On this week’s episode of Fortune‘s Leadership Next podcast, co-hosts Alan Murray and Ellen McGirt talk with Zipline CEO Keller Rinaudo Cliffton about building the largest commercial drone delivery system in the world. Their wide-ranging conversation covers: the reasons Zipline launched by partnering with countries that are “consistently underestimated”; the company’s new home delivery technology; and, according to Cliffton, why “the way we solve humanity-scale problems is with engineering and technology.”
Later, Fortune senior writer Jessica Mathews joins Murray and McGirt to talk about the state of the drone delivery market and, even more importantly, where it’s going.
Listen to the episode or read the full transcript below.
Alan Murray: Leadership Next is powered by the folks at Deloitte, who, like me, are super focused on how CEOs can lead in the context of disruption and evolving societal expectations.
Welcome to Leadership Next, the podcast about the changing rules of business leadership. I’m Alan Murray. I’m here with Ellen McGirt, my co-host, who just keeps getting better and better and better. Hi, Ellen.
Ellen McGirt: Hi, Alan. What a delightful introduction. Very zippy, one might say.
Murray: I got that—zip.
McGirt: Thank you. Our guest today is equally zippy, but actually might be changing the world. He’s Keller Rinaudo Cliffton. He’s the founder and CEO of Zipline, the world’s largest commercial drone delivery system. Since the company’s founding in 2014, Zipline’s autonomous electric aircrafts, smartly called “Zips,” have delivered hundreds of thousands of packages to people around the world, and it’s planning to complete 1 million deliveries by the end of 2023.
Murray: Yeah, that’s right, Ellen. I’ve been watching this company for almost a decade. Initially, they were delivering vital items like medicine and vaccines and personal protective equipment to people in remote African villages, which was a great way to test the concept. But they have big ambitions. So they started in Rwanda in 2016. They’ve expanded into Ghana, Nigeria, but also now in Japan, and in the U.S.
McGirt: It really is amazing. And believe it or not, I got the first ever pitch for what they were doing in 2015 in Rwanda while reporting a story for Fortune. So it was amazing to hear how far they’ve come. We got a chance to talk to Keller about how Zipline views its partnerships with the African countries you mentioned as just that—and that that’s important—that they’re partnerships. This is not philanthropic aid. This is not a gift. But before that, we also talked to Keller about the consumer delivery side of his business, which includes a massive partnership with Walmart that started in 2021.
Murray: eah, Ellen, that’s right. I mean, the day may be coming when we all have Zipline drones coming to our doors with vital packages. Their consumer delivery business is expanding. We actually had to sit on this interview for about a month, because Zipline had some big news they were waiting to break, and it just came last week. They announced four new domestic delivery partnerships in the U.S., including three regional health care systems and Sweetgreen.
McGirt: That’s amazing. I’m looking forward to having my Fortune magazine delivered by Zip sometime in the future, too.
Murray: Right to your door.
McGirt: Right to my door, that essential print information. All of this though is a pretty major step towards having these little Zips delivering everything we need to our backyards instantly, a lot of interesting implications and opportunities there, which Keller will get into.
Murray: And later in the episode, we’re going to hear from Fortune’s very own Jessica Mathews, who had the opportunity to go and see a Walmart Zip delivery in action in Arkansas. So she’s going to tell us a bit about that and share some more context about the drone delivery market.
McGirt: She’s amazing, and we’re going to learn a lot from Jessica. But first here’s our conversation with Keller Rinaudo Cliffton of Zipline.
Murray: So Keller, we’re big fans of what you’ve been doing. You recently reached a half million deliveries, drone delivery, you’re saving lives in Africa. But tell us the origin story. You started this in 2014. Tell us what was going on. How did you get going?
Keller Rinaudo Cliffton: You know, our backgrounds were in automation, robotics, and software. And it seemed like there was a huge amount of technological innovation happening, but there weren’t that many really cool products being built that were actually impacting normal people’s lives. So we always kind of felt like, if we could take some of that technology that you see in academic robotics labs and then apply it to problems at global scale that could have a big impact in people’s lives, that’d be a great thing to focus on.
