Behind The Scenes: Why Amazon Acquired PillPack
In June 2018, Amazon bought online pharmacy PillPack for $753M. The deal confirmed a long-held belief: Amazon would eventually make a play for the $500B US prescription drug market. In the time since the news became official, Amazon hasn’t much to say about its intentions. But a new report from CNBC pulls the curtain back on the PillPack acquisition.
“…an early PillPack investor, describes [prescription drugs] as a ‘complicated and expensive’ space with a potentially ‘big prize.’ In other words, it’s the type of business that Amazon CEO Jeff Bezos loves — huge dollars, antiquated technology and so many regulatory barriers that the ‘smart money’ is staying far away.” – CNBC
PillPack is but one piece of Amazon’s plan to disrupt the $3T US healthcare industry. The e-commerce giant stands to gain older, high-value customers by plugging PillPack into its network. In 2018, the average PillPack user was in their 50s or 60s and worth $5,000 in revenue. Comparatively, the average Prime member spends $1,300/year on Amazon after the $119 subscription.
PillPack’s PharmacyOS—a software that helps pharmacists and patients manage multiple prescriptions—is also of great interest to Amazon. While the company uses this system internally, it’s working to onboard pharmaceutical makers, doctors, and insurance companies. Succeeding in doing so would mean that PillPack doesn’t just serve the consumers, PharmacyOS could become the operating system for an entire industry.
Amazon Prime Health?
In 2018 alone, Amazon joined JPMorgan Chase and Berkshire Hathaway for a secret healthcare project, spent $1B to acquire PillPack, announced a machine learning service that mines patient medical records, and began selling medical supplies via an app where doctors prescribe through Amazon links.
All of these developments point toward the game-changing potential of Prime Health — a would-be (maybe could-be) service that offers medical and health services similar to Amazon Prime. It’s a move impactful enough that, if enacted, would “scare the shit out of everybody”. At least that’s how NYU professor Scott Galloway referenced it in an episode of Pivot Podcast.
Galloway went on to speculate about Amazon’s healthcare pursuits by pointing out that they will know all the indicators of whether a person is in good or poor health: they’ll know a consumer’s body mass index based on clothing size, they’ll know how healthy an individual’s diet is, what pharmaceuticals they’re taking, and if they’re wealthy.
Armed with that information, Amazon could begin to ensure the healthiest, most actuarially appealing households in America with a simple Alexa prompt: “Hi Prime member, would you be interested in exploring ways to cut your healthcare costs in half with Prime plus insurance?”
Game changer.
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