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Amazon testing drones for same-day package delivery

Updated: 2013-12-03T10:54:55Z

Bloomberg News

Amazon.com is already cracking same-day delivery. Next up: getting your package delivered quicker than a pizza? The online retailer is working on a way to get customers their goods in 30 minutes or less — by drone.

Amazon.com said it's working on the so-called Prime Air unmanned aircraft project in its research and development labs. But the company admits it will take years to advance the needed technology and for the needed federal Aviation Administration rules and regulations to be created.

The project was first reported Sunday by CBS' "60 Minutes."

Amazon CEO Jeff Bezos said during the primetime interview that while the octocopters look like something out of science fiction, there's no reason they can't be used as delivery vehicles.

Bezos said the drones can carry packages that weigh up to five pounds, which covers about 86 percent of the items Amazon delivers. And the current generation of drones that the company is testing has a range of about 10 miles, which Bezos noted could cover a significant portion of the population in urban areas.

While it's tough to say exactly how long it could take the project to get off the ground, Bezos told "60 Minutes" that he thinks it could happen in four or five years.

The stock rose $3.93, or about 1 percent, to $397.55 in premarket trading, having closed Black Friday's shortened market session at $393.62.

Delivery drones also are being used by the Australian company Zookal to deliver textbooks, said Oliver Lamb, director of Sydney-based Pacific Aviation Consulting. In China, the SF Express delivery company is experimenting with drones in the southern city of Dongguan, according to a report by the Civil Aviation Resource Net of China.

Regulatory issues

“When and how to allow this kind of delivery is going to be a big question,” Lamb said. “Regulators will have to deal with this, and I’m sure each jurisdiction will come up with regulations to allow this in due course.”

Experimentation with delivery by drones is part of a shift from the craft’s use by the U.S. military to spy on and kill suspected terrorists.

The U.S. Congress has directed the FAA to develop a plan to integrate drones into U.S. airspace by 2015. That led U.S. venture investors to pour $40.9 million into drone-related startups in the first nine months of this year, more than double the amount for all of 2012, according to data provided to Bloomberg News last month by PricewaterhouseCoopers and the National Venture Capital Association.

Drones aren’t the first futuristic technology to attract the interest of Bezos. Separate from Amazon, Bezos created a closely held spaceflight venture called Blue Origin, which in October said it planned to soon begin offering suborbital flights on a commercial basis.

‘Idiot proof’

The electric motors of the drones also will help reduce the environmental impact of package deliveries, Bezos said.

“It’s very green,” Bezos said. “It’s better than driving trucks around.”

Still, the challenges to achieving a safe delivery at the end of the day may prove insurmountable, said Jeff Lowe, general manager of Asian Sky Group, a Hong Kong-based aviation consulting company.

“You’d have to make it idiot-proof,” Lowe said. “From a height, a 5-pound load hitting anything is going to be fairly destructive, so that can never happen. The first time it does, the FAA will ground all these drones and they will never fly again.”

The research into delivery by drone is a reflection of the fact that some of Amazon’s most lucrative customers are members of its Prime program, which promises fast delivery.

96 warehouses

The company invests heavily in distribution and delivery, which made up the largest portion of Amazon’s expenses in the third quarter. Investors have endorsed the spending on capacity — the costs increased 35 percent to $2.03 billion — pushing up the company’s shares 57 percent so far this year even as it posts losses.

The company had 89 warehouses in 2012 and is planning 7 more this year. Amazon also unveiled plans in July to increase staff by 5,000 in 17 centers this year and is hiring 70,000 seasonal workers in the U.S. to meet holiday order demand.

Bezos showed the drones as the growth of e-commerce sales outstrips total retail sales. On Black Friday, e-commerce spending increased 15 percent to a record $1.2 billion as more consumers opted to shop from their couches rather than battle long lines at stores, according to ComScore Inc.

Amazon ranked as the most visited online retail store, said ComScore.

Online shopping is also anticipated to be heavy today, which is dubbed Cyber Monday for the number of Web deals that retailers offer. ComScore projected that Cyber Monday sales will increase more than 20 percent to about $2 billion.

| Pui-Wing Tam and Edmond Lococo, with assistance from Olga Kharif in Portland. Editors: Robert Fenner, Michael Tighe To contact Bloomberg News staff for this story: Pui-Wing Tam in San Francisco at ptam13@bloomberg.net; Edmond Lococo in Beijing at elococo@bloomberg.net To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net 12-02-13 0105EST

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