Amazon Is Shutting Down Its Healthcare Unit: What You Need to Know
Soon after announcing that it will purchase primary care company One Medical (ONEM) - Get Free Report, Amazon (AMZN) - Get Free Report reported that it is shutting down its Amazon Care business.
As a $3.9 billion all-cash transaction, the One Medical purchase will be Amazon's third largest acquisition, behind only the deals to buy grocery chain Whole Foods and Hollywood studio MGM.
If Amazon is serious enough about healthcare to spend that much money on a single company, shouldn't investors have expected further investments into Amazon Care, instead of its being shut down?
Actually, the answer is no.
One Medical is an Amazon Care competitor. Now that the e-commerce titan is paying for its business, there's no longer any need to keep investing in its in-house healthcare unit.
Figure 1: Amazon Is Shutting Down Its Healthcare Unit: What You Need to Know
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(Read more from the Amazon Maven: Amazon's Acquisition Spree: 3 Sectors the Company Could be Aiming For)
Why Did Amazon Shut Down Amazon Care?
The truth is, Amazon Care was hardly poised to achieve any real success. The Seattle-based behemoth tried to gain scale by offering its health services to its own employees and to gain market share via its Haven partnership with JPMorgan Chase and Berkshire Hathaway.
And even then, the service struggled to create a solid clientele.
On the other hand, One Medical already has an established customer base. The company owns 188 clinics and has 767,000 members.
Compared to Amazon Care, One Medical has more expertise, a better customer base, and a broader pool of services to offer. Therefore, it makes sense that Amazon has decided to limit its healthcare focus — and money — to the company.
“Although our enrolled members have loved many aspects of Amazon Care, it is not a complete-enough offering for the large enterprise customers we have been targeting and wasn’t going to work long-term,” said Neil Lindsay, senior vice president of Amazon Health Services.
Healthcare Is a Difficult Market, Even for Amazon
Even a cash-generating juggernaut like Amazon might find it difficult to dominate the healthcare sector — or at least that’s what Yahoo Finance senior reporter Alexandra Garfinkle argued.
For one thing, Amazon is not the first Big Tech player that has tried to disrupt the health sector.
For another, the healthcare industry is highly regulated and competitive. Consolidating a $4 billion industry would be rather challenging — although not impossible.
“At the end of the day, consumers will opt for affordable healthcare with good doctors who are available to resolve issues when needed. The benefit of an Amazon-owned healthcare system, however, is having a tech-first mindset, with a bias to scale, in delivering health care," stated Arjun Kapur, managing director of VC firm Forecast Labs.
New Acquisitions Ahead?
If Garfinkle is right about Amazon having a hard time consolidating the healthcare industry, the company's acquisition spree might continue. Amazon may target more healthcare companies that share synergies with One Medical's primary care business.
In fact, according to Business Insider, the next potential target for Amazon might be prescription app Express Scripts, which would enhance its pharmacy business.
The main obstacle to such an acquisition would be the regulatory authorities and how they perceive Amazon's attempt to disrupt another industry.
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