An Interview with Michael Zahra, CEO, Drone Delivery Canada
Michael Zahra is the President, CEO & Board Director of Drone Delivery Canada and was previously President of Staples Business Advantage, President of Yahoo and President of Schlumberger RMS with prior positions at Motorola and Alcatel. Drone Delivery Canada is a publicly traded, disruptive, pioneering, technology company focused on designing, developing and implementing commercially viable, drone-based logistics systems for government, commercial, industrial & retail customers globally.
DM Magazine: A neighbour across the street asks you what business you’re in. How do you describe it?
Zahra: Contrary to the name, we’re not a drone company in the sense of selling a piece of hardware. We offer a turnkey drone solution, a managed service, so certainly drones are part of it. And we’ve got three in the fleet. There’s some other ancillary equipment like depots that the drones fly between, an automated battery management system and a software system that wraps it all together. So essentially, it’s a drone logistics solution that we provide as a managed service to a company who wants to then use it to do deliveries themselves, either for their own internal use, like a mine, or a mine might use it for purely for their own products. A courier company for example might use it as a service, or a transactional service for their customers.
DM Magazine: If that’s your answer to the neighbour —- and I imagine you’ve done a lot of these — what’s your pitch to an investor? They’ll obviously get the concept of managed services and the concept of drones, but where’s the uniqueness when you’re pitching an investor to say this is a once in a lifetime opportunity to put some money into a growth category.
Zahra: I’m not allowed to recommend the stock. But if I were talking to an investor, or talking to somebody who is talking to investors, or analysts, I would say number one, we’re of the opinion that there really isn’t anybody, certainly in Canada, who does what we do. I don’t want to sound arrogant or naïve but there really isn’t anybody, even globally, who has the breadth and depth of what we can do. Two, we are fairly far along in our solution and we are not a start-up, we are fully commercialized, and fully operational. We have routes flying as we speak; we’ve got a rather robust funnel of opportunities. Some we’ve announced over the last little while, as you can see on our press releases on our website. Three, I would say, if you do your due diligence on the industry overall, you’ll see this is not a fad. Some people might not think this industry has got legs and traction. We do, of course. The unfortunate and sad circumstances of the pandemic have raised the profile of the company as well as the industry overall. We’d rather not have had it happen this way. Our sympathies go to those affected so deeply. But it means the benefits of drone delivery are going to grow exponentially. It’s a nascent industry. So, it’s an opportunity to get involved in what I see as an inflection point where it’s starting to, or we envision it starting to rapidly increase.
DM Magazine: Give me a peek into the future growth of eCommerce and the use of drones. Amazon has publicized the concept of drones for last mile delivery, pushing the idea of getting packets dropped off by drone. It has certainly has that futuristic concept. Someday will we see a sky with drones crisscrossing across the country? Just how do you how do you see that playing out?
Zahra: Right now, we’re more focused on B2B. Regulations don’t allow for delivery and flying over high pocket, high density populations. For retail and consumer-based applications, the current ideal is moving goods from a warehouse to a store, because a customer waiting in the store for something they don’t have in stock is a B2B application when it helps the consumer. Deliveries to the home, I don’t know that I can see those happening in the next little while. They will start in rural areas. There might be things that are more healthcare and have social value, like defibrillators and medical emergencies versus a widget delivered to homes, or a pizza delivery to the home five minutes faster. The way the industry is progressing is from remote to rural to suburban, mostly B2B.
And then we will definitely see urban and B2C home deliveries, but I think it’ll start with rural residential and more urgent things like healthcare, and then eventually, higher density areas, commodities and that sort of thing. Our industry is always governed by regulations and the technology is always going to be ahead of the regulations. It’s true for many industries. Ours has been evolving, starting in rural applications with smaller drones like the Sparrow. Our first projects were more remote. Then it migrated from remote to rural, and rural to suburban. Now larger drones, like the Robin and the Condor.
DM Magazine: Either way, it’s going to be a certainly a much bigger and larger and more interesting marketplace five years from now than today.
