Silicon Valley's Hottest Innovations 2016

Parcel from the Sky

Matternet is all set to bring alive the concept of autonomous deliveries through its unmanned aerial vehicles

Utopia in Greek means non-existent and it’s just coincidental that Andreas Raptopoulos, a native of Athens, is striving, in his own way, to create a Utopian society where access to essentials and resources is no longer the privilege of a chosen few. Though altruistic in his intent, the 42-year-old is taking an entrepreneurial and not a philanthropic approach to tackle the issue. 3511, Edison Way — home to a modest cubicle-less office-cum-R&D workshop — is where Raptopoulos, along with a 20-member team, is busy developing small Unmanned Aerial Vehicles (UAVs) that could redefine the future of transportation.

But drones were not what Raptopoulos, who pursued aeronautics in Greece, had on his mind when he moved to the UK. “I wanted to study design to see how art and science could come together to make tech more relevant and with a user-centric design,” says Raptopoulos, who learnt industrial design engineering at Imperial College and the Royal College of Art. During the 10 years in the UK, he founded two startups: Aylo, a research and engineering workshop, in 2001, and FutureAcoustic in 2006, which created an adaptive acoustic technology for the intelligent sound environment, which was later licensed to the likes of Herman Miller, and Sony among others. It was around 2010, that Raptopoulos got enamoured by robotics and dreamt of creating a self-driving aerial vehicle that could transport humans. Realising the engineering challenge involved in the project, Raptopoulos was contemplating on what he would do next. But as luck would have it, in 2011, the idea got a fresh lease of life during a 10-week entrepreneurial program at Singularity University in California. “Even before we could make aerial vehicles for humans, our idea was to show that it was a safe affair, which meant flying cargo would be far easier than transporting humans,” says Raptopoulos. Digging deeper into the subject what caught Raptopoulos’ attention was the fact that one-seventh of the world’s population lacked access to roads. The thought that began to build was: what if a new vehicle could be created that didn’t require aggregation of goods but could ship even small packages instead of a whole lot? What instead of flying one big cargo plane, there could be thousands of autonomous vehicles on demand? “We felt why not use a network of UAVs to move physical objects just the way the internet carries small packets of information through various routes,” says Raptopoulos, who ended up setting Matternet in 2011. This was the time when Amazon and Google were still not in the picture with their plan of drone deliveries. “A lot of people thought the idea was crazy,” he says. But futurist Ray Kurzweil and entrepreneur Peter Diamandis, founders of Singularity University, backed the revolutionary idea: a drone can travel in a straight line and, moreover, it is unencumbered by traffic unlike on-road deliveries. Soon, Matternet landed in SU Labs, the startup accelerator of the university.

In a year, Matternet got a chance to prove its technology when it carried out the first pilot for health camps in Haiti, which had been hit by a severe earthquake and in the Dominican Republic. “We carried out operations in rural and urban areas, in Santo Domingo, and Port-au-Prince. We wanted to test different hypotheses of how the system would work, and it was very successful,” says Raptopoulos. Around the same time, Jeff Bezos, CEO, Amazon announced that Amazon was going to use drones for deliveries. “That kind of gave a legitimacy to what was till then seen as an outlandish idea,” smiles Raptopoulos, who for the first time showcased the technology to a wider audience by landing a drone on-stage at a TED event in 2013. Matternet ended up raising $2 million in 2014 from the likes of Andreessen Horowitz, Alchemist Accelerator, and rapper Nas. In subsequent rounds, the funding rose to $13 million. A recent investor in the company is Bryan Johnson, who sold Braintree, an online and mobile payments provider, to PayPal for $800 million in 2013. From the proceeds, Johnson launched OS Fund with $100 million to support inventors such as Matternet. “It’s very clear that autonomous vehicles will redefine transportation and the combination of an exceptional team like Matternet and a macro trend is where an enormous value is created,” says Johnson.

Meanwhile, as he kept doing the trials, Raptopoulos was increasingly convinced that he was on the right track. In the tuberculosis-hit Papua New Guinea, Matternet teamed up with Doctors Without Borders to transfer TB diagnostics between villages. During the two weeks when the trucks got trapped, the UAVs navigated without a hitch. Also, according to a study by Singularity, the price of a network of 50 base-stations and 150 drones was fixed at just $900,000 in Maseru district of Lesotho in Africa compared with $1 million for a 2 km, one-lane road. Matternet’s recent experiment with Unicef also validated the efficiency of drones. The project involved delivering blood samples of newborn infants from faraway health clinics to a centralised hospital at Lilongwe in Malawi for analysis. The whole process, which usually took 18 days, was cut down to hours by the UAVs. The $160,000 contract from Unicef involved 2 UAVs for two weeks. Though the experiment showed the utility of drones, the cost was something that Unicef still finds steep. “It’s still more expensive to use a drone in Malawi than it is to pay somebody to take (supplies) on a motorbike,” Christopher Fabian of Unicef’s Office of Innovation and Ventures, was quoted as saying. Though Matternet had provided the technology on a cost basis, Raptopoulos knows he has to scale the affordability wall. “When you look at what is more valuable: a human life or cost, the answer is crystal clear. But when you have a health ministry that is looking to make every dollar spent count, then it’s a tough choice,” says Raptopoulos, who is now focusing on the logistics space in three broad categories — e-commerce, healthcare, and campuses (corporate, hospital or industrial campuses).

