"Dr. Amazon’s" Real Healthcare Move
Hint: Your online shopping cart will have a few more items to add...
It was 1997, just three years after he’d launched Amazon.com Inc. (AMZN) — in a garage where employees toiled at desks made from Home Depot doors — founder Jeff Bezos realized he had a retailing tiger by the tail.
He wanted to expand his Internet storefront beyond books, CDs and DVDs. So he randomly e-mailed 1,000 customers and asked: “Besides the things we sell today, what would you like to see us sell?”
The notes he got back were long and varied (one person even said “windshield wiper blades, because I really need windshield wiper blades”).
That’s when Bezos was hit by that lighting bolt entrepreneurs and writers (like me) all refer to as: The Epiphany.
“That’s when I thought to myself: ‘We can sell anything this way’,” Bezos said during a 2018 interview at The Economic Club of Washington. “So we launched electronics and toys and many other categories over time.”
We know how that e-commerce fairy tale ended.
Amazon isn’t just the world’s largest online retailer by revenue; it’s one of the largest retailers in general, hauling in $574.8 billion in 2023. Walmart Inc. (WMT), which as recently as 2018 had more than twice Amazon’s revenue, had a $611 billion top line last year.
And the most-popular office pools run by analysts right now have nothing to do with football: They’re trying to guess the quarter and the year where Amazon finally leapfrogs Walmart to become the new retailing-revenue king.
Data provider Edge by Ascential says it could happen as early as this year.
Meet the True Everything Store
Wander around Amazon’s “digital aisles,” and you’ll find just about anything you can think of (and a few things that would never pop into your head). Here at Stately Patalon Manor, we regularly order Milk Bones for our Border Collie Chase … balsa wood for the “squint-scale” RMS Titanic I’m building for my son Joey … cases and cases of Red Bull (a personal vice of mine) … and a special pen for my publisher Jack, my friend and collaborator on the journey here.
Heck, you can even get pickle-flavored lip balm (yes, that exists … I haven’t tried it myself … but the concept itself makes me want to order it).
And you can have all those goodies delivered to your doorstep, in a single shipment, in two days.
I’m sharing this slice of my family’s e-commerce life to underscore that Amazon fueled its growth by evolving beyond its “online bookstore” roots to earn its new sobriquet: “The Everything Store.”
And if the company wants to keep growing, it needs to keep adding.
And I gotta say that its “what comes next” game plan is truly fascinating.
You see, Amazon is gearing up to be a healthcare player.
A Spoonful of Amazon Helps the Medicine Go Down
Amazon has been dabbling in the health space for several years. Here are some timeline details from that healthcare foray:
In 2017, it created a skunkworks health tech team called 1492 (a reported nod to when Christopher Columbus “discovered” America).
In 2018, it rolled out Comprehend Medical, which uses machine learning to scan “unstructured medical text” (like clinical notes, problem lists, radiology reports and discharge summaries) to articulate patient diagnoses, treatment plans, drug dosages and more — an achievement aimed at improving care, reducing mistakes and slashing health costs.
That same year (2018), it outdueled Walmart and spent $750 million to snag PillPack, an online pharmacy catering to Americans who have to take multiple medications every day.
In 2020, it launched Amazon Pharmacy, an online drugstore that further disrupts the already-struggling brick-and-mortar pharmacy industry.
And, in 2023, it bought primary care provider One Medical for $3.9 billion.
All those pieces are starting to fit together.
In November 2023, Amazon introduced a new Prime membership through One Medical that includes nationwide 24/7 virtual care and “easy-to-schedule office visits” — for $9 a month, or $99 annually.
According to Amazon Prime Vice President Jamil Ghani, “Prime members also have exclusive access to benefits from Amazon Pharmacy, including RxPass, which lets members get as many eligible medications as they need for one flat fee of $5 per month and have them delivered free to their doors in two days or less, and Prime Rx, which helps members save up to 80% on prescriptions when not using insurance at Amazon Pharmacy and over 60,000 pharmacies nationwide.”
But here’s the thing: Most health-sector ventures survive on razor-thin margins — and can be cash-crunching, money-losers for long stretches.