Zahra: Absolutely. And we can deliver cargo to a residential area today, from a technology point of view. The regulations don’t allow it but if you really want to push it out, there are a number of companies that are focused on it now, even some looking at doing unmanned flying taxis. Uber Elevate was one. I think they sold off that business unit to somebody else, but maybe we will see in our lifetimes. Most of those applications are quite a few years away, at least in Canada, in the US and in Europe. It’s quite a long time in the future where we’ll look up and see unmanned flying taxis.
DM Magazine: Can you explain your business model in more detail. How do you make money as a managed services company, how does that system work?
Zahra: At a high level, there are four use cases. Two existed before the pandemic, and the pandemic has actually generated two more use cases.
Pre-pandemic, the use cases were areas that where difficult to access. They are communities that are distant, for example, First Nations communities that are particularly remote and distant. We have a few projects like that, where access is difficult in remote communities, remote Indigenous communities, but also industries like mining. Mining tends to not be downtown Toronto, but in very remote areas. They need to move things around the mine’s operations or in and out of the mines. Oil and gas tend to be in remote areas, especially oil rigs, off the coast, we’ve got shore to ship applications — anything where access is difficult.
We have seasonal roads in Canada, creating major traffic issues for emergency delivery of blood for example. In Peel Region, we’ve done two defibrillator projects, where, outside of rush hour, it could take an ambulance five minutes to get somewhere but during rush hour, it could be half an hour to reach the same location. Lives could be at stake. There are circumstances where time is critical. So maybe you can get there, but you can get there faster by drone and in social applications like health care, time could be lives. So, where time is critical is number two, commercial or healthcare.
Number three, which is a result of the pandemic, is limiting person to person contact, but keeping the supply chain open. For instance, you may have a hospital campus that’s made up of multiple buildings. They’re moving things around buildings, they’re moving things back and forth between medical testing labs, they’re moving things back and forth to a senior’s home etc. And you want to prevent cross contamination. Or it could be a first nations community and they’re particularly susceptible to the virus because of a variety of healthcare related issues. So they want to try to self isolate. So there are instances where you want to prevent a virus coming into your community or you want to prevent cross contamination, these kinds of situations. Drones are perfect for that. It’s the first of the two that came to light as a result of the pandemic.
The fourth one is general disaster recovery and business continuity. So when events like this happen, people tend to dust off their disaster recovery and business continuity plans, and whether it’s a pandemic and natural disaster, an extended power outage or these sorts of things. They may realize they don’t have a backup to certain elements of the supply chain. Here’s a case where drones can be an element of disaster recovery, business continuity. It depends on who we’re talking to, if we’re talking to the government about delivering vaccines to remote communities, that’s one unique business model. If we’re talking about a courier company, they probably have last mile deliveries that are very painful, very expensive, or you’re not reaching a lot of last mile communities because you can’t economically. So last mile, first mile, middle mile to a certain extent, but last mile, first mile, cost savings efficiencies are a factor for logistics companies, or even potentially incremental revenue. Maybe you’re not going somewhere as less an LTL, or a courier company, and maybe now you could with drones, or maybe you could offer a premium service.
In retail, where your readers are more concentrated, there are some premium services that a retailer could offer.
So for instance, you forgot to buy a birthday present for your son or your daughter, you’re in Best Buy, and what you want is out of stock at that location. You could run around to a bunch of stores or you could try to buy it online and have it delivered late unfortunately, or for $10.00, they could ship it to you from the warehouse to the store right now while you wait and do your in store browsing. These are some premium services that a retailer could do.
There are a variety of applications like that and they vary from one extreme to the other, depending on who we’re talking to. Are we talking to a hospital, are we talking to a local courier company, are we talking to a mine, it really varies. So a client would come to us and explain that they’ve got these areas that are very expensive to deliver to and they want to help cut costs, be more responsive, maybe incremental revenue, or premium services, or areas which at the moment aren’t economical for deliveries. We look at how those use cases can work to put in a system, a system that serves your customers. Our clients would then translate our fixed monthly fee for managed services into a transactional fee, five bucks a pound, five bucks a flight, five bucks a kilometre, a fixed rate with clients who might use it regularly. That’s how our model becomes our clients’ model.
