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Economic Implications of the Coming Drone Delivery Revolution

By Oded Carmeli

Yariv Bash is the CEO and Co-founder of Flytrex, an Israeli drone delivery service that is already operational in both North Carolina and Texas – dropping thousands of burgers in people’s back yards. Yariv also has a truly amazing life story. In 2011, he co-founded the non-profit SpaceIL that competed in Google’s Lunar XPRIZE. Following a skiing accident in 2017, Yariv awoke from a coma as a paraplegic in a wheelchair. And, two years later, the Beresheet lander crashed on the surface of the moon, becoming the 1st private mission to reach it. moon. “I like to say that I’m the only person in the world to crash on two heavenly bodies: the Earth and then the moon”, he jokes.

I sat down with Yariv to talk about the future of drone delivery, and what that future might entail for both the global and local economies.

What is Flytrex?

“Flytrex is NOT a drone company. We don’t sell drones; We USE drones to give consumers an end-to-end on-demand delivery solution. The customer downloads our app, puts in the address, orders dinner – and we take care of the rest. We’re just like Wolt or DoorDash. The main difference is that Doordash doesn’t make its own mopeds. We make our own drones – the electronics, mechanics, everything. So, we’re two startups in one: we’re DoorDash, but we’re also Boeing – in that we’re certifying our drones with the FAA”.

How does it work?

“We set up a drone station at the local mall. Someone orders McDonald's, we have a human that collects the burger, runs 200 meters, or a few hundreds of feet, and attaches it to the drone – which then drops it off in their back yard. Starting next year, the drone will simply hover outside McDonald's, lower a cable, and the McDonald's employee will tie the burger to the cable”.

Why not use an existing drone as a shelf product and then upgrade it to your needs?

“That’s exactly what we did when we just started off, but the FAA told us at some point: ‘if you want permission to fly all over the US, it needs to be your drone, right down to the nuts and bolts’. And we said, okey – challenge accepted. We go through the same licensing process as if we were building a commercial airplane. As far as the FAA is concerned, we’re Boeing. It’s an ongoing process, but I believe that in less than a year from now we’ll get the permits to fly wherever we want, nationwide”.

Let’s talk about the current operation. You’re already the biggest drone delivery service in the US.

“We have four drone stations in North Carolina and one in Texas, and they’re very much operational – 7 days a week. Here: [Yariv shows me the back-office app] someone just ordered Sloppy Joe’s. Here’s another buzz, meaning that the order is already being prepared. And if scroll down and look at previous orders, this one was delivered, this one was delivered, and here you see that was a problem – so we brought them their food with a car”.

So you do use cars when necessary.

“Yes, because we don’t sell drones – we sell food”.

How much does it cost you to make a drone?

“I’d rather not say, but it’s one order of magnitude cheaper than any other licensed drone. Something like a few thousand dollars per drone. The main challenge is to make it cheaper, like with Beresheet – we’ll launch a mission to the moon, but cheaper. At the end of the day, we need to license an aircraft, but one that delivers burgers for 5 dollar per shipping. When you order a meal via Wolt, the delivery guy doesn't show up in a Mercedes. And DoorDash doesn't bring you pizza in a FedEx truck. You need a very specific tool that is just right for the task. The same goes for the company itself”.

What do you mean?

“Well, it’s not like UPS is going to buy a thousand mopeds and start competing with DoorDash. It’s different partnerships, logistics, customers. Even within the drone delivery business you need to focus on one solution to one problem. There’s an amazing company called Zipline. They raised half a billion dollars to make drones that deliver live-saving medication in Africa. For 50 dollars, it will fly up to 100 km and drop the meds right in front of the hospital. But it doesn’t make sense to use Zipline for pizza delivery”.

How many drones do you have per delivery station?

“Two or three. We are currently limited to one nautical mile, or 1.85 km. A few weeks ago, the FAA gave us the go ahead to double that range, but I believe in step-by-step. Keep in mind that we’re advancing on three fronts here: regulation, technology, and operations. Now that we have the regulatory approvals, we have to make sure that the technology is suitable and that the people operating the system can cope with the increase in orders. Take Holly Springs, NC, for example. We have a drone delivery station there. If we grow from one nautical mile to two, we’ll double the range but quadruple the area: from 2,500 houses or 10,000 people to 10,000 houses and 40,000 people. Before we quadruple the number of orders, we want to make sure that our system and people know how to fly that many more drones at the same time. we don't want the customer to have a bad experience because there was no drone available”.

