Zipline: The World's Largest Drone Delivery Network PDF - Harvard Business School

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For the exclusive use of S. Alyahya, 2025. 9 - 7 2 1 -3 6 6 REV: MARCH 28, 2023 TARUN KHANNA GEORGE GONZALEZ Zipline: The World’s Largest Drone Delivery Network If you think about DoorDash and Instacart, they are using a 3,000-pound gas combustion vehicle driven by a human to deliver something that weighs only two to five pounds. That’s completely insane. Somebody is going to build the first automated logistics network and it’s going to be a $100 billion company. — Keller Rinaudo, founder and CEO of Zipline In September 2020, Keller Rinaudo, CEO and cofounder of the automated logistics startup Zipline rejoiced as he watched the company’s custom-built drone (known as a Zip) return to the fulfillment center in North Carolina after making a delivery at the Novant Huntersville Medical Center. Technologically this was not a big step for Zipline. Since its founding in 2014, Zipline had flown tens of thousands of missions in Rwanda and Ghana, delivering vaccines, blood, and medical products to hard-to-reach clinics. In the process Rinaudo and his team had developed an autonomous drone- powered logistics system to transport lifesaving supplies faster while reducing waste. This was, however, the first time the California-based company had helped save a life on American soil. Zipline operated the world’s largest autonomous logistics network, delivering to 2,500 healthcare locations that served 25 million people. Its drones had flown close to 4 million miles, completing 65,000 deliveries, and transporting more than half of Rwanda’s blood supply.1 The company had 300 employees across San Francisco, North Carolina, Rwanda, and Ghana. It had raised $233 million through a Series D round and was valued at $1.2 billion.2 In September, the company signed a deal with global retailer Walmart to begin testing on-demand drone deliveries. Zipline was soaring. As Rinaudo looked back on the company’s history, he thought about the next chapter. Should Zipline focus on expanding within the U.S. and other developed nations with established healthcare operations and regulatory bodies? Or should the company continue to grow rapidly in developing countries? When should the company consider expanding its delivery use cases beyond healthcare? Large companies, such as Amazon, Google, FedEx, and UPS, were investing in the space, but had yet to integrate drones as part of their everyday operations. Rinaudo believed Zipline had a three-to-four- year head start due to its years of experience making automated drone deliveries to real-world customers. How could Zipline ascend to the next level and become a new kind of global logistics company? Professor Tarun Khanna and Senior Researcher George Gonzalez (California Research Center) prepared this case. It was reviewed and approved before publication by a company designate. Funding for the development of this case was provided by Harvard Business School and not by the company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2020, 2021, 2023 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800- 545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School. This document is authorized for use only by Sahar Alyahya in 2025.  For the exclusive use of S. Alyahya, 2025. 721-366 Zipline: The World’s Largest Drone Delivery Network The Zipline Journey In 2012, Harvard graduate and former professional rock climber Keller Rinaudo began his entrepreneurial career by launching Romotive—a smartphone-controlled robotics company. He launched two Kickstarter projects that received over $280,000 in backing and raised $6.5 million in seed funding, but wanted the company to focus on a bigger market and a more mission-driven problem. The company went through a difficult transition as the other co-founders left, and Keller decided that Romotive should pivot. In 2014, robotics expert Keenan Wyrobek, software engineer Ryan Oksenhorn, and transportation consultant and Harvard classmate Will Hetzler joined Rinaudo to launch Zipline and refocus the company on healthcare logistics. Wyrobek recalled: I had spent seven years on ROS, Robot Operating System, which I created as a Ph.D. student at Stanford. Keller reached out to me and said he was at an inflection point with his company, where it could become a consumer electronics company; or change its focus to something new that was more impactful. I was exploring similar questions at that point of my life. Keller and I both have family in public health, so we went to talk to our contacts in Central America and Africa. They soon learned that millions of children and hundreds of thousands of pregnant mothers died every year due to a lack of access to blood.3 Rinaudo was inspired to take action after reading through medical logs he described as a “databases of death.”4 Wyrobek noted, “That’s when we decided to build what has become Zipline today.” Over the following years, the team reached out to several countries to explore potential logistics partnerships. Wyrobek explained: We started to work with five countries, but we were a company of only 12 people. We weren’t moving ahead effectively, so we had to pare down to two—Tanzania and Rwanda. Tanzania was the frontrunner. Everything about the deal was working well, even the political support, but the healthcare supply chain was not very well organized and it proved too much of a challenge. So, we had to pull out of that deal. Rwandan Blood Supply The team shifted its focus to Rwanda and collaborated with the government and local healthcare organizations to find ways to increase timely access to emergency blood supplies. Rinaudo explained the opportunity: “Blood is challenging because it has a very short shelf life and it is hard to predict demand before patients need it.” Every year, over 45,000 units of blood were collected in the country.5 Red blood cells had a refrigerated shelf life of 42 days; platelets lasted only five days; plasma and cryoprecipitate could be frozen for one year.6 He continued, “You are always trading off waste against access. To solve waste you want to keep the blood centralized. If you want to have lots of access, you keep lots of medicine at clinics. But if it expires it wastes a lot of money.”7 In 2014, there were over 170,000 cases of maternal mortality in Sub-Saharan Africa and the leading cause was hemorrhage.8 Rwanda had a population of 11 million, with almost half living under the poverty line.9 The country had five national hospitals, 36 district hospitals, over 400 sector level health centers, and 45,000 health care workers serving villages.10 (See Exhibit 1 for map of Rwandan hospital locations.) The country’s terrain consisted of mountains and valleys across over 10,000 square miles. Brittany Hume Charm, Zipline’s head of global health, described the state of Rwanda’s blood supply chain at the time: The blood system had been decentralized, so they had one regional blood bank in each of their five regions. Whenever hospitals needed blood, they would drive to the nearest 2 This document is authorized for use only by Sahar Alyahya in 2025.  