Earlier this year, Amazon announced they were partnering with JPMorgan Chase and Berkshire Hathaway to create a new healthcare company for their employees.
What does this mean for healthcare payers and providers?
I spent 20 years working in retail analytics before moving to healthcare – and I closely tracked Amazon as they captured retail share one step at a time. From this unique vantage point, it’s clear what Amazon’s intentions are, what the future will hold, and what healthcare companies can do to prepare for this new competition.
For a peek into the crystal ball, let’s rewind a bit to last summer when Amazon announced their acquisition of Whole Foods.
Amazon’s grocery disruption
Amazon built an impressive supply chain around moving brown boxes to specific destinations with impressive efficiency. Through years of nonstop growth, Amazon captured 30% of the overall retail market. Today, Amazon sells six times as much merchandise online as Walmart, Target, Best Buy, Nordstrom, Home Depot, Macy’s, Kohl’s and Costco—combined.
But there is a $250 billion-dollar segment of retail that doesn’t do well in cardboard boxes: perishables. Fruits, vegetables, meats, and dairy require special handling including refrigerated transportation and storage, special ripening rooms, and all the personal human attention it requires to pick out that one moldy strawberry or bruised apple.
Amazon wants to capture 30% of this market too, but they kept failing at their attempts to build a perishable supply chain from the ground up. They purchased Whole Foods – not because they wanted the stores but because they wanted the refrigerated distribution centers, ripening rooms, trucks, and most important, the relationships and contracts with the growers and importers.
So, what do ripening rooms have to do with healthcare? Again, Amazon isn’t doing this because they want to run a health plan; there’s something much more important to them. To understand the second piece of the puzzle, we need to rewind even further.
How Amazon built its empire
Amazon didn’t start out selling books because they wanted to be a book store. They started selling books because they needed to sell something (anything) to achieve what they really wanted to accomplish.
When Jeff Bezos started Amazon in 2000, he immediately acquired the www.relentless.com domain name, which to this day redirects to Amazon.com. He decreed that every day at Amazon would be “Day One.” Seventeen years later, the company continues to run in startup mode, with one twist that makes all the difference.
Most technology companies start by first raising money then spending a tremendous amount of R&D building a software package. The software needs to be almost 100% functional before they can go out and find a first customer who will buy it.
Amazon didn’t want to wait to find the perfect first customer; instead, they started by being their own first customer.
Jeff Bezos wanted to build a retail platform where everyone would sell their goods through with the end-goal being to take a cut of all retail transactions. To start, they need to find a perfect retailer who would be patient enough while they built and perfected their selling platform. Instead of finding a customer, Jeff Bezos started his own store selling books, thus Amazon Bookstore became Amazon’s perfect first customer.
Being their own first-customer served Amazon well and it’s their modus-operandi for all expansion activity. Whole Foods stores act as the "first customer" of Amazon's perishable supply chain.
Amazon Healthcare is following the classic Amazon recipe. Amazon will become its own “first customer.” This gives them a huge advantage: Amazon’s own employees will be patient enough to put up with the technology snags and quirks that comes with all new technology – and the company can ask employees to help the software engineers understand how to refine it.
Once the platform is working, you’ll see Amazon announce they plan to “open Amazon Healthcare to the public in select markets.”
The 3 steps Amazon will take to “Land and Expand”
Healthcare companies need to begin scenario-planning what might happen in the new Amazon world, because it’s coming. Here are three steps Amazon will take to disrupt the healthcare industry:
- Amazon’s first move will be to gain customers through extremely competitive pricing. Historically they’re willing to lose money in order to win the customers.
- Amazon will create an effortless experience that’s extremely simple and fast to do what customers want to do and let customers know what they want to know. This builds loyalty to Amazon.
- Once customers become loyal, Amazon will ‘own the customers.’ This gives Amazon a huge advantage – every person must come to them and play by their rules. Payers and providers will have little choice but to participate and transact on the marketplace that Amazon creates. Reviews will keep quality high and ‘buy from other providers’ creates competition that keeps the prices low.
How to defend against Amazon
For healthcare payers and providers, the most important first-step is to create an effortless experience for your customers. For example, look at these three experiences:
- How easy is it for your patients to make an appointment? Is it as easy as Amazon’s “Buy Now” button?
- If patients need to refill a prescription, what steps do they have to take? Is it as easy as Amazon’s “Tap Below to Reorder” button?
- When patients file a claim, how easy is it for them to know when the claim is being processed? Is it as clear as Package Tracking?
The biggest challenge for healthcare to compete with Amazon
One of the most challenging concepts for healthcare will be to embrace the customer-centric culture. For years, healthcare culture has been “The doctor is always right,” which is the polar opposite of Amazon’s mantra “the customer is always first.”
Amazon will force a radical cultural change upon healthcare. Payers and providers who can change will be in the best position to survive –and thrive—in an Amazon Health world.
AMAZON's first step
I predict Amazon’s first step will be to go after a $450 Billion-dollar market that does fit well into brown boxes: pharmaceuticals. This is Amazon’s primary reason behind their move into healthcare: capture 30% of the $450B pharmaceuticals business—and become the world’s largest pharmacy.
If Jeff Bezos’s overarching market power frightens you—and it should—it’s important to understand why Amazon’s shift to healthcare is about a lot more than providing care for his employees. It’s time that healthcare payers and providers identify where they need to improve their relationships with their customers and build the necessary infrastructure to deliver the experience their customers want.
Are you ready to change the healthcare system? Read our blog, Breaking Healthcare.
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