Could Amazon disrupt healthcare?

Amazon has a strong track record in building new lines of business by starting with small acquisitions. Its latest push into healthcare is buying proximity primary care provider One Medical. Could amazon’s latest acquisition allow it to disrupt the healthcare industry?

In announcing its acquisition of One Medical for USD3.9 billion, its third-biggest deal in its history, Neil Lindsay, SVP of Amazon Health Services, mentioned health care is “in need of reinvention”. The bold statement echoes statements made by Amazon CEO Andy Jassy in a leaked audio that Amazon Care is one of Amazon’s top innovation priorities and that the division aims to expand through new services and partnerships. In other words, Amazon has high-growth ambitions for its health care business.

Amazon’s foray into health care

• Amazon Pharmacy
• Amazon Care
• One Medical (deal subject to approvals)

The tech giant’s debut in health care began with its acquisition of online Pharmacy company PillPack in 2018 for USD753 million, which it rebranded as Amazon Pharmacy in 2020. It builds onto Amazon’s e-commerce business, benefiting from the tech giants’ own logistics network.

In addition, Amazon Care, a service Amazon started in 2019, offers a primary and urgent care service for Amazon employees and its partners. Patients benefit from virtual, and physical office visits.

The uniqueness of the service is that it provides access to a clinician 24/7, 365 days a year, solving the common problem in the market of having to wait a long time and travel to see a doctor.

Amazon Care

Amazon also leveraged its cloud (AWS) and other technologies such as Alexa, its voice assistant to support Amazon Care.

Amazon’s latest purchase, One Medical fits in well to build on the Amazon Care business. One Medical offers a subscription-based healthcare service of 24/7 access to virtual care. Its 767’000 members can access same-day doctor visits for USD199 per year. One Medical offers an established network of clinics, in-house medical software, and existing partnerships such as the one with Google, which is a major customer of One Medical.

We may also not rule out that Amazon could make a couple more strategic acquisitions in the health space to accelerate its growth in the sector. So far it has bought PillPack (2018), Health Navigator (October 2019, a month after launching Amazon Care), and One Medical (2022).

Designing a holistic healthcare experience

Amazon collects a lot of information about its customers allowed by the vast amounts of data points from its various lines of business such as the browsing and purchases made on its website. It is therefore likely well positioned to develop the answer to some of the biggest challenges for patients. It could integrate all its healthcare services together and leverage its other services such as AWS, its logistics network, and Prime ecosystem where its 163 million members receive many shipping, shopping, streaming, reading, and other benefits. For example, Prime members could pay a little more monthly to benefit from the “One Medical” / Amazon Care service.

Benefits

Given its stellar past execution and obsession with serving customers, it could have a chance at developing over time a holistic experience that is missing in the US healthcare industry. On top of leveraging its customer relationships and data from its other businesses, Amazon could integrate its own technologies such as Alexa to provide customers with answers fast and smoothen the healthcare experience.

Challenges Amazon could face

• Fierce competition
• Regulatory scrutiny
• Data privacy

Amazon has so far managed to win investors’ trust, believing that it could post profits later and thus has for a long time posted losses despite strong sales growth. Nonetheless, after making large investments, the giant could face pressure to deliver profits.

Healthcare is said to be a difficult business because of low margins. For example, in its most recent filing, One Medical posted a net loss of USD91 million for USD254.1 million in revenue. Moreover, competition is intense with rivals such as Walgreens, Walmart, and CVS Health, having spent billions opening clinics.

Lastly, regulators are likely to challenge Amazon on many fronts before approving deals. This would make scaling and getting more market shares likely more difficult. Concerns from Privacy advocates around Amazon’s influence could also make winning regulatory approvals for healthcare acquisitions difficult.

Conclusion

Amazon’s chances to disrupt healthcare are good, with the potential to develop services that customers really need, with the advantages of providing extra by leveraging its other lines of business. But succeeding in the healthcare space could be a very long journey due to the low profitability, large investments required, and intense competition from incumbents and other tech giants such as Apple, Microsoft, and Google, which have all made moves in the space. Lastly, overcoming regulatory scrutiny could slow growth in Amazon’s healthcare division, making a rapid expansion difficult. While it may be too early to tell, Amazon has a strong track record of disrupting categories, and healthcare could be next.

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