For the exclusive use of S. Alyahya, 2025. Zipline: The World’s Largest Drone Delivery Network 721-366 regional blood bank. The blood bank might not have the products that the hospital actually needed. There are some blood types that are rarer than others and each different blood product has different storage requirements—some need to be frozen, others need to be held at 2 to 8 degrees Celsius, and some need to be kept warm and agitated. At the time, about 43,000 units of blood were collected from 450 collection sites and distributed to five regional blood centers.11 The cost to collect and store one unit of blood was roughly $80.12 Some medical products were distributed once every few months and medical staff at rural clinics had to make trips to the closest city via ground transport for emergency supplies. Via automobile, it often took over three hours to travel between Kigali, the capital of Rwanda, and a rural clinic; paying a delivery driver could cost from $6 to $12 per ground delivery.13 Healthcare workers usually drove to the capital to get medical supplies a few times per week. Additionally, in Rwanda, almost 90% of blood transfusions were used for emergencies.14 Rinaudo added, “Sometimes it’s impossible to get out to these hospitals and health clinics […] it’s always unpredictable and unreliable.”15 Drones were selected as the delivery mechanism due to the local road conditions and distances. “Our contract with Rwanda didn’t even mention drones,” said Wyrobek. “Drones were just the best way to solve the logistical problem of delivering supplies in that environment.”16 Drone Dilemmas Selecting drones as the delivery mechanism became the first of many technology-related decisions. The Zipline team’s next step was to find a drone manufacturer. Wyrobek recalled: I figured we could buy a drone made for a military use case and modify it to deliver packages. That was our plan for the proof of concept. Boy was I surprised when the best deal we got from a drone manufacturer was $200,000 per drone with a 200-flight warranty if we didn’t fly in any rain. In Rwanda, we would need to fly in the rain almost every day. I didn’t realize that the economics were going to be so insane. It was a humbling moment. With the drone industry being early in its development, the team realized that Zipline would have to custom build its own technology and delivery service. They considered designing either a vertical takeoff and landing (VTOL) quadcopter or a fixed-wing drone. A quadcopter drone usually had four helicopter-like propellers that allowed it to precisely take off and land anywhere. While it had the ability to hover and maneuver within small spaces, its battery life and range was limited. On the other hand, a fixed-wing drone design resembled a traditional airplane. Its wings generated lift, allowing for a more efficient flight once at cruise speed. A fixed wing drone had a longer range; however, take-off and landing required a dedicated runway or specialized equipment. (See Exhibit 2 for drone comparisons.) Wyrobek recalled: At the time Amazon, Google, and UPS were testing quadcopter drones. But we eventually decided to go with a fixed-wing drone due to flight efficiency. With the same battery pack, a fixed-wing drone could travel more than ten times farther than a quadcopter. That’s a big deal for customers that care about range and cost. Although, that dilemma caused a lot of tension. I probably spent a lot of my time for three years defending that decision. Building a fixed-wing drone introduced several logistical complications. The drone would require a slingshot-like launcher for take-off and a custom landing device. As a result, unless each destination was equipped with take-off and landing equipment, packages would have to be dropped off via parachute. “The equipment would be a win if we have high flight volumes because then we can have 3 This document is authorized for use only by Sahar Alyahya in 2025.  For the exclusive use of S. Alyahya, 2025. 721-366 Zipline: The World’s Largest Drone Delivery Network simpler planes and shared ground equipment costs,” said Wyrobek. “We assumed we could drop packages from the air with a parachute, but were terrified that customers weren’t going to love it.” Partnerships In 2015, Zipline raised an $18 million Series B round from Google Ventures, Andreessen Horowitz, and other angel investors.17 Paul Willard, partner at Grep VC and former aerospace engineer, recalled his impressions of Zipline: I was introduced to Keller by another founder, Adam Gettings, who said, ‘Hey, this crazy ambitious friend of mine is working on a drone startup and I don’t know anybody else in the Valley who’s ever designed an airplane.’ I talked to Keller and the aerodynamics part of what they were doing was very conservative. That gave me hope because I’ve talked to a hundred airplane startups who basically never worked around airplanes before and were trying to violate the laws of physics by putting aerodynamics on Moore’s Law or something. Zipline received $800,000 from The UPS Foundation (UPS’ philanthropic arm) in the form of a grant organized through Gavi, the Vaccine Alliance.18 Gavi was a not-for-profit global partnership between The Bill and Melinda Gates Foundation, UNICEF, World Health Organization, and World Bank, among others, with the goal of increasing immunization access. A UPS executive noted, “In addition to providing funding for this project […] we’re engaged to learn from it. It can teach us a lot about how we can expand the use of drones.”19 The grant was used to build the first distribution center. Test in the U.S., Operate in Africa The plan was for Zipline to build and test the drones in California, while operating in Rwanda. Rinaudo explained his vision, “Africa can be the disruptor. These small agile developing economies can out-innovate large rich ones and they can totally leapfrog over the absence of legacy infrastructure to go straight to newer and better systems. Meanwhile, most