Amazon's Drone Program Is Really Just A Kick In The Pants To UPS And FedEx

Amazon's ballyhooed aerial drone delivery program, "Primer Air," is really just a feint.

It's not really about bird-sized quadricopters that will soon land boxes on front doorsteps - within a half-hour. It's more about putting pressure on the logistics giants, UPS and FedEx, to get their acts together.

That's the view of Morgan Stanley Analyst Scott Devitt, who covers consumer Internet companies.

"I would take the drones as a skunk works type of project for Amazon," but one with a strategic agenda, he argues in a video distributed today by Morgan Stanley.

It makes a lot of sense for Amazon, "to have initiatives that are in place that create an incentive for the (shipping) incumbents to actually accelerate investment in their own businesses."

In other words, Amazon is threatening FedEx and UPS with aerial drones that would cut them out of the delivery chain so that they'll innovate and invest more in their ground- and air-based shipping, to make it faster, maybe with drones of their own, and more reliable.

At BI Intelligence, Business Insider's subscription research service covering all things tech, we recently dug into the business ramifications of commercial unmanned aerial vehicles, or UAVs. While Prime Air may be a skunk works for now, shipping and retail companies would be wise to start preparing for the beginnings of a commercial drone industry:

• American regulators plan to phase in commercial drone flights beginning in 2015, starting with limited flights of small drones weighing 55 pounds or less.
• Retail and e-commerce - along with the related logistics and shipping industries - arguably have the most at stake in the wide deployment of UAVs. Taking their cue from Amazon, all the big shipping companies - FedEx, DHL, and UPS - are researching drones. FedEx and UPS were roundly blamed for late Christmas deliveries this year, so Amazon's pressure on them will only build.
• But there are few industries that wouldn't potentially be touched by drones, especially on the enterprise side.
• Currently, military applications dominate the global UAV market, but commercial applications will quickly ramp up over the next 10 years, particularly after 2020.
• Privacy and safety concerns still pose the risk of chilling commercial drone flights in many markets, but if UAVs are rolled out gradually we believe the benefits of commercial applications, such as environmental monitoring, will ultimately win public opinion over.

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