Why Amazon Is Going to Go After Healthcare

All everyone talks about in Silicon Valley is the idea of “disruption” and industries being turned on their heads. Whether it is Uber knocking out the taxi industry or Google/Facebook turning the advertising industry upside down, what is really happening is traditional “monopolies” are being destroyed because they aren’t offering as much value as they should.

So if you were a big company like Amazon, you would start looking for more businesses where the value doesn’t match the cost. Two would come to mind: education and healthcare.

Education is overpriced and leaves students with loads of debt, but it is protected by its high brand value and employers still see a degree as a must-have. Healthcare, however, is open for reinterpretation. Costs are going up and satisfaction is going down. There must be a way to provide healthcare more efficiently.

We are beginning to see this as retail alternatives offer similar services without any of the drawbacks of traditional healthcare. And Amazon has already begun to partner with Berkshire Hathaway and JP Morgan to build out a better healthcare system for their 1.2 million employees. They can basically reinvent the system on a small scale. And after that? They can go after the whole industry.

Why Amazon?

Unlike the other tech companies, people trust Amazon with their data and Amazon is willing to take short-term losses in order to dominate in an area. Initially, you might think that Apple has the advantage on the data front, but their information is very overrated in terms of utility.

Amazon, on the other hand, has a wealth of data on the foods we eat, how our clothes fit, what lifestyles we lead, how wealthy we are, and whether we are in a relationship or have a family. If that isn’t a holistic measure of health, I don’t know what is!

An Endless Opportunity

Where Amazon can do really well is by delving into this business without letting it hurt their stock price too much. Investors are used to the idea that Amazon takes losses and are unlikely to sell in the same way they would for other companies like Apple.

Additionally, Amazon knows which businesses to get into. Realistically, they don’t need to be in low-margin businesses. There are so many other places for them to attack, that it doesn’t make sense for them to allocate capital where they might earn lower returns. Instead, they would facilitate the transactions using their already established platform. For the more profitable segments of the healthcare sector, they will just go into business themselves. This would be analogous to Amazon being an e-commerce platform that is beginning to sell private label goods (on the most profitable items).

Finally, with all this data it would be easy for Amazon to set up as a high-level health insurance provider. They can pick off the healthiest people and have an information advantage over everyone else in the industry.

Basically, Amazon is well positioned to jump into this industry and kill it. They’ve already signaled their interest (causing a massive drop in the healthcare index) and begun to work on a test project with Berkshire Hathaway and JP Morgan. It is just a matter of time now…

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