Jeff Bezos famously remarked once that “Your margin is my opportunity”–meaning that Amazon will relentlessly target high-margin businesses as its means to expand. It started with books, a famously inefficient business where retailers could return unsold books for full price months after accepting shipments. Amazon moved to just about any other form of shippable retail product before turning to the high-margin technology industry with cloud computing, and then entertainment with video streaming.
But Amazon must keep conquering new industries to maintain its breakneck growth pace. FedEx is looking over its shoulder waiting for Amazon to get into the shipping business. CVS got that memo, which is why CVS acquired Aetna last year.
The shoe for CVS dropped recently when Amazon acquired PillPack. There is all sorts of speculation around how that might work out. Some think that Whole Foods chains might start offering pharmacy services. Others think Amazon wants to re-engineer the health care experience. There is a wide gap between those two ideas and maybe they are both accurate. The easiest way for Amazon to start would just be to start offering PillPack services online (Amazon Pharmacy?) while clearing all the regulatory and insurance hurdles to do more.
If Amazon does intend to re-engineer health care, it could scarcely choose an industry with higher margins or a lousier customer experience–at least in the US. And it is hard to argue with the acquisition of PillPack as the place for Amazon to start. PillPack has taken a small step of re-engineering medications, by packaging each dosage separately, delivering the medication to your house, and making refills painless. It plays to Amazon’s strengths in online delivery and improved customer experience.
Walmart has already focused on low-priced medication as its way into health care. CVS is diversifying from its pharmacy roots to urgent care (with Minute Clinic) and health insurance (with its Aetna acquisition). Don’t expect Walgreens and Rite Aid to sit still, even if they merely become acquisitions to the bigger players lining up to take the field against each other. But there are still many players not heard from yet, ranging from hospital systems, to pharmaceutical companies, to health insurers. And there is always the wild card of changes to US regulations that could go anywhere from a repeal of Obamacare to a move to a single-payer system to anything in between.
Buckle up, it should be a wild ride.
