Can Amazon Disrupt More Markets? Let Me Count the Ways
Amazon may be poised to enter the pharmacy as well as grocery business; it trains customers to expect quick delivery.
Some people think Amazon is a major online retailer, others think it's an infrastructure-as-a-service provider and others think it's an electronic household device purveyor. As most people can tell you, it's all of these things. In fact, it's these things and a whole a lot more than the sum of its parts.
When I think of Amazon, I tend to think of a company that's training the next generation of consumers to come to it. It's not an online retailer; it's an amalgamation of many thousands of retailers who depend on Amazon.com to sell their wares. Name a partnership of similar caliber and scope. Costco, Target? Not even close. Wal-Mart? In limited ways, it can match Amazon's offering but it doesn't have the automated online systems and automated distribution system to match Amazon's delivery capabilities.
At last count, Amazon has acquired 85 million Prime customers, according to Consumer Intelligence Research Partners. That number is up 35% from end of the second quarter last year, and has doubled since 2015. They pay $99 a year for the privilege of shopping at Amazon and get free shipping in return. Are you ready to pay $99 a year to shop at Target or Wal-Mart?
Second, these "members" are not sitting on their hands after paying their dues. They spend an average $1,300 a year on the Amazon site. They're used to using online ordering systems, they know a lot about searching for the single item that will trigger a purchase decision and they want their goods delivered right away. In short, they are an active, well-heeled and up-to-date clientele that represents a core of online shoppers far into the future.
Today on Prime Day (a faux holiday if there ever was one), Amazon is giving them the option of placing an order and receiving a shipment within two hours, provided they're in or near one of the 30 cities where it offers its same day delivery services. If you're on vacation July 11 and you don't have a shirt for a formal event you didn't expect to attend, Amazon will deliver one to you.
One reason people don't buy their groceries online is because they wish to see and test the freshness of the food they're about to consume. Amazon is training its Prime customers to believe they can pick out fresh goods online and receive them in two hours, via with Prime Fresh. The delivery comes with an added price tag of $14.99 a month to a Prime membership, which modern shoppers consider a fair trade-off for the time saved and gasoline not consumed by several trips to the supermarket.
That of course is why Amazon's $14 billion purchase of Whole Foods struck so many observers as a big deal. In effect, it got 460 small distribution centers located in the heart of Amazon-using, urban populations in the U.S., Canada and the UK. The notion of Prime Fresh just moved a little closer to millions of people.
By continuing to operate Whole Foods stores, Amazon will be able to implement its Just Walk Out technology that has shoppers calling up an app on their smart phones and receiving a notice of what their account will be charged as they walk out again, without standing in a checkout line. There's a YouTube video of Just Walk Out in action here.
Once a modern, well-financed population of buyers becomes accustomed to ease of shopping for food stuffs and prompt delivery, why not add an Amazon pharmaceutical company to its line up and start prompt delivery of prescription and over-the-counter drugs? Why should pharmacists at corner drug stores continue to flourish when they require the customer to come to them and stand in line at the checkout counter? Why not let the customer Just Walk Out, or better yet, disrupt the corner drug store business by delivering prescriptions to the patient's home?
Amazon is already doing this in Japan and is openly testing the idea in other ways. It hired Mark Lyons, formerly of Premera Blue Cross, in March as a pharmacy benefits manager to keep Amazon employees supplied with drugs under its health care program. His job will be to build out an internal distribution system that might later be scaled up for an online service, according to the American Pharmacist Association.
Granted there are regulatory hurdles yet to be crossed. But stock market analyst Motek Moyen predicts Amazon will be in the pharmacy business within two years and adding a potential $20 billion to its revenue stream.
But surely the major department store, drug and grocery retailers will be mounting their own online shopping systems to compete. You might think so, but last year Amazon sold six times the amount of online goods as Nordstrom, Macy's, Home Depot, Best Buy, Target and Wal-Mart combined. If these giant retailers aren't competing effectively, who will? Amazon last year generated 30% of the growth in all U.S. online retail sales by itself.
Automated systems that capture online transactions, heavily automated distribution centers that reduce the cost of delivering goods, truck fleets and trained crews to get the goods into the hands of consumers in record delivery times, what else could Amazon do that would disrupt the existing retail scene?
With its tendency to experiment, Amazon could construct its own wireless network as a service, and sign up consumers to tie in their Alexa-powered Echo ordering devices. Echo could also serve as the collection point of information off the home network, calibrating when the washing machine detergent was about to run out or a new filter needed to be delivered for the furnace. Prime customers will be early implementers of smart home networks and will grow accustomed to the way it takes over the care and feeding of household appliances.
That one isn't in the works yet, but in May, the Wall Street Journal reported that Amazon CEO Jeff Bezos held talks with Dish Network Corp. CEO Charlie Ergen. For just a little more a month, Prime customers may be able to get their own Internet of Things with which to power their homes and business.
Charles Babcock is an editor-at-large for InformationWeek and author of Management Strategies for the Cloud Revolution, a McGraw-Hill book. He is the former editor-in-chief of Digital News, former software editor of Computerworld and former technology editor of Interactive ... View Full Bio
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