people who live in developed economies think that drone deliveries are technologically impossible, let alone happen at a national scale in East Africa.20” Not everyone agreed with Rinaudo’s perspective. He explained: Most investors thought we were crazy for launching in Rwanda first. We are held back by this preconception that all advanced technology should start in the U.S. and then trickle its way out to the rest of the world. Maybe that’s true for pure IT and cloud servers, but the reality is that when it comes to heavily regulated industries, getting started in the U.S. is incredibly difficult and slow. We did not have enough money to sit around in the U.S. and wait for regulatory approval. Sometimes it’s the smaller governments that have higher political will to take risk and do something new. With a smaller government, we were able to make decisions quickly and learn together with our government partners. Zipline’s team grew to about 40 employees and the company headquarters was located on a cattle ranch in Half Moon Bay, California—a coastal city 20 miles west of Stanford University and 20 miles south of San Francisco. Taking Flight in Rwanda In 2016, Zipline signed an agreement with the Rwandan government for an autonomous blood delivery system. Rwandan president Paul Kagame was known as the “digital president” who sought 4 This document is authorized for use only by Sahar Alyahya in 2025.  For the exclusive use of S. Alyahya, 2025. Zipline: The World’s Largest Drone Delivery Network 721-366 to make Rwanda the “Singapore of Africa.”21 He declared, “Drones are very useful, both commercially and for improving services in the health sector. We are happy to be launching this innovative technology and to continue working with partners to develop it further.”22 Rinaudo added, “We’ve been impressed with Rwanda’s vision for the future. In automating their supply chain using unmanned aircraft, Rwanda is investing in innovative technology that will improve public health.”23 In October 2016, Zipline officially began operating in Rwanda. Maggie Jim, head of strategic finance, spent the first year after launch in the field. She recalled: Before rolling out to all planned 21 hospitals, we served one hospital for three months just to make sure that we got everything right. You don’t get to mess around when you are responsible for the emergency delivery service of a nation’s blood supply. We started with the lowest-risk hospital— one located a two-hour drive from Kigali. Our distribution center was only a 20-minute drive from them, so worst-case scenario, we could deliver the blood via ground transport. We did that for three months, then slowly grew to five hospitals, then 12, and then finally 21 locations by the one-year mark. The centralized distribution center was in the Muhanga district and had a fleet of 15 drones. Its service area would cover more than half of the country and a future second distribution center would allow Zipline to reach 80% of the Rwandan population. (See Exhibit 3 for map of service.) The service made between 50 and 150 deliveries per day and was available 24 hours a day, seven days a week. Orders were placed via a text messaging application and deliveries were made within 30 minutes. All distribution center staff, including flight engineers, operators, and fulfillment operators, were hired locally. “We have anywhere from six to 15 people per shift, per distribution center,” said Israel Bimpe, global partnerships lead (based in Rwanda). “The fulfillment operations team is made up of one order taker, one packer, and an inventory manager. The flight operations team consists of two flight operators that manage the setup and launch of the drone, and one controller who manages aviation communications.” Establishing a new distribution center involved the construction of the warehouse and obtaining the proper permits. Operational costs were similar to logistics systems that used motorcycles, and could be broken down into labor (33%), aircraft parts (25%), facilities expenditures (25%), and general administration (17%). (See Exhibit 4 for average salaries in Rwanda.) The cost of capital of the company was comparable to other technology startups. (See Exhibit 5 for weighted average cost of capital by sector.) Zipline brought down the overall annual waste due to unused expired blood from 7% to zero at the hospitals it served.24 In addition to reducing delivery costs and inventory waste, Zipline enabled more efficient capital management. Bimpe explained: In many countries, medical product shipments occur once per quarter to every health facility across the country. Therefore, a small rural clinic might have to store three months of medical products—and the clinic has to pay for that medication up front. That capital could go towards improving patient care but instead is sitting on the shelves. We help change that to where they receive what they need maybe once a week. It frees up their space so the largest room in the clinic is not a warehouse, but instead a ward. Pricing Zipline’s contract was directly with the Rwandan national government. “We sign commercial contracts directly with the Ministry of Health and get all the facilities in their portfolio, so with Rwanda it’s 500 health facilities,” said Jim. “We bill the Ministry of Finance with one invoice every month and don’t have to go around to collect payment from each of the health facilities.” 5 This document is authorized for use only by Sahar Alyahya in 2025.  For the exclusive use of S. Alyahya, 2025. 721-366 Zipline: The World’s Largest Drone Delivery Network Generally, Zipline priced its service to be in the upper range of other slower and less reliable forms of ground-based delivery in the market. (See Exhibit 6 for local ground transportation fares.) It would often sell contracts for batched monthly capacity from distribution centers to reduce risk and demand fluctuation. Rinaudo explained the evolution of the pricing model: When we initially launched in Rwanda, we charged per flight. That wound up being a challenging model for a number of reasons. We were only delivering a few medical products at that time and every additional medical product required a value analysis that took six months. It was slow and invoicing our partners was a pain, so we ended up transitioning the model to an “unlimited” plan where we charged a fixed monthly fee per distribution center that guaranteed unlimited flights—with a daily maximum capacity of hundreds of flights per distribution center. Once doctors experience using the service there is no way