BEIJING — In 2013, Amazon CEO Jeff Bezos used a 60 Minutes segment to demonstrate his company’s newest innovation: a drone that he said would be capable of delivering packages to a customer’s doorsteps within 30 minutes of an order.
Four years later, the so-called “Amazon Prime Air” has yet to get off the ground. Bezos has been stymied by federal regulations on commercial drone use, and approval will likely take at least a few more years.
That’s not the case here in China, where an Amazon clone called JD.com already has a fleet of dozens of drones that have carried out thousands of deliveries in the outskirts of Beijing and four other provinces. The drones started flying last year, and the company is already planning to massively expand the size of the fleet and number of delivery routes.
In the northwestern province of Shaanxi, JD.com has just gotten sign-off from the government to roll out heavy-load drones that can carry a payload weighing more than a ton.
JD.com’s drone program functions differently than the one Amazon hopes to enact. The company is not using the drones to deliver goods to people’s porches. Instead, they automatically fly along fixed routes from warehouses to special landing pads in rural villages, where local contractors for the company then deliver the packages to the customers’ doorsteps.
The large-capacity drones that the company is developing could also take food from rural farms to urban warehouses, according to Josh Gartner, the vice president of international corporate affairs at JD.com.
Drones are not the only realm in which JD.com appears to have surpassed Amazon. The company claims to have built the fastest delivery system in the e-commerce world, and says 92 percent of the orders placed by their 200 million-plus users are delivered on either the day they were placed or the following day. An Amazon representative declined to comment on how its own delivery stats in the US compare, but its default shipping options are slower.
JD.com’s speed in China is a useful reminder of the fact that while the Chinese tech industry is often criticized for simply copying Western technology, it’s also beginning to make serious innovations of its own. That’s in no small part because of the Chinese government’s involvement in economic life.
JD.com’s system is Amazon’s ... on speed
JD.com’s business model is the same as Amazon’s — it stores a vast assortment of merchandise in giant warehouses and then delivers things to customers who order them online. But JD.com’s CEO, Richard Liu, has gone significantly further than Bezos in building out the company’s delivery process.
JD.com doesn’t use the postal system or third-party shipping companies — it delivers everything itself using its own personnel and trucks. Amazon has invested in its own delivery truck fleet in recent years, but it still relies on the US Postal Service and shipping companies like Fedex and UPS.
Liu’s total control of the delivery process has sped things up to the point that his company has recently moved into delivering highly perishable food. People can use it to order high-end beef that they expect to eat that day.
One of JD.com’s major weaknesses has been its inability to quickly deliver items to customers living in rural areas that can only be reached by driving on dirt roads and winding mountain pathways. Deliveries in these underdeveloped rural areas can cost up to six times more than city trips.
Drones help tackle that problem. They soar over poor infrastructure in a fraction of the time and can reduce the cost of delivery by 70 percent or more, according to Liu. The drones automatically fly along certain paths and don’t require individual pilots. Instead, one person can monitor the flight paths of many drones simultaneously, in a manner akin to an air traffic controller.
Amazon tried to crack the Chinese market. It failed.
Amazon tried moving into the Chinese market by buying Joyo.com, China’s largest online bookseller, in 2004. Had it gotten traction and expanded, Bezos and his company could have potentially achieved the kind of near-monopoly status in China that it enjoys in the US — and perhaps prevented the growth of JD.com and other challengers.
But that didn’t happen. Amazon holds less than 1 percent of China’s e-commerce business, and it’s been that low for a very long time. Part of that is because Amazon couldn’t move as nimbly as its local competitors and didn’t fully understand the nuances of the Chinese market. Its ventures into e-books were ill-fated, for example, because the prevalence of pirated e-books means consumers were unwilling to pay for them. When it tried to move beyond selling books in the Chinese market, it developed a reputation for being more expensive than the other big e-commerce players.
But another element of Amazon’s abysmal performance in China is related to the failure of most Western tech companies there — endless spools of government red tape designed to strangle foreign competition. Chinese regulators and censors have a long history of harassing and slowing the advance of American tech companies, especially when there is a domestic counterpart that would suffer from their rise in China. Amazon is no exception.
The Chinese government doesn’t simply shield native companies to make sure they can catch up to the foreign companies that they’re inspired by. It also tries to help Chinese firms come up with innovations of their own. Beijing has an initiative called Made in China 2025, for example, under which private companies are provided with special grants, loans, and investment for making efforts to automate and innovate in their production processes.
Gartner described provinces in China as operating in some respects like states in the US; decentralization allows for more flexibility and experimentation with new policies. In the case of drones, rural provinces have been fairly eager to get on board. “Local governments are eager to encourage innovation and investment,” he said.
In the US, constraints on the use of commercial drones come from the federal government. The onerous restrictions are not an inherently bad thing. The prevalence of drones in US airspace raises huge questions about public safety, privacy, and the potential for unprecedented surveillance in American life. There should be a vigorous public debate about the potential perils of unleashing drones en masse into our skies — and what measures are needed in order to keep them under control. Even if the Federal Aviation Administration drags its feet a bit longer than it needs to, it seems better to err on the side of caution than to make a rushed and perhaps shortsighted decision.
But in the meantime, JD.com — and China in general — will plow ahead with drones more quickly than the US. Whatever you think of their strategy, it’s more than just copy and paste.