The Doctor is In: Amazon Buys 1Life Medical to Enter Primary Care Market
Amazon (NASDAQ: AMZN) recently made a splash by acquiring 1Life Medical (NASDAQ: ONEM) in an all-cash deal for approximately $3.9 billion. 1Life Medical is a membership-based primary healthcare service with offices and services in dozens of states. 1Life Medical provides direct in-person, virtual, and over-the-phone doctor-patient care. You can now pay for an annual membership to 1Life Medical on Amazon’s website for a discounted rate of $144.
Neil Lindsay, a senior vice president of Amazon Health Services, told CNN that at Amazon they believe health is high on the list of experiences that need reinvention and they hope to be very involved in improvements made to the healthcare industry in the next several years.
From an industry perspective this move makes sense. The healthcare industry is massive, at an estimated $4.3 trillion, and has uniquely high profit margins on goods and services. There are no top-of-mind brands for the industry making it ripe for a massive company to step up and dominate market share. While medical products and services have rapidly improved as technology improves the businesses within healthcare have only relatively recently begun to scale their businesses both domestically and globally. Scaling in the business in the healthcare industry is difficult since the elements that comprise a successful healthcare company, including medical products and human capital, are particularly expensive, to say nothing of the costs of complying with the heavy regulations healthcare companies are subject to.
Amazon is a titan of a company with nearly unlimited resources whose power to penetrate and innovate new industries has been seen already in the grocery industry. Amazon can rapidly scale 1Life Medical’s business both domestically and globally and vertically integrate it into their already-robust supply chain, increase profit margins on products and drastically increase their volume of sales all by utilizing resources most of which they already have. This acquisition is an easy way to expand into a new industry, bringing Amazon one step closer to being your one-stop-shop for all your consumer needs and increasing Amazon’s revenue and free cash flow.
This is not the first time Amazon has made an effort to move into the general healthcare industry. In 2018 Amazon bought an online pharmacy PillPack, which ships pills that are available over-the-counter at most pharmacies directly to consumers’ homes. Additionally, Amazon paired up with Warren Buffet at Berkshire Hathaway and Jamie Dimon at JP Morgan Chase to disrupt the $500 billion pharmaceutical industry. They created a company called Haven whose goal was to provide cheaper and higher quality healthcare services to Americans. The company was shut down in 2021 after having made no inroads.
The 1Life Medical acquisition represents the adoption of a more ambitious approach on Amazon’s behalf to compete in the healthcare industry. PillPack was merely a pill distributor whereas 1Life Medical provides an array of services, not only pill distribution but also expanding to all other areas of general primary care. From an asset standpoint, 1Life Medical has a lot of tremendously valuable human capital (doctors–shout out to my pre-med peers) whereas 1Life Medical only has pharmacists, and fewer of them. To put Amazon’s trajectory in the healthcare industry in perspective, Amazon purchased PillPack for $753 million and 1Life Medical for more than five times as much for $3.9 billion. Amazon is no longer taking half measures and is aggressively moving into the healthcare industry.
This acquisition also has major significance as it relates to Amazon’s corporate philosophy and long-term strategy. Previously, Amazon held the long-term view that robots and AI would replace human labor and invested heavily in automation and tech. 1Life Medical’s business model is a human capital-centric model that concentrates on and emphasizes its personal relationships with its customers. Amazon is making a big statement that it believes human capital and labor will be essential in the long term by making this massive purchase of a human capital dependent business.
So ultimately, how does this affect you as the everyday consumer? Initially, consumers should be happy since many consumers use Amazon as their go-to place for online shopping, and now consumers can access more at one convenient destination. As Amazon steps closer to becoming a multi industry monopoly, it has the opportunity for more synergies and ultimately will be able to provide overall consumer experiences.
Now for those of you everyday consumers that are concerned with the country’s macroeconomic health there is reason to be concerned here. This massive purchase by Amazon was not even challenged by the FTC, which has become particularly strict and litigious on antitrust-related matters in recent years. As Amazon expands to become a titan in multiple industries and continues to vertically integrate and streamline its goods and services it becomes harder for other companies to compete and grow to rival Amazon. While cheaper and higher quality service may be nicer for consumers, competition is necessary and healthy for our economy. Amazon’s aggressive splash into the healthcare business is an indicator of future squandered competing businesses that could have been drivers of massive value creation and improved many lives but will no longer be created since it will be too difficult to compete against Amazon.
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