DM Magazine: Talk a bit more about the fleet of drones of various sizes, maybe just explain it just a little bit. Imagine you’re describing it to sell local sort of delivery service, it is a localized service to that extent. Do you envision that fleet size expanding to give you ever range ever growing capacity carry greater payloads than you’re currently moving?
Zahra: The first part of your question, our preferred model is to fly from a depot to depot, (we call the depot a drone spot) which is basically a mini warehouse, or a mini airport. It’s got access control, security cameras, and it is a very safe and secure environment. We can deviate from it, but many of the customers we’re talking to have very high value cargo. We could be moving raw diamonds out of a diamond mine, or monetary instruments.
They can be very high risk, like narcotics or pharmaceuticals. It could be something that’s a little bit of both like the vaccine and we need to make sure it’s safe and secure. We can do temperature control with all three of our drones too. We also recognize there are instances where we’re going to fly to a destination that does not have any infrastructure, like flying a defibrillator to somebody who’s having a cardiac arrest in the field. They’re not going to have a drone spot set up at every house.
There’s really nobody doing large scale residential deliveries today, mostly for regulatory reasons. At the moment, our focus is on business-to-business and rural, remote, and suburban. We have the ability to deliver somewhere where there is no infrastructure, so we call the depot to depot a drone spot, and flying to where there’s no infrastructure, we call that “Anyspot”.
We’ve done projects in Peel Region where an individual is having a cardiac arrest possibly in a rural community and an ambulance is going to get there in 30 minutes. For every one-minute delay, the likelihood of survival drops by 10 percent and in 30 minutes, the person is 300 percent more likely to die. If I can get a drone with a defibrillator to the location in five or 10 minutes, we can save lives. Obviously, there’s no drone spot at the victim’s home. The solution is that we fly to the home, lower to a safe altitude and drop a specialized medical box that has a defibrillator in it. Or it could be an EPI pen, it could be an insulin pen, a snakebite kit, etc. if you’re in a tropical country, it could be anything, then someone would administer that. So that’s an example of “Anyspot” where there is no infrastructure at the destination, humanitarian relief, etc.
DM Magazine: Remarkable concepts. Let’s come back to the commercial markets, to touch on the regulatory aspect of this before we finish this conversation, because that’s a key. You ran Staples for about sixteen years, and you were doing some business with Drone Delivery Canada as well. What was your vision at running business advantage for the role of drones within your business? Were you were playing with that idea at that time? And, and the second part, now that you’ve been in this in this role for a couple of years, what did you learn that might have changed that initial vision that you had for how it can help Staples.
Zahra: It was actually a North American initiative, not just in Canada, and at the time, we were looking at a number of automated systems and automated robots within the warehouses similar to what Amazon does with Kiva. At Staples, we had a lot of customers who were rural or remote, First Nations communities, coastal communities, and even non First Nations Communities that happened to be distant. We were looking at the drone logistics three years ago. We actually did the first drone-based eCommerce delivery in North America from a real company to a real customer for a real order. I am pretty sure we did the first real one in North America. We were looking at it from a thought leadership point of view, examining efficiencies down the road for logistics, because we had a couple of hundred of our own trucks.
We also heavily relied on the services like Purolator and Canada Post in a variety of LTL (Less Than Truckload) and owner-operator types and large and small couriers for applications that were outside the high-density areas. It made sense to look at drones, but we ended up not moving forward with it for a variety of internal reasons. But the courier companies that we used at Staples are certainly ones that we are currently talking to.
DM Magazine: In terms of a customer segment, a significant one for you is logistics providers. You already have some of them since it’s just an extension of what they do.
Zahra: Absolutely. We are in conversations with all of the logistics companies, the big ones, the small ones, Canada Post and other postal and delivery organizations globally. DSV is an example of a project that’s running literally as we speak. That’s a very large global logistics company. We had some LOI’s (letters of intent) announced recently with various companies such as Apple Express, etc. Some of them are three PL, some of them are very large logistics, LTL, or trucking kinds of companies, logistics companies and last mile and first mile are a big segment that we would address.
