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One Medical Joins Whole Foods, MGM as Strategic Growth Buys

A sign is displayed outside a One Medical practice on July 21, 2022 in San Rafael, California.

Justin Sullivan | Getty Images

Amazon still derives the bulk of its revenue from orders placed through its online stores, and the bulk of its profits from its cloud computing arm. Both of these businesses were built almost entirely in-house.

But Amazon’s biggest acquisitions show the company is ready to buy growth in markets adjacent to its core competencies.

On Thursday, Amazon announced it would buy One Medical for $3.9 billion, marking a major expansion in the company’s evolution into healthcare. The primary care provider will join other Amazon healthcare offerings such as its online pharmacy, telehealth services and fledgling diagnostics business.

Prior to One Medical, Amazon’s two largest acquisitions were its $13.7 billion purchase of grocery chain Whole Foods in 2017 and its $8.45 billion purchase of film and television distributor MGM. Studios last year.

These deals underscore how Amazon and other Silicon Valley giants like Google, Facebook and Apple have transformed into “modern conglomerates” in pursuit of continued growth from their already enormous bases, according to Emilie Feldman, professor of management at the University of Pennsylvania. Wharton School.

“What they’re doing is a strategy looking for growth in adjacencies to this core area that might be a bit limited on its own,” Feldman said. “So e-commerce is e-commerce, but can we kind of look for niches that might grow faster, like healthcare, or can we accelerate our ability to get noticed through commercials or something via MGM.”

“They need to move into new areas where they can find growth, and healthcare is ripe,” agreed Lisa Phillips, senior digital health analyst at Insider Intelligence. “With this acquisition here, they’re saying we’re here to win it now.”

Amazon also cannot make acquisitions in its core markets for fear of angering regulators who are already keen to examine its market power. Instead, the company has to buy big in areas where it has less of a presence, like healthcare or self-driving.

Amazon launched one-hour Grocery Pickup at all Whole Foods stores nationwide on Wednesday.

Amazon

The MGM and Whole Foods offerings are also linked to the company’s Prime subscription offering, which provides it with a steady stream of recurring revenue from millions of consumers and encourages loyalty.

One Medical could follow this same model. Amazon has already added pharmaceutical benefits to Prime.

“They can offer discounted healthcare to Prime members, which creates more loyalty around Prime,” said Brian Yarbrough, principal analyst at Edward Jones. “It’s another feather in their cap.”

Amazon did not say on Thursday whether the acquisition would lead to an expansion of health-related Prime benefits. Neil Lindsay, senior vice president of Amazon Health Services, who previously led Amazon’s Prime business, said the company believes “healthcare is high on the list of experiences that need to be reinvented.” .

Buy or build

All three acquisitions took place after Amazon made a serious effort to build these business areas on its own.

Beginning in the mid-2000s, Amazon poured money and top talent into making inroads into grocery delivery with services like Amazon Fresh and Prime Now. But about a decade later, he had made little headway beyond a grocery delivery service and acquired Whole Foods, giving it industry know-how and a large physical outlet footprint.

Amazon’s Prime Video remains a strong competitor to Netflix, Disney and other streaming services, and the company spends billions of dollars each year creating original content for members of its Prime loyalty club. Picking up MGM gave Amazon an immediate boost to its content library, giving it access to landmark titles like the James Bond catalog and premium cable network Epix, among other assets.

Likewise, Amazon has been dabbling in healthcare for several years. Amazon bought PillPack in 2018 for $750 million and then rolled out its own online pharmacy. It also launched Amazon Care, a service that offers both telehealth and in-person offerings, first for its own employees before opening it up to other employers last year. The offer competes with One Medical.

Amazon has certainly managed to diversify with businesses it has built internally. Amazon Web Services started in 2006 and became the market-leading cloud computing platform, making Amazon a major player in enterprise software and generator $18.5 billion of the company’s $24.9 billion in operating revenue over the past few years. Amazon has also become a formidable competitor in online advertising, recently revealing that the company recorded $31.2 billion in revenue in 2021, surpassing ad revenue from Microsoft, Snap and Pinterest.

But the company has also shown that if it can’t build fast enough, it’s ready to buy.

LOOK: Amazon to buy One Medical for about $3.9 billion

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