Thoughts on Drones

I’ve been thinking about drones a lot lately. Obviously the technology component is really cool, but more importantly, drones shatter some fundamental assumptions about business. Below are some thoughts on drones in no particular order:

Amazon will unveil Amazon Drone Services (ADS) that will allow anyone to ship anything (within ADS size/weight constraints) anywhere in a given geography in X minutes. This will change local commerce, and will have huge implications for the current crop of food focused startups (Favor, Doordash, Postmates, etc). Aggregators such as Instacart will be better positioned to manage this transition as they provide specialized value beyond raw delivery.

There will be a convergence in “form factor” for the most important use case: delivery. There will certainly be drones of various sizes for carrying different payloads varying distances, but the underlying designs will likely converge, and the software that powers the drones will be shared.

There will be unique use cases - such as oil pipeline inspections and maintenance - that may require unique hardware that ADS will not accommodate. There will be niche markets to accommodate these use cases. The technology vendors building these solutions will offer a unique combination of integrated hardware and application-layer software focused product for specific industry verticals. For these niche use cases, hardware and software will be provided by a single vendor, though the vendor will probably use open source technology like AirWare.

Once drones converge in form factor, then there’s no reason why Amazon or Google won’t become the dominant infrastructure provider of most drone-based intra-city logistics. It seems very unlikely that any startup today - even the largest drone manufacturer, DJI - could muster the capital and resources to compete directly Amazon or Google head on. Given the roaring success that has been AWS, Amazon’s very public work on drones, and Google’s aggressive robotics research and acquisitions, it’s clear that Amazon and Google are going to fight to the death to become the dominant drone-logistics providers for cities. Startups simply won’t be able to compete.

This also means that the tech giants will drive most of the innovation in drone operating systems - computer vision, collision detection, wind management, electronic virtual highways, etc. Amazon and Google will open source their drone OSes to drive standardization in hardware around their respective software defined ecosystems, just as Google has done with Android. Startups won’t have much of an opportunity to drive innovation here in the long run, though there could be some significant early exits to tech giants. AirWare could be a notable example of this.

There are certain parts of the supply chain that Amazon probably won’t get into, such as on-demand medical rentals (rent an X ray when you break your arm for use by consult by DoctorOnDemand), fresh-baked bread (will Amazon build a bunch of ovens?), and pharmacies (too much regulation for Amazon). There will be unique opportunities to reshape many of these businesses by leveraging ADS.

The businesses most likely to be reshaped are those that have historically been very local and fragmented - such as bakeries and meat delivery. There could be an enormous opportunity to disrupt Sysco by rethinking the SMB supply chain through drones.

Because drones will reduce the cost of transportation by 10-100x, restaurants may choose to order materials “just in time” rather than every 1-2 days. This can improve profit margins by reducing waste, and by freeing up significant working capital. Drones will reshape the entire food supply chain, and will in the process create opportunities to launch new companies at every layer of the food value chain built around drones. Drones reduce the need for working capital by enabling just-in-time everything. Drones are complementary to Bitcoin.

Bitcoin and drones go hand in hand. By reducing the cost of physical transportation 10-100x, there will be a need for a low friction, instant, low-transaction fee payment system for small transactions. Bitcoin is the obvious solution.

Drones will open new opportunities in “space arbitrage,” just as the Internet has enabled labor arbitrage by empowering Indian labor to take care of white collar American tasks. The use case that most immediately comes to mind is an infinitely large, virtual closet for people who live in big cities with small closets - think NYC or SF. I can see a future in which you can pick out your clothes for the day and have them delivered in the morning, freshly washed / dry cleaned. Or better yet, you’ll be able to rent clothes Friday at 8pm and have them in your hands at 8:15pm. This naturally lends itself to interesting businesses in clothing rental. There will be other opportunities in "space arbitrage" built on this idea.

There are an enormous number of drone applications in construction, architecture, agriculture, and oil and gas. These are fairly obvious applications today and have the potential for immediate ROI. Most application-layer drone investments today are focused on these verticals because the end-users can achieve near immediate ROI.