Author(s): Raghu Gopal
Two weeks ago, Amazon announced its acquisition of US online pharmacy, PillPack. The deal is estimated to be worth about $1 billion.
PillPack is a relatively small company in the market for subscription drugs, specialising in serving patients who take multiple daily prescriptions. It provides pre-sorted doses for the convenience of the company's estimated 40,000 customers. In the world of Amazon, this is a drop in the ocean.
But for Amazon, the move isn't so much about buying a customer base, but about acquiring nationwide infrastructure for entering the business. As the retailer points out in its press release, PillPack holds pharmacy licences in all 50 US states, with required accreditation for serving government-backed Medicare plans. PillPack also owns a proprietary set of software for managing its online sales and distribution model.
PillPack lays the groundwork for Amazon, allowing it to quickly wade into the US pharmacy market, worth more than $300 billion a year. It's also a second big step in entering the country's healthcare space, following its joint investment in late 2017 with Berkshire Hathaway and JPMorgan to form a healthcare company for their employees. Valued at more than $3 trillion, healthcare is the largest industry in the US.
Disruption seems inevitable in this market. Its size is too tempting to ignore, and all top tech players including Apple, Google and Microsoft have business groups exploring the potential of health and well-being.
PillPack will bring the necessary licences to the table, and Amazon will bring its vast number of customers, world-class logistics and a host of other e-commerce benefits. With about 90 million Prime members in the US, Amazon reaches roughly 70 percent of households in the country just through its subscription service.
The PillPack acquisition makes Amazon a nationwide pharmacist, placing it in competition against CVS, Rite Aid, Walgreens and Walmart, the top sellers of subscription medication in the US.
Amazon doesn't make strategic moves to take a small part of the market, but it can be expected to use all its scale to push deep into one of the largest sectors in the US, working closely with pharmaceutical companies, healthcare providers and insurance companies. Amazon knows how to work across the value chain.
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