they’re going back to the old way of doing things. The Aircraft Zipline’s “Zips” were fixed-wing, dual propeller drones. They had a 93-mile range with top speeds of nearly 80 miles per hour. Zips could fly in windy and rainy conditions. The fuselage was made of carbon fiber, aluminum, and foam. Its dimensions were 86 inches long and 130 inches wide, weighing roughly 50 pounds. (See Exhibit 7 for drone visuals.) Each drone could carry about 3.3 pounds of supplies (roughly three units of blood). Zipline engineers designed the onboard computers, battery management and power distribution systems, actuator controllers, GPS receivers, flight safety systems, and communications systems. The onboard computer was programmed with predetermined flight paths; it was housed in the battery pack, which used 144 off-the-shelf rechargeable lithium-ion cells. Ryan Oksenhorn, head of autonomy and member of the founding team, noted: Zips are put together in California and shipped to Rwanda. About 90% of the drone is developed in-house. For a lot of the components there are hobby grade, low-cost parts available, but they’re just not reliable. And then there are military grade parts that are extremely expensive. So, we design everything from the motors to the speed controllers, the entire body of the aircraft, all of the circuitry, and the entire battery. The first version that we fielded with customers was actually our fifth-generation drone. And the previous four generations were all rapid iterations on top of each other. We raced to build a solution that worked in the real world. The Zips are designed to be modular so we do a lot of maintenance in the field where they can assemble, disassemble, and reassemble. Initially, developing a single drone took a dozen Zipline engineers several weeks. Over time, however, the company’s manufacturing improved to produce several drones per day. The Flight Upon receipt of an order, a fulfillment operator packed the required blood into a temperature- controlled container. A flight operator then attached it to a paper parachute and placed it inside the designated drone. The drone was then connected to a 42-foot launcher and accelerated from zero to 70 miles per hour in a fraction of a second. (See Exhibit 8 for image of launcher.) Once airborne, the flight was completely autonomous. “Our drones take off with all the information they need to complete the mission safely without requiring any human input. The drone itself can fly where it needs to go, drop off a package, fly home, and land, all without needing to communicate with us,” said Oksenhorn. “If the power goes out or an earthquake strikes, that drone will still complete its mission.” 6 This document is authorized for use only by Sahar Alyahya in 2025.  For the exclusive use of S. Alyahya, 2025. Zipline: The World’s Largest Drone Delivery Network 721-366 The healthcare clinic received notification updates with the expected arrival time. As the drone reached the destination, it automatically descended from its cruising altitude of just under 400 feet to an altitude of 40 feet and released the container, which parachuted down to a preprogrammed location within a designated area of roughly 250 square feet. Wyrobek was surprised with how well the parachute delivery was received. He explained, “We had been worried, but I can’t tell you how much of a non-issue it is. Everybody was fine with it.” Parachute drop-offs eliminated the need for installing drone launching and landing equipment at each delivery destination. Landing and Flight Data After releasing the package, the Zip automatically returned to the distribution center, as determined by its preprogrammed flight path on the onboard computer. (See Exhibit 9 for photo of fulfillment center.) At the distribution center, there was a landing system that caught the drone by its tailhook and lowered it slowly. (See Exhibit 10 for visual of drone recovery system). Willard explained: Our first landing system was two deep sea fishing poles with a line between them that the Zip would fly through and grab. The system would bring it to a stop midair and then plop it down onto a bouncy house mat, literally. It was very low tech and the Zips missed the fishing poles a fair amount. The team later decided to build a giant catching robot called ‘Bob’ that bobbed up and down to grab the plane. It is much more consistent and allows us to greatly increase the throughput of the landing system. Upon landing, the drone was inspected and the battery was charged while downloading the flight data for analysis. Oksenhorn explained: We collect a range of the engineering information, such as the raw sensor data that the aircraft uses for decision-making that we use to understand the performance of their algorithms. We have GPS to help the aircraft figure out its position in space and air data sensors which allow us to measure wind speeds. We measure how fast the motors are spinning, how much battery draw we’re pulling, and how much energy is being used by each component. Another category of data that we collect is more on the business and operations side. For example, what is being ordered, where we are delivering, and our average time from receiving an order until launch. This is to help us calculate the efficiency and utilization of our fleet. Public Reception The launch of the Zipline service in Rwanda was celebrated with a public ceremony. Rwanda’s Minister of Information and Communications technology stated, “We believe that using cutting edge technology to allow supply chains to operate independently of existing infrastructure represents a huge opportunity for our country.”25 The uniqueness of the service also led to local interest. Willard recalled: There were dozens of people lining the fence of our operations in Rwanda all the time, just watching the Zips come and go. Women who had been saved in childbirth as a result of our blood deliveries began showing up at the base because they wanted to see how the technology worked. Our local Rwandan staff came up with a policy that they get a tour of the facility and if there’s an emergency call to get a Zipline delivery during their tour, they get to hit the button to launch the Zip. Seeing that still makes me cry. 7 This document is authorized for use only by Sahar Alyahya in 2025.  For the exclusive use of S. Alyahya, 2025. 