Amazon (AMZN  ) got FAA approval to operate delivery drones and has officially become an "air carrier". Delivery is another problem that Amazon needs to solve in order to realize its ambitions. Although it continues to rely on UPS and USPS, it's also begun to build out its own delivery network.


Last year, Amazon gave a look at its delivery drone - it's shaped like a hexagon and takes off and lands like a helicopter, but it flies like a plane. It utilizes AI to avoid and adjust for obstacles like birds, wires, or wind. The initial goal is to carry packages that weigh under 5 lbs. for distances up to 15 miles. Nationwide, the rollout of drone delivery is not expected until the latter half of the decade.

The FAA approval is for testing, the agency is still working on regulations for operating commercial drone deliveries. Amazon has poured significant resources into delivery as its frequently the bottleneck that prevents customers from getting their orders on time and the major obstacle to continued growth.

Many companies are working on the "last mile" solution. Amazon has used technology to optimize and increase efficiencies in terms of its supply chain, inventory management, processing of orders, and the technical back-end. However, the one part that it hasn't been able to meaningfully improve is the part where a driver has to unload a package and drop it off at the customer's front door.

Drone Delivery

At some point, this creates a physical constraint. If Amazon's sales increase, it will have to proportionally hire more drivers to make deliveries. However, drone delivery is one way that Amazon could increase the efficiency of each driver who'd be able to make more deliveries in less time.

The FAA approval means that Amazon will begin testing out deliveries to customers. In order to win approval, Amazon had to demonstrate that its drones were safe for consumers. It's uncertain whether the drone deliveries would eventually happen from the truck or a central location.


A couple of other companies are working on a similar concept. Workhorse Group (WKHS  ) is building autonomous, electric delivery vehicles that have drones built in them. This would allow companies to cut costs on fuel, manpower, and make more efficient deliveries.

UPS (UPS  ) won FAA approval to pilot-test its fleet of drones. And, Google (GOOG  ) is the majority owner of Wing that won FAA approval for commercial deliveries.