The more we learned about automation and focused on automation, it seemed so obvious that logistics was the right place to start. Logistics is this massive global industry that, if you’re in the richest billion people on Earth, you tend to sort of just take it for granted that it works well. And then if you’re not in that category, 7 billion people on Earth have bad to no access to logistics. And we felt like there was a big transformation coming in logistics toward zero emission, autonomous 10 times faster, new modes of delivery, and that if we were going to build that kind of logistics system, we wanted to build the first logistics system that would serve all people equally.
Murray: Keller, you started in Africa and you started in health care, which in retrospect, turned out to be brilliant, right? I assume you are the world’s largest autonomous drone delivery company.
Cliffton: By several orders of magnitude, yes.
Murray: No one’s even close. And so the question then is okay, it was a very smart move. Are you limiting yourself to health care in Africa, or where do you go from here? I mean, this is potentially a huge market, this last-mile delivery market with autonomous drone delivery. What is Zipline’s ambition?
Cliffton: Yeah, you’re right, Alan. I mean, for the first seven years of the company’s history, you know, health care has always really been our bread and butter. But interestingly and again, you know, taking Rwanda I mean, Zipline, then launched in Ghana, Nigeria, Cote d’Ivoire, we actually just had our first commercial flights in Kenya two days ago. We also operate now, scaling quickly, in the U.S. and Japan. We leaned into those opportunities. The fact that Rwanda invested early and led the world being a role model showing how this technology can be used to save lives. Now, they want to apply that same technology and infrastructure to all these other national priorities, and we’re incredibly excited to support those efforts.
Murray: And so just to follow on that, you didn’t necessarily start in Africa. But you did start in Africa. Why Africa, is the answer to that question?
Cliffton: Well, once we knew that we were focusing on logistics, you know, we knew it was going to be hard to get regulatory approval to build this kind of a system. And it was pretty clear to us that we needed to focus on the most important use cases out there if we wanted customers who’d be willing to take that initial risk with us building something like this. And if we wanted a regulator who would support it. We wanted to focus on a country that had a public health care system so that immediately ruled out the U.S. And we had a sense that it would probably be a small country that would move quickly, and so we ended up in 2016 partnering with the government of Rwanda. Our initial goal was to serve every hospital and health facility and deliver all medical products in the entire country. But at the time, the minister of health pushed back and she said, “Look, just do blood. You know, here are 21 hospitals. Deliver blood to these 21 hospitals and prove that that can work.” And the reason it was a good idea is that blood’s really hard, from a logistics perspective. You have all these different types, platelets, plasma cryoprecipitate, it’s packed red blood cellsjust a total logistics nightmare for the health system, and 50% of transfusions were going toward moms with postpartum hemorrhaging, and 30% were going toward kids. So in 2016, where everybody thought, you know, this was never going to work. We were told by every expert out there that we spoke to in global public health care that this wasn’t going to work. But luckily, this one minister of health believed in Zipline at that time, and we started to begin to delivering to those 21 hospitals. And since then, Zipline has expanded from 21 hospitals to about 400 hospitals and health facilities across Rwanda. We expanded from delivering just blood to all medical products, now a wide variety of other products on top of that, and then we expanded into seven more countries. So today, Zipline serves about 3,400 hospitals and health facilities. It’s become the largest commercial autonomous system on Earth of any kind. And we’re on track to be serving 10,000 hospitals and health facilities by the end of this year, just based on contracts that Zipline has already signed.
McGirt: Wow, you know, I’ve been on reporting trips studying rural health systems in Rwanda, Malawi, and Nigeria, and I was actually there reporting a story on Bono’s work for Fortune. That’s a person I know you know well. So, I have a firsthand sense of how how complex this is, you know, from start to finish. And it strikes me particularly, when you’re working with health systems and governments, particularly post conflict or still emerging economies, that that’s State Department-level complex, right? It becomes bigger than logistics. Could you talk to us a little bit about—you’re nodding. Okay, you see, you see where I’m going with this—can you talk to us about what you needed to learn, or what you’ve learned about these kinds of complex partnerships?
Cliffton: You know, we’ve been lucky in that I think a lot of these countries have been perennially or, you know, just consistently underestimated. Like, I think so many people think that innovation, Oh, it’ll start in the U.S. and Japan, and then over time, it’ll trickle its way out to these other countries. That just isn’t what’s happening. And I think it’s kind of fascinating to see a lot of countries that are small, classified as developing economies, but they are willing to move fast. They’re super hungry for innovation and they know that to lead the world and catch up, they need to take risk and actually lead in new kind of transformational areas of technology. So, you know, in many cases, I don’t know if I have anything super smart, other than it’s just about partnership.