DM Magazine: You’re a nascent industry, emerging, there’s got to be a lot of category building that has to go on here in terms of writing an understanding of the market capabilities itself, never mind your advantages as a business. But it strikes me that those logistics providers all must see the value proposition quite clearly.
DM Magazine: Is the business case an easy one for you to present? Is it more of saying to potential clients the future is going to catch up with the concept sooner rather than later, so be prepared for this new world that we’re entering? What’s the pitch to them? Is the business case easy to make?
Zahra: It depends on who you’re talking to. We’re limiting our conversation at this point strictly to logistics companies. They need time to analyze their data, and some of these large logistics companies deliver to hundreds or thousands of communities and they have to work through their data to see where there is an opportunity to cut costs, and where are their pain points, where’s their incremental opportunity, and that sort of thing. So, there is a bit of economic modeling that we work with them to do. That’s part of the exercise. Then looking for the use cases that fit within the regulations, finding what makes sense for us and for them. Nothing is a slam dunk. You still need to go through the exercise. But, to your point, depending on who we’re talking to, it’s obvious that there’s an opportunity. Some want to do it immediately, some are very visionary and progressive, DSV is very much an early adopter, thought leaders, industry leaders. And then there are others where there might be use cases, however, they’re cautious. They don’t want to be first necessarily. So it really kind of varies on how progressive the company is.
DM Magazine: You describe yourself as a managed services logistics company and not as a drone delivery technology company. Why that distinction? Why not see yourself as a technology company with a proprietary advantage?
Zahra: The reason we describe ourselves as a logistics managed service is to differentiate ourselves from somebody who’s selling drones, because there are companies who sell large drones for cargo or inspection and security with moving sensors, which we can do as well. But they’re just selling hardware. On the small consumer equivalent, it’s like buying a small toy DJI drone. We want to differentiate ourselves from people who are just selling hardware, because there are those who sell just a drone that individuals use to manually fly it around their farm or their mine for inspection or mapping or other applications. That’s not what we do.
DM Magazine: Right. So the proprietary technology aspect is that it actually enables you to do the deliveries effectively. Is that correct?
Zahra: Yes. All of the intellectual property is ours. We’ve got multiple patents today and expecting more to come that are that are pending. So in that regard, the IP is the secret sauce, whether it’s the hardware, which is ours, or definitely the software, which wraps it all together.
DM Magazine: There are competitors indirectly and directly but you have first mover advantage here. What’s your statement to the marketplace? You’re the only company that does this? I’d be curious to know who your main competitor might be on the horizon, which you’re up against.
Zahra: I don’t want to sound naive to say we don’t have competitors, or we won’t in the future or, that we’re the only game in town. It depends on how you define a competitor. Is a small local courier a competitor to FedEx? In some way, but probably not on FedEx’s radar to worry about that courier’s future. Maybe those couriers take one percent of their share, but they aren’t competitors. There are people who are, I would say more dabbling in this industry and still piloting and experimenting. We segment the market based on sizes of the drones, as well as the vertical markets like mining, oil, gas, healthcare, etc. If you look at the small drone — such as Amazon or Google Wing to use them as an example — they are in a very, very crowded commodity space where they’ve got a drone that moves two kilograms for seven miles or something like that. That’s cool, It makes for a wonderful YouTube video of dropping off a coffee and muffin, it’s lowered on a string in a little cardboard box, however I don’t know if that’s going to cut it for temperature controlled vaccine delivery going 200 kilometres. So are they a competitor? Not really. There are a lot of companies in that crowded space. I would say these are not just my words, this is what I’ve heard from regulators and other countries, and government officials who have come to visit. They say we’re probably three, four or five years ahead of our closest competitor because the difference is, a lot of our competitors have decided to focus on the drone, (which is ultimately a commodity) and not the system. I wouldn’t call Purolator a truck company because they’ve got lots of trucks. Purolator would never say their trucks are their competitive advantage.
