Amazon’s Next Massive Market: Healthcare
Source: CNN Money

Amazon’s Next Massive Market: Healthcare

  • CNBC reported on Friday that Amazon is building a health and wellness team inside its Alexa division to work on making Alexa a better tool for healthcare.
  • Amazon, Berkshire Hathaway, and JP Morgan recently announced plans for a joint healthcare company focused on reducing costs and improving care for their combined 1.2m employees.
  • The $3.3T U.S. healthcare industry is notoriously slow to innovate.
  • We think Amazon will change healthcare on three fronts: 1) Logistics: Help reshape the $453B Pharmacy Benefit Management industry; 2) AI: Alexa will help both patients and providers with everything from in-home care to allowing providers more time with patients instead of paperwork; 3) Cloud: AWS will continue to allow Amazon to partner with the world’s leading patient data networks.

Dr. Alexa

Today’s news around Amazon’s new Alexa healthcare team got us thinking about Amazon’s prospects for breaking into healthcare.  Companies across the entire healthcare industry are quickly discovering that AI will be used in everything from operations to enhancing quality of life for patients. Imagine the safety, information, connectivity, and entertainment that an Alexa near every hospital bed could offer patients.

Amazon’s Medical History

Amazon’s first foray into healthcare came with a 2014 deal with Cardinal Health leveraging Amazon’s e-commerce capabilities to sell medical supplies to hospitals and clinics. Amazon announced another major move into healthcare when they, JPMorgan Chase, and Berkshire Hathaway outlined plans to start a company that would provide and manage healthcare for the three companies’ combined 1.2m employees, focusing particularly on reducing costs. Separately, Amazon announced that they have put their plans to become a pharmaceutical wholesaler on hold (for now). The company found it difficult to bring major hospitals on board due to their reluctance to deviate from the purchasing process they’ve grown used to. 

Amazon’s Next Moves

We believe Amazon will have a major impact on the $3.3T U.S. healthcare industry by leveraging three core competencies: Logistics, AI, and cloud infrastructure to transform delivery of care, population health management, and healthcare software services.

  1. Logistics: Logistical expertise will most directly impact the highly concentrated Pharmacy Benefit Management (PBM) sector. Rising drug prices and rising drug demand has driven considerable backlash recently among American consumers. We feel this could be a golden ticket for disruption to a cost-conscious, logistics expert like Amazon.
  2. AI: Alexa’s artificial intelligence could significantly reduce the amount of busywork for doctors and accelerate the adoption of in-home telehealth. From checklists to note taking to logging patient symptoms, Alexa could streamline many healthcare operational functions by eliminating menial tasks and allowing providers to spend more time with patients. In the home, patient rooms, and at senior living facilities, Alexa could do everything from reminding patients to take their medicine, to helping manage care for diabetics, to helping patients notify staff if they’ve fallen.
  3. Cloud: Amazon’s $5.4B AWS business is poised to provide incumbent electronic health record systems with the storage, analytics, and population health management tools needed to provide a full stack of services around patient data. Evidence of this came as Cerner, one of the world’s largest health technology companies, partnered with AWS to utilize the platform’s data analytics strengths to provide more real-time care coordination amongst providers. Cerner also looks forward to leveraging Amazon’s AI to take a more proactive approach to cross-sector population health and wellness, and we anticipate they will be one of many healthcare firms in the future using AWS in similar capacities.

Whole Foods + Healthcare

The acquisition of Whole Foods gives Amazon another unique product and product delivery method, although we can’t call it a core competency yet. Food as medicine will be an important part of healthcare’s future and, as a leading grocer, Amazon is well-positioned here. Whole Foods locations also provide Amazon with the physical presence, and the brand recognition in health and wellness, to potentially address the need for more convenient healthcare clinics.

Bottom line

Amazon’s aspiration to be “Earth’s most customer-centric company” provides it with seemingly unlimited growth potential (and uncanny ability to find success in new markets). While they may be king when it comes to e-commerce, their entry into the healthcare market will likely prove to be one of their toughest tests to date. They face an extremely complex and concentrated industry and the regulatory quagmire that comes with it. Amazon has its work cut out in convincing the healthcare system that it belongs at the table, but it’s made sensible first steps and we’ve learned not to bet against them.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

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