And when we started, I was talking to President [Paul] Kagame [of Rwanda] yesterday and we were kind of reminiscing about 2016. I asked him, you know, we were a team of 15 nerds then. Why on Earth did you make that bet on us? And he said, Look, if it worked it was going to be totally transformational for the country. And if it didn’t work, it wasn’t that big of a deal. And he was like, I thought it probably wouldn’t work but it seemed worth trying. And, you know, that is actually a sort of revolutionary attitude for a government leader to take. That’s typically not how governments work. And I think over seven years, that partnership has really blossomed. Today Zipline delivers 75% of the national blood supply of Rwanda, outside of Kigali, fully autonomously and instantly, as well as everything else, you know, infusions, transfusions, infusions, vaccines—we can talk more about that in a sec. But we’ve also, you know, they have all these other national priorities. We started focusing on childhood malnutrition with them. We started focusing on agricultural productivity and animal health care. We’re now a major deliverer of artificial insemination products in the country, as crazy as that sounds, for cows and pigs and chickens, because this is how you increase the productivity of farmers. They are building a new national postal service. We’re working with them to to do that on top of Zipline infrastructure. So this has been a seven-year partnership and I think it just all comes down to trust, and year after year executing against what you promised.
Murray: I’m here with Joe Ucuzoglu, who is the CEO of Deloitte and had the good sense to sponsor this podcast. Thanks for being with us and thanks for your support.
Joe Ucuzoglu: Thanks, Alan. Pleasure to be here.
Murray: So Joe, this new wave of business technology, artificial intelligence, Internet of Things, the ability to make intelligence out of data, is creating huge opportunities for companies. But a lot of the CEOs I talk to feel daunted by it. It’s like, where do they get the imagination to rethink their entire corporation? How do they deal with that?
Ucuzoglu: The opportunities are immense, particularly when you look at not just any one of these technologies individually, but the convergence of all of them collectively, creating the opportunity to truly transform business models. And I know it can seem daunting, but the reality is taking a first step in actually produces a huge benefit. Because what we’re finding is that many of the cutting-edge applications are not coming out of the corporate headquarters. They’re coming out of putting the technology in the hands of our people on the front lines. They find new and innovative uses, we then funnel them back up and leverage them across the entire client base.
Murray: Yeah, it really gets to the importance of a culture of innovation at the company.
Ucuzoglu: It is essential that our people feel empowered to take the latest and greatest and to find new and innovative ways to use it for productive purposes.
Murray: Thank you, Joe.
Ucuzoglu: Alan, it’s a real pleasure.
Cliffton: Everything that Zipline has been operating over the last seven years is really what we think of as our enterprise product. That’s a product designed specifically to deliver to hospitals, health facilities, and businesses. And obviously that product has scaled exponentially over the last couple of years. To put it into perspective this yea with that platform, we’ll do two times as many deliveries this year, as we did in all previous seven years of the history of the company combined. We’re doing about a million flights this year, and then we’re going to repeat that feat next year. So it’s in the middle of a really exciting, crazy exponential ramp. But all of our customers, you know, for the last four or five years has been very clear: There’s really this one fundamental capability that is needed, is very hard to do well, but it’s going to change the world when it actually exists and scales. And that’s automated home delivery. So all of the customers that we work with really want the ability to have, we often jokingly talk about it as teleportation. They want to be able to teleport products directly to customers homes 10 times as fast in a more cost effective way and zero emission. And so that is a big transformation that’s occurring. What we just announced is Zipline has spent the last four years quietly building this next generation home delivery technology. And there are a whole bunch of different customers in the U.S. and in a lot of the African countries that we serve who have already signed on to adopt this home delivery service and start delivering to millions of homes at scale, both across health care as well as other verticals.
Murray: Are we talking Walmart, Amazon, or do we not know yet?