So, for us, the drone, to a certain extent, is our advantage, Purolator would say it’s their artificial intelligence. It’s the logistics, it’s the people. It’s the network they’ve designed, it’s the customer relationship. For us, it’s the whole solution. From the beginning, we took a solution approach as opposed to a hardware approach. We’ve got more breadth of hardware but we’ve also got more depth of what we can do.
DM Magazine: Given everything you’ve described, it seems to me you’re selling reliability, adaptability. What are the key words you would use to summarize effectively what you’ve been describing. This idea of scalability, that you can adapt to any given set of circumstances, and with complete confidence know that the product is going to get delivered reliably particularly in situations where there perhaps is a perishable date to something or whatever the circumstances may be. What would you describe is the essence of your brand?
Zahra: When you mentioned those first two words, I was going to add scalability and you added that, so I think that those three would be accurate. I would say flexibility as well, because there are people who are operating in this industry doing a fantastic job in very niche applications. There’s a company that operates in Africa, they do blood delivery, from a central location to remote hospitals. It’s a big drone, a fixed wing that gets shot out of a catapult, and drops the cargo, it doesn’t land. You only have cargo moving in one direction, it flies back, and is caught in a big net. That’s very good for what they do, however, I don’t see that operating in an urban environment where you need cargo moving in both directions. There are organizations which do a very good job in a very near narrow niche. That’s why I think flexibility. And when I said in the beginning, like nobody has the breadth and depth that we do.
DM Magazine: You got a head start, in many respects, is that a sustainable advantage for you for now? Or are you looking over your shoulder, anybody that might come along and sort of try to emulate that? Is your proprietary system going to give you that edge going forward?
Zahra: Any tech company, in our position is going to always move forward. We’ve got in-house-engineering, we’re always doing R&D and we are always looking forward. One of your questions you asked was “What’s after the Condor? Will it be longer range and heavier payload?” Absolutely, we are working on things that are longer range and have heavier payload than the Condor. Although the Condor itself is very much a game changer in the industry globally, we’re not arrogant enough to think that we don’t need to continue moving forward. We’re a tech company. We’re always making enhancements to existing solution elements, as well as what’s next.
DM Magazine: And you’ve got a pretty good partner in Air Canada cargo. They can presumably help quite a bit. That relationship continues to evolve, I presume?
Zahra: We signed a 10-year deal with them about a year and a half ago, so we are about 18 months into the partnership. They did their due diligence on other players in the drone industry. They’d been looking at the industry for a while and we think this is it going to take off, no pun intended. They’ve done the competitive analysis that you mentioned, and then chose us exclusively. They don’t deal with anybody else in the drone space. Definitely they bring to the table a lot of expertise and a global network for opportunities for us. It’s a great partnership.
DM Magazine: The regulatory framework comes from Transport Canada and I gather they are progressive in working with you. Give me a sense of current state and how that’s likely to change going forward. Just the regulatory restrictions, if you will.
Zahra: We have a very long standing relationship with Transport Canada and to a certain extent NavCanada, but it’s Transport Canada who writes the rules. We’ve got people on our staff that are ex Transport Canada, ex FAA, ex NASA, ex military, a broad range of experts who allow us to do the right things that the regulators want to see in Canada and globally. We’ve flown in the U.S. as well with FAA a couple years ago. They all genuinely want to move the industry forward. They’re coming out with new regulations to clarify other applications. They’re talking to us about what can we do next, to push the envelope to gather data and these-sort-of-things. They are very data focused, as they get more and more data and more and more level of comfort than they, for lack of a better word, relax the regulations to help the industry as a whole move forward. We’re not just building the business, we’re actually helping to build the industry. They see this as an industry that is around to stay and going to grow. So they need to evolve with it.
DM Magazine contributing author Steve Shaw spoke with Michael Zahra for this interview, a long conversation about the many aspects of drone-based delivery and logistical services. The interview delved into aspects of these services which extend beyond the pure commercial aspects of customer-driven retail operations and examined the role that this brand new industry can have in improving the lives of Canadians by extending medical services and speeding up the movement of products across the country in general. We thank Steve and Michael for the insights and the added coverage. Steve Shaw is Chief Strategy Officer for Kenna.