need to be safe and inexpensive. They’ll need long-lasting batteries and clever artificial intelligence to evade the unexpected bird, branch, or mischievous bystander. Bezos projected that drone delivery might be technically feasible by the time the Federal Aviation Administration opens the skies for commercial drones, which is possible as early as 2015 but likelier in 2020 or later. “It could work on nice days,” says Ronald Arkin, director of the mobile robot laboratory at the Georgia Institute of Technology, who cited wind and rain as major stumbling blocks. “I wish Amazon fair weather in their future endeavors.”
It’s plausible the octocopter news could be a self-fulfilling prophecy, driving attention and capital into the drone world and prompting rapid advancements. “Amazon’s announcement is going to spur a wave of investment and innovation and drive down the price of hardware,” says Chris Diebner, the chief technology officer of DreamHammer, which makes software systems for unmanned airplanes. “I’m hoping that’s why they made it.”
There are other interpretations of Bezos’s motives. The octocopter could well be a gimmick meant to garner attention at the start of a key shopping season and distract from bad news such as labor troubles and antitrust scrutiny in Europe. If it was a PR ploy, it worked masterfully. But as with all things related to Amazon, the answer is never quite so simple or easy. Likely it was both a way to get news coverage at a crucial time and a long-term bet to change the physics of Amazon’s distribution.
For years, Bezos snuck up on his skeptics and proved them wrong by embracing and exploiting emerging technologies. He can’t hide anymore. So if you want to know where Amazon will be in five years—OK, maybe 10—just look up.