Cliffton: Walmart is one of our biggest customers in the U.S. We’ve been working with them for about two years. In fact, Zipline has a distribution center set up in Bentonville in partnership with Walmart, and we’ve been operating that distribution center for the last year and seeing the customer response to instant delivery has just been completely mind blowing. I mean, it’s funny, we often joke, because we saw this in Africa and now we definitely are seeing it in Bentonville. You know we have this benefit of customers thinking it’s so cool and sci-fi. For about seven days they’re in complete amazement. Wow, you can press a button on your phone and have an autonomous aircraft deliver exactly what you need five minutes later. And then on day eight people are completely bored by it but they’re also totally entitled.
Murray: I want it now.
McGirt: Where’s my drone?
Cliffton: I’ve had a doctor look at her watch, and then look at me and say, it’s 30 seconds late, with a scowl on her face. Yeah, it’s amazing how quickly we as humans, we go from science fiction to entitlement in about seven days. And we’ve seen that exact same thing happen for a lot of our U.S. customers. You know, we have customers who are placing orders many times a month as families, they rely on it completely. It’s completely normal and boring at this point. But you know, we deliver 24,000 of the 29,000 SKUs of that Walmart store that we’re attached to. And yeah, it’s I mean, it’s it’s kind of amazing to see the level of adoption.
McGirt: Congratulations. That is good news.
Cliffton: Oh, thanks.
Murray: Yeah, Keller, two questions about this about the service, particularly now that you’re talking about moving into the U.S. starting in Bentonville. One is the economics. Like, when does it make sense? If you’re going to deliver me a life saving medicine or life saving blood supply, then obviously, that’s extremely valuable. If I say I need a new toothpaste, a new toothbrush, and I’d like it in five minutes, that’s probably not going to be a good case for drone delivery. So question one is when do the economics work for drone delivery? And then question two is you started in Africa because you thought it’d be easier to deal with regulators. When you get into Bentonville you’re in FAA territory. How is the regulatory issue working for you in the U.S.?
Cliffton: So you know, from a unit economics perspective, I think this is another one where people just don’t quite have an intuition for how much the system has scaled. You know, it’s seven years of operationally evolving and improving. All of Zipline’s mature distribution centers today are gross margin positive. And in fact, by the end of this year, Zipline on a continent-level basis, all the continents where we operate will also be fully gross margin positive on a continent basis, including our sort of young, nascent distribution centers that are still scaling and so may not yet be profitable themselves. You know, when you think about the big picture, I mean, yes, certainly, there’s a generally a higher willingness to pay for an emergency medical product being delivered to save someone’s life. But instant delivery is a very well understood market both in the U.S. and globally. There’ll be billions of instant deliveries done in the U.S. this year alone, and we’re using a 3,000 pound gas combustion vehicle driven by a human to deliver something that weighs, on average, five pounds. And this is quite insane. If you’re reasoning from a physics or first principles perspective. That is surprisingly slow, it’s very expensive, and it is catastrophically bad for the environment. So actually, already, the services that Zipline is operating across all these different verticals generally out compete on price alone, using a human driving a 3000 pound gas combustion vehicle to do the same delivery and probably shouldn’t be all that surprising that it does.
McGirt: I want to move into philosopher king territory a little bit here, Keller, if that’s okay with you. Alan, this is always his favorite part of these interviews. I learned when I was preparing that the precursor company to this, [hard to hear], which made a really adorable robot, like really just adorable, was originally a Kickstarter business, Alan.
Murray: Oh, wow.
McGirt: I know. We just talked to the CEO yesterday for this podcast. So it’s a wonderful legacy there. But you’ve been doing this for a while. You had one of the best demo days of the Seattle Techstar era. I remember that. And you were an exciting entrance. Unexpected, but you know, definitely part of the of the zeitgeist of last decade. I’m curious about two things. One is your extraordinary sense of purpose. You know, you’ve mentioned it several times. You’ve mentioned the environment. You’ve mentioned making sure that everybody has access to the critical things that they need. When did this become part of your personal operating principle? And when did you know that you could build a business on this?