I understand that this is a service that cannot work in a city like Tel Aviv or New York.

“True. My market is private homes, meaning the suburbia of North America, Western Europe and Australia. But that’s a HUGE market. In the US alone, two-thirds of the population live in private homes. That’s is 82 million back yards, and that’s where the user experience gets much better with drones. If you live in a shared building, we will have to ask you to go up to the roof or go down to a street corner. Who wants that? People order in because they want to stay in their underwear and watch Netflix”.

DoorDash is also more expensive in small towns, because you can’t deliver the food with a bicycle.

“Exactly. The delivery services in suburbia don't use mopeds or bicycles, they use a car. It’s insane when you think about it: you move a one-ton car in order to move a single burger. Which also means slower service and higher costs than in the city”.

How much does it cost to order McDonalds in a town like Holly Springs?

“As high as twice the price of the meal. And companies like DoorDash double dip: they charge the customer but also take up to 30% commission from the restaurant. And I can understand why: a human being needs to drive around in a car! And that person has to pay commercial insurance on the car, something that DoorDash is starting to enforce – because otherwise there might be liability issues. But if you order the same burger via Flytrex, you’ll get your food faster, hotter and cheaper. And the restaurant also gets a cheaper and better experience. We actually only realized it in retrospect, but the restaurants consider Flytrex a direct connection to the customer – because there is no human in the middle that the restaurant doesn’t control”.

What do you mean?

“I mean, it’s a robot. Go on YouTube and you’ll see the craziest security videos of delivery people doing, well, anything you can think of. When you have a large enough operation, anything that can happen with human interaction – will. Our deliver guy is a robot. It won’t open your lunch and grab a bunch of fries. Its dog won’t sit on your food at the back of a pickup truck, and so you won’t get your burger all squashed with dog hair on the side. And people are loving it. More than 40% of all households in range of our station in Holly Springs have already downloaded the app and ordered with Flytrex”.

How is faster and cheaper food a game changer?

“For the customers and the restaurants, yes – faster and cheaper. For everyone else – less pollution, less traffic, less car accident. When you think about it, delivery drivers cause a lot of accidents, because they spend hours on the road every day, usually under pressure, while trying to multitask: navigating to the address while checking their app for the next order”.

What is the technological challenge in autonomous delivery drones?

“Autonomous drones are a walk in the park compared to autonomous cars. The sky is basically a desert. The main challenge is to integrate into the existing airspace. In the US you have two kinds of airspace: restricted, which is near an airport, and unrestricted. Most of American suburbia is nowhere near an airport, so we’re dealing with unrestricted airspace. This means that you can get into your grandfather's Cessna and just take off. You don’t even need a radio. It could be a wooden Cessna, and you're allowed to fly it without notifying anyone. You’re only required to follow visual flight regulations, which means – you look to your left and to your right. But our drone can’t look left and right, and so it can't follow visual flight regulations. At the same time, the pilot of the Cessna can't see the drone, because it’s too small. The burden here is on the drone: we’re small, we’re new, we’re the ones that need to fit in. What do we do? Installing a radar system for 5 million dollars, or hiring a person to watch the skies every two blocks – these solutions work, but they’re irrelevant for 5 dollars deliveries. The question is how to solve this with cheap technological means”.

How do you solve it then?

“We’re working on some solutions, but luckily for us – our problem is pretty easy. Because we’re only interested in the 3-4 miles around the center of town, where you don’t get too many Cessnas. Right now, we have a human operator looking at the sky. Our operator is allowed to have two drones in the air at the same time, and in the next version there will be four drones up at the same time. The operator doesn’t have a remote control or anything, only a tablet. With the press of a button, the operator can bring the drones back to the station or make an emergency landing”.

But how is that scalable? You’ll need a pair of human eyes in every town.

“We’ll replace the person with an autonomous sensor, be at acoustic, optical, thermal, or radar. These sensors won’t go on the drone itself, because that's less room for the hamburgers. Instead, it will watch the sky and alert any drones up there of incoming aircraft. But you’ll always need a pair of human eyes, just in case something very unusual happens”.

