Amazon Can Still Surprise Me

It’s Cyber Monday, and you’ve probably been shopping this weekend. In-stores sales on Black Friday rose 2.2% this year, whereas online sakes rose almost 8%, to $9.8b – over half of which was via mobile shopping.  Cyber Monday, though, is expected to outpace Black Friday’s online shopping, with an estimated $12b, 5.4% higher than last year. 

Lest we forget, Amazon’s Prime Day is even bigger than either Cyber Monday or Black Friday.  

Credit: Amazon

All that shopping means lots of deliveries, and here’s where I got a surprise: according to a Wall Street Journal analysis, Amazon is now the leading (private) delivery service.  The analysis found that Amazon has already shipped some 4.8 billion packages door-to-door, and expects to finish the year with some 5.9b.  UPS is expected to have some 5.3b, while FedEx is close to 3b – and – unlike Amazon’s numbers -- both include deliveries where the U.S. Postal Service actually does the “last mile delivery.” 

Just a few years ago, WSJ reminds us, the idea that Amazon would deliver the most packages was considered “fantastical” by its competitors.  “In all likelihood, the primary deliverers of e-commerce shipments for the foreseeable future will be UPS, the U.S. Postal Service and FedEx,” the then-CEO of Fed Ex said at the time. That quote didn’t age well.

Amazon’s growth is attributed in part to its contractor delivery program, whose 200,000 drivers (usually) wear Amazon uniforms and drive Amazon-branded vehicles, although they don’t actually work for Amazon, and a pandemic-driven doubling of its logistics network.  WSJ reports: “Amazon has moved to regionalize its logistics network to reduce how far packages travel across the U.S. in an effort to get products to customers faster and improve profitability.”

It worked.

WSJ calculations from company documents. Credit: WSJ

But I shouldn’t be surprised.  Amazon usually gets good at what it tries. Take cloud computing.  Amazon Web Services (AWS) in its early years was considered something of a capital sink, but now not only is by far the market leader, with 32% market share (versus Azure’s 22%) but also generates close to 70% of Amazon’s profits. 

Prime, Amazon’s subscription service, now has some 200 million subscribers worldwide, some 167 million are in the U.S. Seventy-one percent of Amazon shoppers are Prime members, and its fees account for over 50% of all U.S. paid retail membership fees (Costco trails at under 10%). There’s some self-selection involved, but Prime members spend about three times as much on Amazon as nonprime members.

The world’s biggest online retailer.  The biggest U.S. delivery service. The world’s biggest cloud computing service. The world’s second largest subscription service (watch out Netflix!).  It’s “only” the fifth largest company in the world by market capitalization, but don’t bet against it. 

I must admit, I’ve been a bit of a skeptic when it comes to Amazon’s interest in healthcare.  I first wrote about them almost ten years ago, and over those years Amazon has continued to put its feet further into healthcare’s muddy waters.

For example, it bought online pharmacy Pillpack in 2018. “PillPack’s visionary team has a combination of deep pharmacy experience and a focus on technology,” said Jeff Wilke, Amazon CEO Worldwide Consumer. “PillPack is meaningfully improving its customers’ lives, and we want to help them continue making it easy for people to save time, simplify their lives, and feel healthier. We’re excited to see what we can do together on behalf of customers over time.”

PillPack still exists as an Amazon service, but has broadened into Amazon Pharmacy. PillPack focuses more on people with chronic conditions who like the prepacked pills, while Pharmacy offers home delivery to other customers.  At its introduction, Doug Herrington, Senior Vice President of North American Consumer at Amazon, said: “PillPack has provided exceptional pharmacy service for individuals with chronic health conditions for over six years. Now, we’re expanding our pharmacy offering to Amazon.com, which will help more customers save time, save money, simplify their lives, and feel healthier.”

Amazon Pharmacy has since introduced RxPass, a $5/month subscription service for many common generic drugs, but it still hasn’t cracked the top ten U.S. pharmacies, so there’s work to be done. One pharmacy analyst writes: “Perhaps one day Amazon will be a true disrupter.  For now, Amazon is choosing to join the drug channel not fundamentally change it.”

PillPack’s co-founders have recently left.    

Earlier this year, after all the fumbling around with Haven and Amazon Care, Amazon bought One Medical. “We're on a mission to make it dramatically easier for people to find, choose, afford, and engage with the services, products, and professionals they need to get and stay healthy, and coming together with One Medical is a big step on that journey,” said Neil Lindsay, senior vice president of Amazon Health Services.

Credit: Amazon

Then this month Amazon sought to entice Prime members to join One Medical by offering membership for $9/month, or $99 per year.  "When it is easier for people to get the care they need, they engage more in their health, and realize better health outcomes,” said Mr. Lindsay. “That’s why we are bringing One Medical’s exceptional experience to Prime members—it’s health care that makes it dramatically easier to get and stay healthy.”

Of course, One Medical is only in 25 metro markets, with some 200 doctors office, and it doesn’t contract with every insurance plan. Plus, One Medical CEO Amir Dan Rubin is already on his way out of the door. Scaling will not be easy.

Amazon’s success with its healthcare ventures is hard to tell.  HT Tech reports that monthly active users of the One Medical app are up 16% since the acquisition, and that Amazon claims Amazon Pharmacy doubled its active customers from 2022 to 2023. Still, Lisa Phillips, an analyst with Insider Intelligence, scoffed: “It really hasn’t made a big dent. I don’t think anybody is scared of it anymore.”

Maybe. Healthcare is hard, and usually confounds outsiders who aren’t familiar with its byzantine structures.  But I look at it this way: Amazon has been delivering its own packages for less than 10 years, and now it is bigger than UPS and FedEx.  That’s not nothing. So for the first time I’m starting to think that maybe Amazon can make its mark in healthcare. 

Amazon the biggest healthcare company in ten years?  Don’t bet against it.