Cliffton: One of the convictions that we’ve had since we started building Zipline was that working on something this hard, I mean, hardware is hard. It’s expensive. It’s risky. You sort of have these existential crises where you’re bringing a new product to market and you have to figure out manufacturing and supply chain and engineering and operations. The only thing that has really driven us, the thing that’s enabled us to build the team that Zipline currently has that, you know, has been able to deliver on these goals that everybody else thought were impossible, has been Zipline’s mission and the fact that we believe very strongly that the most important problems that humanity faces are not going to be solved with philanthropy because philanthropy doesn’t scale to serve 7 billion people. The most important problems that humanity faces are only going to be solved with technological innovation brought to bear by mission-driven for- profit companies. This is something that we felt very strongly about. And, you know, when it comes to something like logistics, healthcare logistics, building the first logistics system that serves all people equally, this is an area where profit and purpose are fully aligned. We always had these dreams that like, Hey, if we could, if we could make health care logistics better this, this probably would have a bigger, big impact on patient health. We never knew for sure, you know, the University of Pennsylvania just published a study a couple months ago showing that Zipline has been able to reduce maternal mortality at the hospitals we serve by 88%.
Cliffton: There’s a study in The Lancet from a year ago showing that Rwanda has been able to reduce its national blood waste rate by 67%, for example. So we’re just scratching the surface of starting to get to show the impact of better logistics enables these other major institutions that we depend on, like health care systems, to serve patients better, save money, save lives.
Murray: Which kind of leads to the obvious next question, Keller. I mean, you didn’t put a number on the total addressable market but everything you said indicates it’s massive, it’s huge. I mean, if, if it can be economic for all kinds of products, and the whole world wants instant delivery, and needs instant delivery would make lives better in so many ways. At what point does Zipline sell to a FedEx or UPS or a Walmart? Or even a manufacturer? Or somebody who can take you to scale faster? Or can you do it by yourself?
Cliffton: Well, the great news is, you know, Zipline has really not had to do things by ourselves. We’ve been able to partner with some of the most innovative governments and countries and companies in the world. You know, two of those companies you mentioned are customers to Zipline. So you know, both UPS and Walmart are two of our biggest customers. And, and so, I don’t think you know, we never think of it as we have to go it alone. The reality is, it is 12:01 a.m., when it comes to this industry. It’s so early, and I often joke with our team, you know, although we’re almost about to cross 40 million commercial autonomous miles. I think it’s easy to look what Zipline has already done and think, you know, that’s cool. That’s impressive scale. The reality is we’re going to look back on this in 10 years, and it’s going to seem so incredibly primitive. It will blow our minds that it ever worked at all. There is a huge amount of innovation and evolution that is still happening with the technology. We’re in the very first inning. And so to me conversations about selling the company or something like that, it’s just, you know, we’re having a lot of fun. We know exactly what the mission of Zipline is. Zipline has a lot of the best investors in the world backing us. And we do believe that someone is going to build an automated logistics system for Earth over the next five to 10 years. I think that that company is going to be not just one of the most economically valuable companies on Earth, but I also think it will have a tremendously positive impact on humanity as a whole. And so life is short.
Murray: Go for it.
McGirt: Before I let you go, I just want to circle back on the perfect sort of Zipline story, the delivery story for anybody who may not be fully aware of how it operates. So my setup is going to be I’m standing in a rural village in Rwanda, and the local health care worker needs something. What do they do?
Cliffton: The way automated logistics works, the way that Zipline builds it, we want it to be incredibly simple to use. There’s a lot of technological complexity that happens in the background. And not only does Zipline need to build autonomous aircraft and design battery packs, but we also have to design all the avionics, we have to write all of the software, the multi-vehicle deconfliction algorithms, the data logging the, you know, automated preflight checks, air traffic control software that we provide to regulators. Alan, you asked about the FAA. All of those things have to work. But at the end of the day, none of our customers care about any of that complexity. All our customers care about is teleportation. Does the thing go from point A to point B fast enough to impact a patient’s life or save a life or create an important opportunity for business? And so from from a customer perspective, this system really is as simple as pull out a phone, press a button in an app or place a phone call, and then we’ll deliver to your GPS coordinates, you know, somewhere between five and 45 minutes later, depending on how far away from our distribution center you are.
McGirt: My question goes back to the underestimated innovators out there that you mentioned. I was so happy to hear you mentioned them that you know, there’s all kinds of people around the world who don’t have pedigree access. They don’t even have ramen money or the vibe to get to pattern match with a with an investor. What do you think needs to happen in the investor ecosystem to make sure that the next great idea out there doesn’t get lost in the shuffle?