Indeed, before Amazon grabbed it, when it was still being run by its venture-capitalist owners, PillPack was burning through $6 million a month. One Medical also was losing money at the time of Amazon’s acquisition.
For Amazon, that’s probably okay. The retailer is big enough to absorb that near-term red ink. Look at them as “loss-leaders” that bring Amazon something of greater value.
Data.
That’s right … data … information that will add muscle to the rest of Amazon’s business by elevating shopping-cart totals and boosting recurring revenue.
Your Personalized Health Recommendations
A full 35% of Amazon’s revenue reportedly stems from shopping “suggestions” driven by previous searches, browsing history and purchases.
All that “history” is analyzed and processed — and then hits our inboxes and Amazon homepages as “suggestions” for things we might like to buy next.
So the more data Amazon amasses on you, the more “tailored” those suggestions will be … and the more likely you’ll be to hit the “buy” button.
By adding health, Amazon supercharges that capability.
To see how this works, think about a family that’s expecting a baby.
Back in 2017, the U.S. Department of Agriculture estimated a middle-class family would spend $12,000 to $13,000 on a baby’s first year … and that’s when inflation was just 2.13%.
For a mother-to-be, Amazon could build a “suggestion list” of prenatal vitamins, cookbooks, strollers, outfits (for mom and baby), diapers, cribs — and all the other sundries the family will need.
Sharing an Amazon Wishlist is also easy, inspiring friends and family to fill in the gaps (and avoid duplicated gifts) at baby showers.
Then, after the baby is born, think of all the potential recommendations as the boy or girl starts preschool, starts kindergarten and then moves up to elementary, middle school, high school — and graduation. Raising just one child from birth to 18 costs an average of $240,000. And that’s before the cash-and-savings chomper that’s also known as … college.
Once kids are grown, married and having children all their own, they’ll have been in the Amazon ecosystem for so long that the cycle will just repeat itself — as they use Amazon for their own families.
This is just one example. But you’re starting to see how health-generated data opens recommendations for things like meal plans, exercise equipment and plenty of other products and services.
Privacy Concerns
Having personalized recommendations makes things easier, serving as a time-saver for many folks.
The worry, of course, is that this infusion of personal health data will mean that a gigantic company (i.e. Amazon) now knows everything about you. Some folks might choose to avoid the Amazon-owned health venture altogether.
For others — and I offer this as context, with no agenda and no judgment — it’s not a worry: They want high-quality healthcare at an affordable cost; so the behind-the-scenes data-nomics isn't a worry.
People already know their personal data is being amassed (and used) by the loyalty-point programs operated by their favorite supermarket, convenience stores, movie theaters, airlines and car-rental companies.. Heck, in spite of everyone knowing that Amazon’s Alexa is always listening, more than 500 million have been sold.
Again, my job here isn’t to render judgment — it’s to deliver wealth-building insights.
In that spirit, Amazon’s health push helps the company provide even-more-personalized recommendations. And it adds to its Prime service customer rolls.
Amazon’s health customers may get better care at a lower cost than what traditional providers are giving them now.
In a 2019 CNBC report, a Loop Capital analyst projected (without an exact time frame) that Amazon’s foray into health could spawn an additional $72 billion in revenue.
That’s not chump change: In 2022, it would’ve accounted for nearly 15% of Amazon’s top line.
Making Sense of the News so You Avoid the Noise
For most folks, Amazon’s push into health is viewed as a “news” update or a tidbit that’s quickly forgotten.
As investors, we can — and should and must — view this through a more-powerful lens.
Amazon has spent hundreds of millions (or even billions) of dollars to acquire companies like PillPack and One Medical. So this isn't some whim.
This is a well-conceived, methodical plan to make Amazon even more of “The Everything Store” than it already is. It’ll be more than a company that can ship you dog food in two days … or let you stream the two-time-Oscar-winning Amazon original movie Manchester by the Sea.
It’s about getting you almost anything that you need … whenever you need it … at the best-possible price.
That’s how you encourage repeat business … how you elevate the cart value during each online shopping session.
And that’s how Amazon’s stock price can continue its long-term climb.
