Amazon (AMZN -1.52%) may be best known for its e-commerce and cloud computing businesses. But in recent years, the tech company has been expanding into another big market: healthcare. It has become a player in the pharmacy, telemedicine and primary care spaces.
However, Amazon recently announced that it is taking a step back on one of those fronts. The company has decided to shut down Amazon Care, its telemedicine and personal health business. Is this a sign of weakness for Amazon’s broader plan to grow in the healthcare world?
The Amazon Healthcare Picture
It’s important to consider the whole picture of Amazon’s healthcare. The company entered the business in 2018 when it bought mail-order pharmacy PillPack. He rebranded that operation to create Amazon Pharmacy. Amazon Prime subscribers can take advantage of the best prices, free delivery of their prescription drugs and the availability of pharmacists 24/7.
Amazon Care launched in 2019. Amazon initially offered the service only to its own employees, then expanded it outside the company. Turns it off now. Management said that Amazon Care was not a “complete enough” offering for large enterprise customers and for that reason the business would not work in the long term. In the virtual marketplace, Amazon faced off against a market leader Teladoc, among other smaller players. Teladoc already serves more than half of the Fortune 500 companies and expects revenue of $2.5 billion this year.
But Amazon recently announced another big move in healthcare. About to acquire One medical — provider of in-person and virtual primary care in the US
So is Amazon’s move to shut down the healthcare business it created a sign of weakness? Especially since Amazon Care has put a big focus on telemedicine. And it’s one of the fastest growing healthcare markets. The US telemedicine market is expected to grow at a compound annual rate of more than 15% between now and 2027, when it will reach nearly $26 billion, according to a report by Polaris Market Research.
The right decision
Amazon’s move to end Amazon Care is not a sign of weakness. This is a sign of wisdom. The company made the right decision to pull out and instead focus on a strategy that might be more profitable — buying a company with services that might be complete enough to attract the customers Amazon wants. More than 8,000 companies already use One Medical services for their employees, and the One Medical network includes more than 125 locations nationwide.
Acquiring One Medical will also help Amazon differentiate itself from pure-play telemedicine companies. By buying a strong player in this new business model that combines personal care and telemedicine, Amazon may have a better chance of success. And its offering can appeal to three audiences: those who prefer telemedicine, those who prefer in-person visits, and those who like a little bit of both.
With operations in both pharma and primary care, Amazon can really make its mark in the healthcare world. We also have to keep in mind that healthcare doesn’t have to be a huge growth business for Amazon. It is now a leader in e-commerce and cloud computing. The cloud computing business – Amazon Web Services (AWS) – is a key profit driver for the company, providing more than 70% of its total operating income last year.
Healthcare will be a great addition to Amazon’s portfolio of businesses. It is likely to contribute to the growth of the company over time. And if Amazon doesn’t emerge as one of the biggest players, that’s fine. The long-term performance of its two core businesses is reason enough to be bullish on this stock.
John Mackie, CEO of Whole Foods Market, a subsidiary of Amazon, is a member of The Motley Fool’s board of directors. Adria Cimino has positions in Amazon. The Motley Fool has positions on and recommends Amazon and Teladoc Health. The Motley Fool has a disclosure policy.