Cliffton: It’s such an important point. And, you know, a lot of our partners, for example, you know, some of the countries we work with in Africa, you know, you constantly hear this refrain of we want trade, not aid. Trade, not aid. I think this is something that the people in the U.S. haven’t quite gotten, like through their heads, which is, you know, these countries want economic growth, economic independence, you know, they want jobs, foreign direct investment, technology and entrepreneurship. And I think that the reality is, you know, even some, when Zipline was starting in the early days, I think a lot of people said, well, you know, are you going be able to hire like the right kinds of teams? Are you going to be able to get access to the talent that you need in these countries? That bias was so far from the reality. I mean, the operations teams Zipline has been able to build across Rwanda, Ghana, Nigeria, Cote d’Ivoire, Kenya, are not only as strong as the operations teams we’ve hired in the U.S., some of the people leading operations in the U.S. we pulled from our Africa teams because our African teams are actually the ones who know how to operate this technology at scale, and have been doing so for the last seven years. So it’s not even a matter of equality, it’s a matter of, you know, these countries are leading the way. They are the paradigm for how technology is being applied to the problems that are most important for humanity to solve over the next 10 to 20 years.
Last time I checked, and maybe I have these numbers a little wrong, but there are about $4 trillion of foreign direct investment happening in the world every year. And almost none of that is flowing into these countries that actually have a lot of the problems that are most pressing and urgent to, to solve at a humanity level. You know, I read the other day 75, like something like 75% of births over the last over the next 50 years are going to occur in Africa. Isn’t that mind blowing? So I think we have this sense that like, oh, that’s for philanthropy. So if you’re starting a technology company, let’s focus on serving, you know, rich people who happen to live on the coasts of this one country or something like that. But the reality is, the way we solve humanity-scale problems is with engineering and technology. And by taking the you know, the smartest people graduating from the best schools and applying them to these humanities scale problems. I’m not saying it isn’t important to go and help a search engine sell like .001% more ads. I mean, someone has to do that, too, I suppose. But what I know for sure, is we have got to get the smartest minds of my generation, of the next generation focused on these important mission-driven humanity-scale problems. And there’s a role for investors to play because if we start to show that you can actually build valuable technology companies serving these kinds of markets, solving these problems, then capitalism is ultimately the driving force that’s going to enable these solutions to scale and serve billions of people.
Murray: It’s so impressive, I have to say. You came to Fortune Brainstorm Health in the early days. Maybe it was 2015 or 2016? When you were just really getting your first Rwanda projects off the ground. Really impressive to see what you’ve done and to imagine where it might go. And thank you for articulating it so well. You are changing the world. And as you said, you’re just at the very, very beginning of what can be done so keep it up. We’ll be watching. We’ll have you back in 10 more years, and you can tell us where you are then.
Cliffton: It’s a big honor. Thank you for inviting me.
McGirt: So after talking to Keller, the Leadership Next team was curious to learn even more about the drone delivery market that Zipline is a part of—where it’s at where it’s going and what challenges it’s facing. So we sat down with Fortune senior writer Jessica Mathews. She reports on VCs and startups and writes Fortune‘s Term Sheet newsletter. She’s written about Zipline and the drone delivery market a few times. In late 2021 she actually had the chance to visit the airport in Pea Ridge, Arkansas, where Walmart dispatches deliveries using Zipline’s drones. She explains how that visit came to be.
Jessica Mathews: Yeah, so it’s kind of a funny story. One of my friends actually was shopping at the Pea Ridge Walmart and saw some drones flying behind the store and called me up almost immediately after and said, “Hey, you have to come check this out. There’s drones flying around Pea Ridge, Arkansas.” I of course was super fascinated. So I reached out and asked if I could get a tour to see what they had going on. It was shortly before they launched their initial testing service with Walmart.
McGirt: Unfortunately, the day Jessica went to Pea Ridge, it was raining, so no drones were able to take off. This is because of visibility regulations we will talk about in a moment. But she did see a Walmart box being stuffed with healthcare and pharmacy items and attached to the drone before it went through safety checks and was set on the runway for its eventual takeoff.
