Digital disruption from delivery drones

vlad —  November 5, 2013 — Leave a comment

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It looks like Sydney will be the first place in the world to have commercially available courier deliveries via drones. A Sydney startup will deliver text books via automated drones. Dominos has also experimented with drone delivered pizzas in the past. In this post I’ll go through why I believe that delivery drones will usher in disruptive market innovations creating new opportunities for a variety of businesses while threatening old ones.


What’s a disruptive innovation?

The term disruptive innovation was born out of Clayton Christensen’s work at Harvard Business School and seeks to explain widespread changes to a market. Think about the car’s impact to the horse-drawn carriage market, DVDs to VHS Tapes or streaming music services to CDs.

In his many books on disruptive innovation, Christensen describes disruptive innovations as having certain characteristics, Christensen posits that they:

  • Unbundle integrated service offerings
  • Target non-consumption
  • Are low-end

I’ll go through why delivery drones do all of the above as well as having two, important additional characteristics in that it:

  • Pragmatically abstracts infrastructure
  • Is a platform

Unbundle integrated service offerings

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The Post Office’s operational model is integrated. They own the stamps you place on the parcel, the people and trucks that pick your parcel up, they own the boxes and offices you drop your parcels off at, they own the processing of the parcel to the right location and they own the delivery of the parcel at the end of the process. The system is integrated because right now it’s difficult for the system to work otherwise. Running a national post delivery network is complicated, expensive and not a market worth getting into unless you’re the post office.

Delivery drones will unbundle this system into modular components. Stamps are eradicated, pick up staff/trucks and drop off offices are replaced with drones, mail sorting is removed with software and delivery will also be managed by drones. Different businesses that add value at different parts of the value chain will be created and will unlock value in a business model that’s currently bound by logistical constraints.


Non-consumption

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I don’t know about you but I only currently get parcels delivered to three places; home, work or my neighbourhood post office. With delivery drones I could receive deliveries wherever I am. I could order an ice-cream on the beach and not have to leave my towel, better yet I would never have to line up to buy beer at a music festival ever again – though I’ll probably have stopped going to music festivals when delivery drones are in full swing!


Low-end

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Disruptive innovations usually begin targeting a low-value customer segment that incumbent businesses are happy to get rid off due to their relatively small profit margins. Slowly the technology gets better and moves up market – with every notch up market the incumbent happily gets rid of their least profitable customer segment to the disruptive innovation, eventually the technology becomes ‘good enough’ to service all customer segments on incumbents become obsolete. Christensen’s classic case study of this phenomena is in describing how mini-mills disrupted the steel industry.

Initially delivery drones will only be able to manage the delivery of small and simple items, as they get more technologically advanced they will move upmarket and potentially eradicate premium delivery businesses such as commercial and international freight.


Pragmatically abstracts infrastructure

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Amazon’s AWS removed the need for web developers to buy and manage a hardware server. Amazon’s ability to abstract a physical process (running and managing a server box) into a programmatic one enabled a cavalcade of innovation by offering elastic infrastructure on a pay-for-what-you-use basis. With delivery drones the infrastructure that will be pragmatically abstracted is staff, transport and office space enabling a swath of new businesses to flourish that cover ‘the other aspects’ of delivery management.


Platform

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Platforms are powerful because they create ecosystems comprised of multi-faceted value. The Apple app store and Google Play combined have had over 100 billion new apps downloaded since their inception they have reached this seminal number in just 5 years. The reason Apple and Google have been able to create such an active marketplace so quickly is that they have had a lot of help from the community of developers building on top of their platform and driving people to use their apps/the platform. Similarly, the unbundling of postage delivery through delivery drones will enable multiple stakeholders to plug in to the innovation to unlock new value.


Momentum

It doesn’t look like us Sydney-siders are far from beginning to experience the marvel that will be delivery drones, I’m personally looking forward to seeing how the affect our lives and if they deliver the disruption I believe they’re capable of.

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