Flying figures
Initially, Matternet began with a UAV that could carry 2 kgs (4.4 pounds) over 10 km with two ground stations 10 km apart. Today, the UAV called the M2, can fly less than 5 pounds with a volume capacity of 3 litres over a distance of 20 kms aimed at covering large swathe of cities. A proprietary cloud system through a smartphone app guides the M2 along with a secure route in approved airspace at low altitude — between 50 and 100 meters above ground – avoiding tall buildings, infrastructure, and populated areas. Though Matternet is looking at increasing the payload over a period of time, Raptopoulos mentions the statistics from Amazon, which states that 86% of packages shipped are below 5 pounds. Matternet is not looking at selling drones but is instead planning a lease model where it will charge a monthly or annual fee. “Our objective is not to be the operators. We are good at technology and we want to train the clients on how to do it because they are good at operations,” says Raptopoulos. Depending on the usage pattern, the drones can be retired every year. “We are still learning. Assuming you take 10 hours of flying everyday, gives you 3000 plus hours in a year with scheduled maintenance. If it’s a rainy place or a city with high pollution, it will be different,” says Raptopoulos.

But what makes the prospect exciting is that M2 costs 24 cents a delivery per 10 km. Instead, drones just need to beat the cost of private couriers, which cost at least $10 to $50, even within dense urban areas like San Francisco. In fact, Matternet believes that it has a strong case for on-demand delivery. For instance, Amazon’s on-demand delivery is five to ten times that of M2 costs. 

Whether Amazon would end up using services of operators such as Matternet is still not clear, but Raptopoulos feels in some markets or segments, Amazon would use M2 drones and in some cases, it would act as a competitor. “For example, in Germany, Amazon would use Matternet drones and in other markets they will say, ‘we will go solo’. So, right now, no one really knows,” says Raptopoulos. But the only big glitch in Matternet’s growth plan is the absence of regulations for drone logistics in the US. While Matternet wants to use autonomous drones, the Federal Aviation Administration (FAA) rules require a human operating the drone within the line of sight and autonomous means no line of sight. To create a culture of autonomous drone delivery systems, the FAA has to put in place an air traffic control system specifically tailored to unmanned vehicles. Though a team from NASA is developing a drone traffic management program of its own to advise the FAA, it is expected to take some more years before a clear picture emerges. 

But that is not preventing Matternet from showcasing its wares beyond the US border. The Menlo Park-based startup last year entered into a partnership with Swiss World Cargo and Swiss Post. “Central EU is the biggest market and has been faster to open to us than the US because its smaller territories have navigation authorities which can quickly make up their mind,” quips Raptopoulos, who roped in Oliver Evans, formerly the chief cargo officer of Swiss World Cargo, as the head of global business development. The company has also tied up with a hospital in Europe to transport diagnostics. “By having a lab in one hospital and by creating a rooftop to rooftop link, we have eliminated the need to have a second lab. It’s the same for medicines, you can have a central stockroom and then distribute everywhere you want,” adds Raptopoulos. 

In an aim to tap into the pure-play logistics segment, the Daimler-owned Mercedes-Benz has tied up with Matternet to create a drone-integrated delivery van called Vision Van. The German carmaker, known for its luxury brands, last year sold over 300,000 mid-sized commercial vans worldwide. Aimed at addressing the last-mile segment, the delivery van will see drones delivering the payload to a stationary vehicle with a driver. “Imagine for a 30-minute delivery the package will fly from the warehouse to a van closer to the customer’s location. The package will be left on the van by drone and the driver will deliver the same package to me. This arrangement doesn’t require any change in behaviour, nor does it change the footprint around the neighbourhood,” explains Raptopoulos. Though it’s just a concept car, for now, Mercedes-Benz, which has also invested in Matternet, would be looking to employ this technology around the world. Volker Mornhinweg, head of Mercedes-Benz Vans, mentions: “The intelligent automation technology connects the entire process, from loading and transportation by road, to delivery to the consignee. This makes it easier for the deliverer to do business and rapidly reduces the delivery time for end customers.”

Soaring high
For now, Matternet is looking at selling 100 UAVs by 2018. “It’s still early days. The company right now is not built to scale but to figure out the R&D problem,” admits Raptopoulos, who is looking at raising fresh funds when Matternet is ready for commercial production. For now, the company wants to focus on the logistics and healthcare market to achieve the scale that fetches him the volumes and also will make the technology feasible for humanitarian causes. “Today, the iPhone does not cost a million is because it is sold in billions. Similarly, we too, believe the same future holds for Matternet,” opines Raptopoulos, who predicts UAVs will become feasible for a wider audience after it hits a million vehicles. Concurring with him is Johnson of OS Fund who feels it’s just a question of when. “The world is bottlenecked by roads while we have all this open space just above to move physical goods. Autonomous vehicles will become mainstream a lot faster than most anticipate because the societal gain, by people, companies, and government, will be substantial.” Besides, Ravi Belani, managing director of Alchemist Accelerator, believes Matternet is uniquely positioned. “Matternet is building the full system; not just individual drones, which is significant and non-trivial,” says Belani, adding that Alchemist may invest if there is room to take “our money.”

Despite all the optimism, given that regulations are still to be framed in the US, which by far remains the most important market, the flight ahead for Matternet appears a long one. Raptopoulos though is ready for the long haul. “We had given ourselves a decade, we are halfway there. It could well take another decade but that’s the case with tech. It’s non-linear, slow to start and but takes off after it hits an inflection point,” sums up Raptopoulos.