Isn’t it risky to have thousands of dollars’ worth of drones land in people’s back yards? Do people try to steal them?

“They can't, because the drone only takes off and lands in our stations. The drone lowers your order via cable at a height of 82 feet, about 25 meters. You could take a shotgun and shoot it – but that's between you and the sheriff”.

But you can pull on the cable.

“You can’t. It will automatically detach from the drone. We actually have a patent for our automatic detaching system. Look, at the end the day our drones are designed to serve the average customer. I don't expect the average customer to watch a two-minute tutorial video on drone safety. My customers put in their credit card number and their address – they don’t even have to put a dot on a map – and we take care of everything else”.

Who are your biggest competitors?

“Most people will say Amazon, but that’s not true. I would love for Amazon delivery drones to start operating first thing tomorrow morning – they will only help educate the market. Amazon is not my competitor because Amazon will deliver products from Amazon warehouses. They won’t bring you Chick-fil-A. Not to mention the world of retail. Amazon is huge, but relative to the entire American retail market – it’s tiny. Think of groceries from the supermarket, shirts from Banana Republic, Phones from Best Buy. If you could get your next iPhone in 15 minutes from the nearest shopping center, and it's also cheaper because you don't have to move a whole truck from a faraway warehouse – then why wait for Amazon's Next Day delivery?”

What about Google?

“Google, or Wing by Alphabet, is our most serious competition. They applied for the same FAA test program like we did. And simultaneously, in Australia – they’ve already made more than 200,000 deliveries. It doesn't matter if you are Google from California or Flytrex from Tel Aviv: it takes years to license a plane. And justifiably so. Look, at the end of the day, commercial aviation today is incredibly safe, especially in the US. And you want to keep it that way. You don't want to go back to the 1960s”.

You can’t compare the damage from a Boeing 747 crash to that of a small, unmanned drone.

“Right, but the FAA predicts that there will be 10 times more drones than airplanes in the sky. And you don't want a drone to crash into someone's house every other day”.

So, it’s is faster, cheaper, less traffic jams, less air pollution. Great. But how does drone delivery shape our economy in the long run?

“Long term, drone delivery is part of the instant gratification revolution. Whatever you want – you can get it now. There’s really no next step after drone delivery, well – maybe just teleportation... Remember the nineteens? Catalogs were the kings of America. You would get a catalog in the mail, pick up the phone or send a postcard to order, and a week later receive the product you ordered. Nowadays, if it's not next day delivery – what the hell, right? And within the cities, it's already down to two or three hours. Drones take it to another order of magnitude: just 15 minutes for delivery. If the product is in the mall near your house, and a lot of the stuff you want you can find right there in the mall, boom – you get it in 15 minutes, sometimes 10. This revolution will change our mindset. You’re sitting at home and watching an episode of your favorite show, and there’s an ad for a cool shirt that one of the characters is wearing – you order the shirt and get it before the episode ends. You can even order the shirt in three sizes, try them on, return two with the drone and keep one – all within 15 minutes of even thinking about it”.

And what will that do to the economy?

“Drone delivery are going to revive real estate. Remember ‘location, location, location’? With drone delivery, brick and mortar stores will be able to give a better value proposition than Amazon. Amazon has huge distribution centers that are, say, 50-100 miles from you. The truck is optimized: it leaves the warehouse in the morning, and sometime during the day it drops off your package. Amazing, right? But if you go to Flytrex, you'll get it from the mall 3 miles from where you live in just 15 minutes. That’s a game changer. And suddenly chains like Best Buy can give a customer experience that Amazon can't. I don’t think Amazon will go out of business; the big logistics centers will deal with the long tail. But what most people want is probably in a shopping center right next to them. Best Buy has, I don't know, 10,000 items, but that’s the 10,000 items most people order. And if you want something special, then you’ll go with Amazon – because it has millions of items. In other words, drone delivery will reset American retail, giving hope back to brick and mortar stores”.

And small business.

“Right. People are thrilled to buy local. And if the service is better and it helps the community – wow, that’s two in one. When McDonald's sends you burgers with Doordash, you can be sure that they don’t pay the normal 30% commission. Because it's a huge chain with bargaining power. On the other hand, your local Chinese restaurant does. And suddenly Flytrex comes along and saves them whole dollars on every order, making a real difference in the lives of your neighbors”.

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IMO Truly pie in the sky...


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