721-366 Zipline: The World’s Largest Drone Delivery Network Evolution of Zipline By 2018, Zipline had completed over 4,000 deliveries of 7,000 units of blood. The company serviced roughly 20% of Rwanda’s intercity blood supply.26 “Rwanda is basically writing the history books of showing what’s possible,” said Rinaudo.27 The company also raised an additional $70 million from Katalyst Ventures, Andreessen Horowitz, Baillie Gifford, and Temasek Holdings. Zipline was then valued at $550 million.28 (See Exhibit 11 for timeline of major milestones.) With the new infusion of capital, the company continued to recruit talent and improve its technology. Zipline attracted team members from SpaceX, Boeing, Lockheed Martin, and Google, among other top institutions. Zipline began to move forward with plans to expand to other countries. Expansion to Ghana Zipline signed a reported $12.5 million four-year deal with Ghana in 2019.29 The UPS Foundation awarded a $2.4 million grant with facilitation support from Gavi to fund the upfront costs of launching the first few fulfillment centers in the country.30 The company opened four distribution centers with 100+ staff members and 100 drones, servicing 2,000 health centers and reaching an area home to 12 million people.31 Zipline planned for up to 600 daily flights, delivering up to 150 different types of medical products, including blood, vaccines, and antivenoms. Bimpe described: In Ghana, we worked with the health system to find ways Zipline could integrate into their existing processes—the flow of medical products, reporting, and money. It was challenging to come into a space where the status quo had been established over the past twenty years. We didn’t want to be a silo or parallel system. We worked hard to find the right way to onboard 2,000 healthcare facilities. You cannot just bring all of them online the same day. You have to ramp them up depending on demand and priority. We started with specialized tertiary hospitals, then secondary, and finally primary hospitals. The service in Ghana was officially the largest drone delivery network in the world. 32 That same year, Zipline raised a $120 million Series D round led by The Rise Fund at a $1.2 billion valuation.33 With the company’s success in Africa, Rinaudo soon began to explore opportunities to expand to the U.S. He noted, “Today, every citizen in Rwanda is within 15 minutes from access to key medicines, but we must remember that in the U.S. we have worst maternal mortality in developed world.” Hetzler added, “There’s an opportunity in the U.S. to take waste out of the system, to allow hospitals to lower inventory. Inventory can be held more regionally, so it’s a more efficient just-in-time management system.” Navigating the U.S. Regulatory Environment In the summer of 2020, Zipline partnered with Novant Health in North Carolina to launch a COVID- 19 response operation, involving the delivery of masks, gloves, and other protective equipment. The land for the distribution center, which was donated by the local NASCAR racing team, was located by the Novant Health Logistics Center in Kannapolis, North Carolina. Huntersville Medical Center, roughly 15 miles away, was the delivery destination. In order for Zipline to operate its drone delivery system in the U.S., it had to follow the Federal Aviation Administration’s (FAA) small unmanned aircraft regulations. These regulations required commercial drones to fly below 400 feet, not over human beings, only during daylight hours, within the visual line of sight of a designated operator (pilot), and had to weigh less than 55 pounds. The drone pilot was also required to obtain a remote pilot certificate. The existing U.S. regulations would 8 This document is authorized for use only by Sahar Alyahya in 2025.  For the exclusive use of S. Alyahya, 2025. Zipline: The World’s Largest Drone Delivery Network 721-366 limit Zipline’s ability to operate an autonomous system in the same way it did in Rwanda and Ghana. Dan Czerwonka, head of global regulatory affairs, explained: Presently for COVID delivery operations, we are operating under Part 107 drone rules, which was designed for flying basic camera or survey drones. It’s very limited. They don’t allow commercial transport of goods. Commercial transport of goods is strictly regulated by commercial air carriers. The rule says you cannot transport the property of a third party for any benefit. So, this only worked if legally Novant was transferring Novant goods between its own facilities and using Zipline as a vendor routing the service. In order to be able to make third-party commercial deliveries, Zipline also began the application to the FAA’s Part 135 Air Carrier and Operator certification. Czerwonka noted: We are working toward our Part 135 certification to become a full commercial airline. Delta and United are the type of companies that get that certification. It’s a really high bar because it was made for manned aircraft. It’s not exactly great for unmanned drones because there’s a different risk analysis involved. And we’re in a unique position because we are not only an operator but also a manufacturer. Usually, those are two separate companies. A manufacturer like Boeing is subject to a whole set of regulations that have to do with the airframe of the aircraft itself and how it’s manufactured. That’s a very long detailed process—it can take 10 years for manned aircraft. Beyond Line of Sight The FAA issued a temporary waiver (through the end of October 2020) to Novant, allowing Zipline to operate over populated areas and beyond the visual line of sight of a pilot-in-command. This short- term solution, however, was not scalable. Without a long-term approval, Zipline would not be able to scale its autonomous drone delivery network. Czerwonka noted, “People within the drone space see flying beyond visual line of sight flight as the holy grail. That’s when drones will have officially ‘made it.’” There was, however, a path that Zipline could take to receive full FAA approval: by developing a detect and avoid system. The FAA wanted to assure that unmanned vehicles could prevent collisions with unforeseen, low-flying vehicles. “We have built a detect and avoid system from scratch. No other commercial drone delivery company in the world has built anything like it,” said Czerwonka. “We’ve already done demonstrations with the FAA and are working on getting it certified in the coming months.” Rinaudo added, “Our detect and avoid system could be a standalone product.” He believed that many of the solutions Zipline was developing in-house contained the seeds of potential future businesses. Competitive Landscape In the U.S., Amazon, Google, UPS, and Walmart were experimenting with drone delivery solutions. While several of these companies already received FAA Part 135 certification, commercial drone deliveries were not delivering to real customers in their everyday operations. (See Exhibit 12 for overview of competitor’s drone operations.) Czerwonka explained: The only companies that got any permissions to fly are Amazon and UPS, which are just doing small trial pilots. Some companies are making headlines for getting an FAA approval to fly commercial deliveries, but if you look at the route, it’s a guy in a parking lot in a delivery truck and another guy standing across the street with a remote control. So that’s why for us it was a big deal when the FAA approved us to fly long-range flights. We officially have the longest commercial drone deliveries in the U.S. 9 This document is authorized for use only by Sahar Alyahya in 2025.  