Mathews: So Zipline was the first drone site that I ever visited. I’ve been to a few more now. So at the time I remember thinking the technology was just really exciting. But I think I was personally just really surprised at how far that the technology had come and what it was capable of. Because again, you’re not seeing drones actually delivering stuff to people on a large scale yet and so it still feels very futuristic, even though in a lot of cases, the technology is actually there, the drones are operational. It was just really exciting to get to see in person.
McGirt: So yes, the technology is there. And yes, the drones are operational. So why aren’t we all seeing little Zips flying by our window dropping packages into our backyards? What’s preventing consumer drone delivery from going mainstream?
Mathews: There’s definitely a few pieces to this. But the biggest one for sure that any drone company would tell you is regulation, and that’s been the biggest hurdle for years. So the FAA, which is the government’s aviation regulator, has been developing drone-specific regulation for several years now. Because right now drones operate under the same rules as airplanes, even though they’re autonomous. They don’t carry people. They’re way lighter. They’re just not as risky as airplanes. But at the same time, they’re operating in airspace, so they have to meet the same regulations. That being said, the FAA has issued some exemptions and certifications that drone companies can apply for to be able to not have to follow all of the airline regulations that are out there. That being said, it’s still really onerous process to go through all the regulation. There’s still a lot of limitations that are basically keeping companies from able to scale this. The biggest one would be BVLOS, which means beyond visual line of sight, and there’s rule that you can’t fly a drone beyond a person’s visual line of sight unless you have a specific exemption. Really until the FAA comes out with widespread drone-specific regulation, which they’re working on now and should be out in the next few years, we’re really not going to have it become an everyday part of life.
McGirt: Jessica also mentioned that companies like Zipline have better luck scaling outside the U.S. because America is very protective of its airspace and the FAA’s regulations are more restrictive than other countries. The FAA’s timetable for establishing new regulations is unpredictable. But demand for drone delivery is high and a lot of companies are investing money to meet that demand. Zipline has big competitors like Matternet, Amazon, and Wing which is Alphabet’s drone subsidiary.
Mathews: I think the biggest opportunity is specifically around delivery of health supplies right now. In particular to rural communities where it’s just harder to access them by roads, whether it’s flooding or if there’s a natural disaster. There’s also just a huge opportunity for businesses in terms of efficiency and their supply chain. If you can get trucks off the road and put things in the air, there’s a lot you can do for reducing emissions, which is a big priority for a lot of businesses right now. And also, if you can get to the point where you can have a scalable drone operation, then theoretically you’re able to operate a whole fleet with maybe one person managing the whole fleet, and they can do so completely remotely.
McGirt: There’s also a bigger question of whether scaling drone delivery is good for society, for people or the environment.
Mathews: I mean, I think one thing that people are concerned about is exactly that, the business efficiency. I mean, is this going to reduce jobs? And there’s also questions about noise and whether it’s going to disrupt people, and whether drones could potentially disrupt wildlife.
McGirt: Ultimately, Jessica was clear on the most exciting and profitable opportunities for drone delivery, and those opportunities don’t include having your dinner dropped from the sky onto your doorstep.
Mathews: So, as exciting as it might be to think about getting your Ben & Jerry’s delivered to you on demand and dropped off in your backyard, the most exciting things about drone technology are the opportunity that there is to save people’s lives. And that would be delivering emergency supplies after a flood or a tornado to places that are really hard to reach or dangerous for people to reach. Or also things like delivering organs or delivering blood transfusions. I think that’s also where there’s probably more money to be made at this point in time, too, because the demand is just higher and the need is greater. A lot of people get excited over things like oh, my Domino’s Pizza is coming in the sky. DoorDash and other food delivery services have made it pretty clear it’s really hard to make money in the instant delivery space, and so it might actually be more lucrative for drone companies to work with bigger businesses and hospitals and to actually work in trying to deliver emergency supplies and ways to ultimately do a better service to people anyway.
Murray: Leadership Next is edited by Alexis Haut. It’s written by me, Alan Murray, along with my amazing colleagues Ellen McGirt, Alexis Haut, and Megan Arnold. Our theme is by Jason Snell. Our executive producer is Megan Arnold. Leadership Next is a production of Fortune Media. Leadership Next episodes are produced by Fortune‘s editorial team.
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