Amazon’s next move: From Subscriptions to Prescriptions?

Amazon’s next move: From Subscriptions to Prescriptions? According to reports, e-commerce giant Amazon is all set to make a decision on entering the multi-billion dollar prescription drug market before Thanksgiving. Will Jeff Bezos and co. turn another industry on its head? Shashank Venkat reports

Considering Jeff Bezos’ penchant for doing things out of the ordinary and looking for opportunities in places where others simply don’t, Amazon’s reported move into the healthcare space will not surprise watchers. An analyst report from healthcare-focused boutique investment firm Leerink has reported that Amazon plans to get into the prescription drug distribution business within the next couple of years. Another CNBC report has revealed that the company plans to make a decision about entering the pharmacy business before Thanksgiving.

Amazon’s purported entry into the healthcare space will be watched with keen interest. Earlier this year, the company shook the retail industry when it acquired Whole Foods for $14 billion, and Amazon is already leading the race in the e-commerce, cloud and smart device spaces. If Jeff Bezos decides to enter the prescription drug market, it will threaten entrenched players such as Walgreens, CVS and its old foe Walmart. In fact, Walgreens and CVS stocks nosedived by 5 percent right after these reports!

While Amazon has not released any official statement on this move, it does seem to be taking this new ambition pretty seriously. The company has already brought on board Mark Lyons, a former executive from Premera Blue Cross, a health insurance company. Early reports have said that Lyons is building a pilot project - an internal pharmacy benefit manager for employees - and will take the learnings from this experiment to proceed with their plans. Eric French, VP – Amazon Consumables, is leading Amazon’s efforts in building a strategy for their healthcare venture.  

It will be interesting to see the path Amazon carves out for itself in this sector. Retail Pharmacy stores and Pharmacy Benefit Managers (PBMs) are critical components of the pharmacy value chain. Amazon could go the Whole Foods way and acquire pharmacy companies to quickly build and scale its capabilities. It could also enter into contract agreements with PBMs to reduce prices and increase market penetration.

However, this is not Jeff Bezos’ first tryst with the healthcare space. It already sells medical supplies such as thermometers and blood pressure monitors online. It also has a secret health tech team called 1492 which works on hardware and software projects in healthcare. Amazon had also acquired a minority stake in Drugstore.com in 1999 which was eventually sold to Walgreens in 2011.
 

Amazon Healthcare

If any company has the potential to disrupt healthcare, it is Amazon. Healthcare is a largely chaotic space, and Amazon’s entry into the industry will force transparency and efficiency into the sector. Amazon can easily disrupt the retail pharmacy stores by offering medicines at reduced costs. Its easy to use interface will also make it simple and convenient to order medicines online.

Amazon could leverage its powerful recommendation algorithms to cross sell products as well. For example, someone looking at buying a book on back pain can easily be offered pain killers or other such medicines. Moreover, Amazon could potentially even use the outlets of Whole Foods to sell prescription drugs. Amazon can also give members of its subscription service – Amazon Prime – special discounts and faster deliveries on medicines.

In addition, Amazon’s investments around Artificial Intelligence (AI) can also tie-in with its healthcare strategy at some point in the future. The company has already released a slew of new Echo devices and its secret tech team 1492 is said to be developing healthcare applications for these too. When IoT and AI fully come into the mainstream, Amazon’s hardware and software might play a critical role in the digital healthcare space.  


Challenges

Of course, dabbling in the pharmacy sector will come with its fair share of challenges. For one, it is a highly regulated industry with high barriers to entry. Every country comes with its own set of regulations, and managing that for each of its different markets will be a complex process. Also, selling medicines requires you to take care of a lot of other variables compared with selling consumer electronics, books and movies.

Furthermore, the Amazon demographic isn’t usually patients or shoppers looking for medical help. Will Amazon be able to break that brand perception?
 

The Road Ahead

Every stakeholder from the prescription drug industry will be tracking the e-commerce giant’s next moves very closely. The diversity of Amazon’s businesses is unparalleled, and it could easily overcome the challenges mentioned above, as it has done across many industries. If Amazon decides to take the plunge, it won’t be a Happy Thanksgiving for many other companies in this sector!


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