For the exclusive use of S. Alyahya, 2025. 721-366 Zipline: The World’s Largest Drone Delivery Network Rinaudo added, “Our customers aren’t buying a drone, they’re buying a service. So, even with infinite money it would be very hard to build our service in a lab. You have to learn by doing. You can’t develop algorithms in a lab and expect them to work in the real world. Our physical vehicle accounts for about 15% of the complexity of our system.” When asked whether he was worried about imitators, he responded, “We do have lots of patents but we’ve committed to only use them defensively since they’re used for saving lives. The more the merrier, but where is everybody else?” Walmart and Beyond: Ascending to New Heights By September 2020, Zipline had made over 65,000 commercial drone deliveries, traveling over 3.75 million miles, and was recognized by Fast Company, CNBC, and Inc., for its disruptive solution.34 The company also announced a partnership with Walmart to begin trials for an on-demand service that promised deliveries under one hour. Tom Ward, senior vice president at Walmart, noted: The new service will make on-demand deliveries of select health and wellness products with the potential to expand to general merchandise. Trial deliveries will take place near Walmart’s headquarters here in Northwest Arkansas […] Zipline will operate from a Walmart store and can service a 50-mile radius, which is about the size of the state of Connecticut. And, not only does their launch and release system allow for quick on- demand delivery in under an hour, but it also eliminates carbon emissions, which lines up perfectly with our sustainability goals. The operation will likely begin early next year, and, if successful, we’ll look to expand.35 Rinaudo added, “What we have now can cover most ecommerce deliveries. For example, 85% of Amazon packages are five pounds or less.” The U.S. Market Zipline was poised to further scale in the U.S., where the COVID-19 pandemic was pressuring government leaders to promote solutions that minimized human contact, particularly in healthcare. Rinaudo noted, “Our goal in the U.S. is to serve 85% of single-family detached homes in the next two and a half years, so there’s a huge operational effort underway to scale the technology as quickly as possible.” Scaling in the U.S., however, was a challenge given the regulatory environment. Czerwonka felt optimistic. He explained, “The best way to get regulators comfortable is to provide them with tons of information about your systems and operations. I learned in Rwanda that regulators often feel left out when they don’t know what exactly is going on. So, we work hand-in-hand with them as well as air traffic controllers any time we rolled out new technology.” International Expansion Given the nature of the U.S. regulatory environment, Zipline would need to decide how much effort to place on expansion within the country. Many wondered whether the company would be better off allocating its resources to pursue growth in countries where regulators might move faster. Zipline was in the process of planning future expansions in Africa, Europe, and the Middle East. “These countries all have slightly different regulatory frameworks and different appetites for innovation. We never want to bet Zipline’s future on a single country as each moves at a different pace,” said Czerwonka. “We’ve spent the last year trying to establish relationships and educate regulators on what we do and how our systems work.” How should the company choose which regions to prioritize? 10 This document is authorized for use only by Sahar Alyahya in 2025.  For the exclusive use of S. Alyahya, 2025. Zipline: The World’s Largest Drone Delivery Network 721-366 Scaling the Company As the team discussed potential growth opportunities, they knew the company was going to have to go through organizational changes to allow for scalability. Wyrobek noted, “As founders we’ve been averse to what I would call top-heavy startups. I see too many companies that have only 20 people and 18 of them are executives. That seems crazy. We have stayed small and hunkered down with a very flat company.” As Zipline scaled from a promising startup to the largest drone delivery network, it would have to rethink the way it conducted business. Being a flat, nimble startup allowed it to adapt and overcome regulatory and logistical obstacles; however, it would have to strengthen its processes and operations to achieve scale. How should the company accelerate revenue generation? Also, should Zipline continue to function as both a manufacturer and operator? Rinaudo reflected on Zipline’s strategy: There is one big question about our strategy. In the past, we didn’t build a distribution center until we secured a contract on a national scale, so we were guaranteed to be profitable. But if you look at UPS and FedEx, they don’t go and find one customer who pays for an entire distribution center. They build the distribution center first, then they serve thousands of customers, and it becomes profitable over the course of several years. To what degree should we be willing to fund the infrastructure for this technology up front? Rinaudo faced challenging decisions over the coming year. He knew key changes would be necessary in order for Zipline to fulfill its vision to provide every human on Earth with instant access to vital medical supplies. “Health logistics is a $70 billion market by just serving rich in world. It could be much bigger if we enable access for everyone,” he said. 11 This document is authorized for use only by Sahar Alyahya in 2025.  For the exclusive use of S. Alyahya, 2025. 