Amazon Health-Care Move May Be Next ‘Home Run’ Like Cloud Services

  • Online retailer has history of starting small, building fast
  • Innovation and efficiency drove disruption in retail, IT
How Tech Can Help Employers Control Health Care Costs

Amazon.com Inc.’s foray into health care won’t be the first time it has disrupted an entire industry by starting with an effort inside the company.

Amazon Chief Executive Officer Jeff Bezos is teaming up with fellow billionaires Warren Buffett and Jamie Dimon to revamp health care for the 2.4 million workers and dependents of the companies they run. The move fostered widespread speculation the trio will eventually make their approach to medical care available to companies far and wide.

Bezos has a long, increasingly successful, record of starting new businesses on a small scale, often for the benefit of his company, then spreading them to the masses -- creating a world of pain for incumbents. Consider the ways Amazon is changing industries as varied as product fulfillment, cloud computing and even the sale of cereals, fruits and vegetables.

Amazon created a network of warehouses around the country to make possible quick delivery of online orders, saving customers a trip to the store. But the access wasn’t limited to consumers. Amazon opened its warehouses to brands and merchants in 2006 with its Fulfillment By Amazon program. Merchants pay Amazon to store, pack and ship their products to customers, part of the $7.9 billion in revenue from third-party seller services the company racked up in the third quarter, an increase of 40 percent from a year earlier. The service lets the Seattle-based e-commerce giant provide a big inventory for shoppers and take a commission on each sale -- a more profitable business than buying the merchandise directly.

Amazon’s cloud-computing business began as an internal data management system and has grown to an $18 billion-a-year business that is redefining corporate IT departments. Rather than buying their own servers and maintaining on-site data centers, companies pay Amazon Web Services for data storage and computing functions that they access via the internet. Microsoft Corp. and Alphabet Inc. have followed suit, but Amazon remains the dominant player in the industry. AWS is the company’s fastest-growing and most-profitable business, accounting for more than 10 percent of total sales in the third quarter. Without profit from the unit, Amazon may still be losing money because of its investments in e-commerce overseas.

Amazon Go, a new convenience store in Seattle that lets shoppers check in with smartphones and leave without paying a cashier, is one of the company’s latest attempts to redefine an industry. It spent more than a year testing the concept with employees before opening the store to the public earlier this month. The technology could be sold to other retailers, giving Amazon a greater presence in brick-and-mortar retail without opening additional stores.

That history helps explain the out-sized market reaction to Tuesday’s announcement that Amazon, Berkshire Hathaway Inc. and JPMorgan Chase & Co. are exploring ways to make health care more affordable and effective for employees. The employees and dependents of the three companies represent just 1.5 percent of Americans with employer-sponsored health insurance, and a few businesses getting together to self-insure is hardly a new phenomenon. The expectation is that someone with Bezos’ patience and tenacity will create a new way of providing medical benefits that can be sold to others. Amazon has hundreds of thousands of U.S. workers to create a focus group. Berkshire brings the risk-management expertise of its insurance subsidiaries and JPMorgan has the financial expertise.

Amazon’s e-commerce operation could be used to send medication direct to patient’s homes, saving them trips to a pharmacy. Its cloud-computing division can store patient health-care records so they can be easily accessed by doctors anywhere. And its payments system could be used to automate payments with health-care providers.

“There’s the possibility for another Amazon Web Services success where they come out of nowhere and hit a home run,” said Kirthi Kalyanam, director of the Retail Management Institute at Santa Clara University. “Amazon just opened a cashier-less store. I don’t see any reason they can’t create a primary care facility that let’s you just check in with your phone.”

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