Whether Amazon succeeds in the healthcare market, or not, remains to be seen, but the reason I believe healthcare is about to get ‘Amazonized’ is because of what Chris Holt, Amazon’s leader of Global Healthcare said recently.
“When we think about the healthcare space, our overall philosophy of obsessing around the customer has served us really well. So, we start with the customer and we work backwards.”
This thought process is so anti-healthcare, that it comes like a breath of fresh air. Incumbents might smirk at it, but customer obsession is the primary reason why Amazon and other tech companies have built giant corporations in unbelievable time-frames.
In India, Amazon recently announced their interest in buying stake in Medplus, India’s second largest organized pharmacy chain after Apollo. So, the question on everyone’s mind must be: will Amazon disrupt the Indian pharmacy space?
Amazon has always had a track record of creating fundamental changes to any industry that they enter. The distribution part of the pharma industry especially in India has always been ripe for disruption and as an industry observer, I was amazed about how the glaring inefficiencies in the distribution part of their business always escaped the attention of CEOs and put it down to the strong union that dominates it. And this is exactly what can make or break Amazon in this space.
Amazon has had bitter experience with Drugstore.com in the past, when its ambitions to sell prescription drugs got lost in a maze of regulations, logistical challenges, and pre-existing business alliances that effectively blocked it from huge segments of the market.
This time, Amazon has the scale and reach to pose a serious threat to the pharmacy sector, despite the challenging economics. Also, the retail pharma scenario in India is highly fragmented and no one store holds a bulk of customers like PBMs do in the US. Consolidation if at all, is rare and this likely explains why Amazon plans to buy stake in India’s second largest retail chain with close to 1500 pharmacy outlets.
“We are just trying to figure out what we learned in other industries and how we have architected our own infrastructure to figure out how we can bring that to healthcare and help healthcare migrate to simpler solutions. “ – Chris Holt
Amazon’s biggest advantage in the area is that it is comfortable operating at loss or on very low margins, something that Indian retailers abhor. With the entry of Walmart (through Flipkart) and now Amazon, the margins will see new lows. This augurs well for patients, but not for drug manufacturers who will see squeezed profits but cannot escape this business since it will be volume intensive.
I had expected Amazon to be more interested in recently established online pharmacies instead of brick and mortar ones, except that Amazon already has an established presence in the online space in India. They have a well-functioning logistics arm that serves their Prime customers. This can surely be used for drugs distribution also. What they didn’t have was a brick-and-mortar format presence. Considering the hazy regulations around online pharmacies and the continuing habit of customers purchasing from brick-and-mortar pharmacies than online, its possible that Amazon sees the brick-n-click model as more India-centric.
I also believe that Amazon understands Indian consumers better than most other pharma players including retailers due to their dependence on data and business intelligence. So, this move could be better thought out than we can possibly see at the moment.
About data privacy rules and other regulations in the healthcare space, I think that is a battle Amazon has already fought through its terrific presence in India. How data privacy rules shape up in India will be interesting to observe, but my personal belief is that it will by and large mimic the GDPR. Amazon understands GDPR and should therefore be comparatively better prepared. Policy makers however, must be wary of online giants trying to influence policy to their advantage.
It would quintessentially not be Indian if we didn’t protest anything and everything at first and then buckle down quietly later. ‘Dharna’ or protests from retail chemists or opposition from the government on a potential entry of Amazon in the pharmacy space is expected. Online pharmacies are being vehemently opposed by the traditional pharmacy owners, but their concerns are mostly unfounded leading govt to announce “policy papers” that are supportive to e-pharmacies. In my opinion, it would be quite stupid to expect Amazon to only stay in the online pharmacy space. If successful, it would not be too long before Amazon disrupts most of the current model – either alone or with the entry of other tech giants.
“We aren’t trying to fit into any traditional definition of how things work in healthcare. We’re trying to bring our own capabilities to the market. We’ve seen a tremendous willingness among our customer base to try out new things even though they know that it might not be something that they’re used to.” – Chris Holt
In the past, Amazon has shown itself to have a ruthless, ‘winner-takes-all’ approach and it is that monopolistic approach to business that will worry the government more than anything else. But, if patients, caregivers and consumers are happy, the ‘Amazonization’ of Healthcare will be complete.