721-366 Zipline: The World’s Largest Drone Delivery Network Exhibit 1 Map of Rwandan District and Referral Hospitals (2012) Source: R. T. Petroze, A. Nzayisenga, V. Rusanganwa, G. Ntakiyiruta, and J. F. Calland. “Comprehensive national analysis of emergency and essential surgical capacity in Rwanda,” British Journal of Surgery, January 11, 2012. 12 This document is authorized for use only by Sahar Alyahya in 2025.  For the exclusive use of S. Alyahya, 2025. Zipline: The World’s Largest Drone Delivery Network 721-366 Exhibit 2 Drone Type Comparisons Average Price Payload Common use (professional Drone type Battery life capacity cases grade) Pros and cons Quadcopter Short High - Aerial Individual Pros: Easy to (four rotors) (20 to 30 (20+ lbs.) photography drones start at use, accessible, minutes) - Video $3,500 vertical take-off inspection and landing, ability to hover Cons: Cannot fly in harsh weather Fixed-wing Long Low - Mapping Individual Pros: High (airplane style) (60 minutes) (under 10 lbs.) - Covering long drones start at speeds, ability distances $18,000 to fly in harsh - One-way weather delivery Cons: Difficult to fly, space requirements for launch and recovery Single-rotor Short (electric) Higher than - Laser Individual Pros: Hovering (helicopter) Long (gasoline) quadcopter scanning drones start at capabilities - Short distance $18,000 Cons: delivery Expensive, difficult to fly, cannot fly in harsh weather Fixed-wing Longer than Higher than - Two-way TBD Pros: Vertical VTOL hybrid quadcopter, fixed-wing, pickup and take-off/ landing (Fixed-wing shorter than lower than delivery Cons: Cannot with rotors) fixed-wing quadcopter / hover well, not single-rotor as aerodynamic as fixed-wing, expensive, difficult to fly Note: Increasing payload decreases battery life. Source: Prepared by casewriter; “Types of Drones: Multi-Rotor vs Fixed-Wing vs Single Rotor vs Hybrid VTOL,” AUAV website, https://www.auav.com.au/articles/drone-types/, accessed September 11, 2020. 13 This document is authorized for use only by Sahar Alyahya in 2025.  For the exclusive use of S. Alyahya, 2025. 721-366 Zipline: The World’s Largest Drone Delivery Network Exhibit 3 Map of Zipline Service in Rwanda (2017) Source: Company documents. 14 This document is authorized for use only by Sahar Alyahya in 2025.  For the exclusive use of S. Alyahya, 2025. Zipline: The World’s Largest Drone Delivery Network 721-366 Exhibit 4 Average Salaries in Rwanda by Job Title Average Monthly Salary Title (Rwandan Franc / U.S. Dollar) Pharmacist 842,000 RWF / 861 USD Nurse 669,000 RWF / 684 USD Case Manager 783,000 RWF / 800 USD Delivery Driver 184,000 RWF / 188 USD Country Average 692,000 RWF / 707 USD Source: “Average Salary in Rwanda 2020,” Salary Explorer website, http://www.salaryexplorer.com/salary- survey.php?loc=180&loctype=1, accessed October 1, 2020. Exhibit 5 Weighted Average Cost of Capital by Select Sectors (U.S. and Emerging Markets) Cost of Equity Cost of Debt Cost of Capital Sector (U.S. / Emerging Markets) (U.S. / Emerging Markets) (U.S. / Emerging Markets) Aerospace / Defense 8.32% / 10.09% 3.27% / 4.07% 7.18% / 8.68% Electronics 7.90% / 12.25% 3.67% / 4.07% 7.11% / 10.70% Healthcare Information 8.39% / 13.23% 3.67% / 4.47% 7.67% / 12.98% and Technology Software 8.14% / 12.59% 3.67% / 4.47% 7.67% / 12.21% Transportation 8.71% / 9.69% 3.27% / 4.07% 6.51% / 7.32% Source: “Data: Current,” NYU Stern - Damodaran Online website, http://people.stern.nyu.edu/adamodar/New_Home_Page/datacurrent.html, accessed December 15, 2020. 15 This document is authorized for use only by Sahar Alyahya in 2025.  For the exclusive use of S. Alyahya, 2025. 721-366 Zipline: The World’s Largest Drone Delivery Network Exhibit 6 Average Ground Transportation Fares in Rwanda Transportation Type Estimated Fare for a 60-kilometer trip Motorcycle 11,700 RWF / 12 USD Taxi 92,000 RWF / 94 USD Bus 1,800 RWF / 1.80 USD Source: Williams Buningwire. “‘Moto’ Taxis In Kigali Given 10 Days For Mandatory Use Of Intelligent Meters,” KT Press, August 6, 2020. “Taxi fares in Kigali,” Numbeo website, https://www.numbeo.com/taxi-fare/in/Kigali, accessed November 6, 2020. Nicole Kamanzi. “Rura introduces new public transport fares,” IGIHE, May 4, 2020. 16 This document is authorized for use only by Sahar Alyahya in 2025.  For the exclusive use of S. Alyahya, 2025. Zipline: The World’s Largest Drone Delivery Network 721-366 Exhibit 7 Zipline Drone Visuals Notes: 1) foam chassis, 2) wings, 3) battery pack, 4) QR code for management, 5) dual motors, 6) ailerons, 7) delivery package 17 This document is authorized for use only by Sahar Alyahya in 2025.  For the exclusive use of S. Alyahya, 2025. 721-366 Zipline: The World’s Largest Drone Delivery Network Source: Company documents. Evan Ackerman and Michael Koziol. “In the Air With Zipline’s Medical Delivery Drones,” IEEE Spectrum, April 30, 2019. 18 This document is authorized for use only by Sahar Alyahya in 2025.  For the exclusive use of S. Alyahya, 2025. Zipline: The World’s Largest Drone Delivery Network 721-366 Exhibit 8 Zipline Drone Launcher Source: Company documents. 19 This document is authorized for use only by Sahar Alyahya in 2025.  For the exclusive use of S. Alyahya, 2025. 721-366 Zipline: The World’s Largest Drone Delivery Network Exhibit 9 Zipline Rwanda Fulfillment Center Source: Company documents. 20 This document is authorized for use only by Sahar Alyahya in 2025.  For the exclusive use of S. Alyahya, 2025. Zipline: The World’s Largest Drone Delivery Network 721-366 Exhibit 10 Zipline Drone Recovery System 21 This document is authorized for use only by Sahar Alyahya in 2025.  For the exclusive use of S. Alyahya, 2025. 721-366 Zipline: The World’s Largest Drone Delivery Network Source: Company documents. 22 This document is authorized for use only by Sahar Alyahya in 2025.  For the exclusive use of S. Alyahya, 2025. Zipline: The World’s Largest Drone Delivery Network 721-366 Exhibit 11 Zipline Milestones Distribution & Year Milestones Capital Raised Total Flights Delivery Centers 2012 Company founded $7 million seed - - as ‘Romotive’ funding 2014 Company pivots to - drone delivery 2015 Company size: 12 Series A: $18 - - employees million led by Sequoia Capital $800,000 grant from The UPS Foundation / Gavi 2016 Zipline launches in Series B: $25 250 1 distribution center Rwanda million led by 1 delivery location Visionnaire Company size: 40 Ventures employees 2018 Series C: $70 4,000 2 distribution million led by centers Katalyst Ventures 21 delivery locations 2019 Zipline signs $12.5 Series D: $120 35,000 6 distribution million contract in million led by The centers Ghana Rise Fund at a $1.1 200+ delivery billion valuation locations $3 million grant from The UPS Foundation / Gavi 2020 Zipline launches in 65,000+ 8 distribution (as of September) North Carolina centers 2,000+ delivery Walmart locations partnership announced Company size: 300 employees Source: Company interviews and casewriter research. 