Amazon Pushes the Envelope with Prime Air

Source: Amazon

It's hard to believe, but in as little as four years an unmanned flying drone could be delivering your Amazon order in 30 minutes or less. Nonsense you say? Not according to Amazon's (NASDAQ: AMZN  ) CEO Jeff Bezos.

On Dec. 1, he made an appearance on CBS's 60 Minutes and described "Prime Air," a service he sees his company offering in as little as four years. The idea behind the service would be delivering Amazon orders as quickly as possible through the use of small, unmanned aircraft known as octocopters. Bezos played a demo video, showing how the aircraft would pick up packages in small yellow containers at an Amazon fulfillment center and then fly through the air to the location of the Amazon customer.

Ideally, the package would get into customer's hands in 30 minutes or less. Bezos did add that it is likely to take a number of years for Amazon to further develop the technology and to give the Federal Aviation Administration time to come up with rules and regulations. He said that the service could be up and running in as few as four years, noting that he is an optimist when it came to things like this. 

Amazon's official Prime Air webpage has this as the answer to a question asking if one day we will actually see Prime Air vehicles in the sky.

"Yes. One day, Prime Air vehicles will be as normal as seeing mail trucks on the road today."

As to when the service should be available, Bezos said, "We hope the FAA's rules will be in place as early as sometime in 2015. We will be ready at that time."

Prime Air is just a money-sucking fantasy, right?
Some of you are probably saying that this service is simply a fantasy. Something like this is several years away, if not decades. The technology is not there yet, and it will take years for the FAA to even comprehend the reality of something like this happening, never mind creating rules to regulate it. In his wild goose chase, Bezos is probably burning millions of the company's dollars that could be better spent doing something productive like paying out a dividend.

To those of you who are doubting the possibility of the service becoming reality, did you believe Bezos and other online shopping trailblazers when they promised that one day billions of dollars worth of goods would be sold online? I know many did not, but just look at online shopping now. According to the U.S. Commerce Department, U.S. e-commerce sales totaled $225.5 billion in 2012.

There are hundreds of other examples that tell the same tale: what seems impossible today is tomorrow's reality. What financial purpose would this service serve other being a money-sucking hole?

When this service starts, Amazon would likely hold steady to its strategy of sporting razor-thin margins to drive customer growth. The true way in which Amazon could capitalize on this service would be through using the excitement around this groundbreaking offering to drive sales growth. What other companies have you recently heard of that are investing millions to create package-delivering drones? 

The closest thing I can think of is eBay (NASDAQ: EBAY  ) , which recently announced "eBay Now," a service that for $5 can have your eBay order delivered to you in about an hour by an employee. This service is only available in select markets, however, and is very small-scale.   

As a result, Amazon will have the "first-mover" advantage. If nothing else, people will go to Amazon for the thrilling experience of having a package delivered by a drone to their house. 

On a larger scale, however, this innovation keeps customers excited about Amazon and keeps them as customers. In a world where there is always something bigger and better, only those who are continually innovating will be able to survive and grow. 

That is why I have no problem with Amazon spending $6.04 billion in the past 12 months on research and development. Amazon is taking that $6 billion and investing it into the company's future as an innovator and revolutionary.

The Foolish conclusion
Prime Air may seem like a far-fetched fantasy, but in as little as four years you could see an unmanned drone delivering your Amazon orders to your house. When Amazon Air becomes a reality, it will spark excitement around Amazon and drive sales growth. Prime Air is a continuation of Amazon's innovative nature, which has allowed the company to maintain its position as the no. 1 online retailer.

As an overall investment, Amazon is a solid long-term pick for growth-oriented investors. The company is aggressively investing in its future, and thus is not profit-oriented. If you are able to look past the scary P/E ratio and dig deeper, the company is projected to grow revenue from $61 billion in 2012 to $226 billion by 2020 and is at the forefront of a global revolution in shopping.

While skeptics may downplay Prime Air and label it as another one of Bezos' money-sucking fantasies, it soon will be as real as purchasing an item online.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 31, 2013, at 10:55 AM, JCarmichael1972 wrote:

    It's good to finally read an non-pessimistic article about the prospect of Prime Air. I agree with the author. Bezos would be just the guy to make this happen.

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