23 This document is authorized for use only by Sahar Alyahya in 2025.  For the exclusive use of S. Alyahya, 2025. 721-366 Zipline: The World’s Largest Drone Delivery Network Exhibit 12 Overview of Competitors’ Drone Operations Company Type of Drone Description Amazon “Prime Air” - Multirotor drone (5 rotors) - Promise of 30-minute delivery - Vertical take-off and landing - Received Part 135 certification - Testing in U.S., U.K., Austria, France, and Israel Google “Wing” - Fixed-wing, multirotor drone - Promise of “6 miles in 6 minutes” hybrid (14 rotors) - Received Part 135 certification - Vertical take-off and landing - Testing in U.S., Finland, and Australia DHL Express - Quadcopter and fixed-wing - Testing in U.S., China, Taiwan, hybrid drones Tanzania, and others - Vertical take-off and landing FedEx - Partnership using Google Wing - Testing in U.S. with Walgreens drones UPS “Flight Forward” - Partnering with multiple drone - Received Part 135 certification hardware manufacturers (both - Testing in U.S. quadcopter and fixed-wing) Source: Casewriter research. 24 This document is authorized for use only by Sahar Alyahya in 2025.  For the exclusive use of S. Alyahya, 2025. Zipline: The World’s Largest Drone Delivery Network 721-366 Endnotes 1 Riley de Leon. “Zipline takes flight in Ghana, making it the world’s largest drone-delivery network,” CNBC, April 24, 2019. 2 Jonathan Shieber. “Zipline’s new $190 million funding means it’s the newest billion dollar contender in the game of drones,” TechCrunch, May 17, 2019. 3 Stephanie Overby. “Creators: Zipline Offers Drone Aid to Remote Health Clinics,” Digitalist, February 21, 2018. 4 Aryn Baker. “The American Drones Saving Lives in Rwanda,” Time, July 20, 2017. 5 “Blood transfusion centre to expand services,” The New Times, January 7, 2012. 6 “Platelets and Thrombocytopenia,” American Red Cross website, https://www.redcrossblood.org/donate- blood/dlp/platelet-information.html, accessed September 11, 2020. 7 Tony Shapshak. “How Africa is Leapfrogging The World -- Using Drone Medical Deliveries By Zipline,” Forbes, August 29, 2017. 8 Kingsley Ighobor. “Improving maternal health in Africa,” Africa Renewal, December 2014. 9 “Policies,” Republic of Rwanda website, https://moh.gov.rw/index.php?id=510, accessed August 5, 2020. 10 “Primary Health Care Systems, Case Study from Rwanda,” Geneva: World Health Organization, 2017. 11 “Blood Donor Day: Doctors tipped on safe transfusion,” The New Times, June 12, 2014. 12 “A Blood Transfusion in Africa? It’s Free in Rwanda, Unaffordable in Zimbabwe,” Global Press Journal, October 15, 2017. 13 “Delivery Driver Average Salary in Rwanda 2020,” Salary Explorter website, http://www.salaryexplorer.com/salary- survey.php?loc=180&loctype=1&job=229&jobtype=3, accessed October 15, 2020. 14 “Western methods increase cost of ‘safe blood’ in sub-Saharan Africa,” University of Cambridge, September 11, 2012. 15 Amar Toor. “This startup is using drones to deliver medicine in Rwanda,” The Verge, April 5, 2016. 16 Miriam McNabb. “How Zipline Became a $1.2 Billion Drone Company,” Drone Life, May 21, 2019. 17 “Zipline,” Crunchbase website, https://www.crunchbase.com/organization/zipline-international/company_financials, accessed August 5, 2020. 18 “UPS Creates Global Partnership with Zipline and Gavi to Transform Delivery of Humanitarian Aid and Life-Saving Vaccines with Drones,” UPS Pressroom, May 9, 2016. 19 “Getting life-saving medicines from the sky,” Gavi website, https://www.gavi.org/getting-life-saving-medicines-from-the- sky, accessed August 7, 2020. 20 “How we’re using drones to deliver blood and save lives,” TED website, https://www.ted.com/talks/keller_rinaudo_how_we_re_using_drones_to_deliver_blood_and_save_lives/, accessed August 7, 2020. 21 Katie Collins. “Exclusive: Rwanda’s ‘digital president’ Paul Kagame on technology’s role in Africa’s future,” Wired, November 4, 2013. 22 “Rwanda Launches World’s First National Drone Delivery Service Powered By Zipline,” UPS Press Room website, https://www.pressroom.ups.com/pressroom/ContentDetailsViewer.page?ConceptType=PressReleases&id=1476387513855- 624, accessed August 7, 2020. 23 “Rwanda:- Agreement signed with Zipline to use drones for delivery of essential medical products,” sUAS News, February 10, 2016. 24 Ibid. 25 “Rwanda:- Agreement signed with Zipline to use drones for delivery of essential medical products,” sUAS News, February 10, 2016. 25 This document is authorized for use only by Sahar Alyahya in 2025.  For the exclusive use of S. Alyahya, 2025. 721-366 Zipline: The World’s Largest Drone Delivery Network 26 Mike Murphy. “This might be the fastest delivery drone in the world,” Quartz, April 2, 2018. 27 Mike Murphy. “This might be the fastest delivery drone in the world,” Quartz, April 2, 2018. 28 “Series C – Zipline,” Crunchbase website, https://www.crunchbase.com/funding_round/zipline-international-series-c-- d39abe96, accessed August 8, 2020. 29 Kwasi Gyamfi Asiedu. “An ambitious drone delivery health service in Ghana is tackling key logistics challenges,” Quartz Africa, April 25, 2019. 30 Jessica Pothering. “How Zipline raised $190 million to build a global drone logistics network, starting in Rwanda and Ghana,” Impact Alpha, May 22, 2019. 31 “The UPS Foundation Supports Ghana’s Launch Of The World’s Largest Vaccine Drone Delivery Network,” UPS Press Room website, https://pressroom.ups.com/pressroom/ContentDetailsViewer.page?ConceptType=PressReleases&id=1556027218757-179, accessed August 7, 2020. 32 “Ghana launches the world’s largest vaccine drone delivery network,” Gavi website, https://www.gavi.org/news/media- room/ghana-launches-worlds-largest-vaccine-drone-delivery-network, accessed August 8, 2020. 33 “Series D – Zipline,” Crunchbase website, https://www.crunchbase.com/funding_round/zipline-international-series-d-- fc70d802, accessed August 8, 2020. 34 Amy Farley. “Zipline mastered medical drone delivery in Africa—now it’s coming to the U.S.,” Fast Company, March 20, 2020. “CNBC Disruptor 50, Zipline,” CNBC, June 16, 2020. “These 6 Upstarts Are Reprogramming the Future--Starting With Microbes, Daycare, and Scooters,” Inc., November 2018. 35 Tom Ward. “Walmart and Zipline Team Up to Bring First-of-Its Kind Drone Delivery Service to the United States,” Walmart Newsroom, September 14, 2020. 26 This document is authorized for use only by Sahar Alyahya in 2025.