Many investors know Amazon (NASDAQ:AMZN) as the force that upended the book business as we know it, before setting its sights on the rest of retail. Amazon's deep inventory, low prices, and Prime two-day shipping have allowed it to capture roughly 50% of all e-commerce in the U.S.
Next -- and perhaps even more significantly -- Amazon upended the entire enterprise IT sector with its Amazon Web Services cloud-computing division. No longer do companies have to invest in and maintain their own servers and infrastructure. Now, enterprises all over can rent only the storage and computing functions they need, all while Amazon keeps that outsourced infrastructure up to date with the latest features.
Now, Amazon has its disruption platform set on two huge new industries. And recently, key executives in both industries shed some light on the coming Amazon onslaught.
Check out the latest earnings call transcript for Amazon.
Shipping and logistics
While United Parcel Service (NYSE:UPS) and FedEx (NYSE:FDX) have long been Nos. 1 and 2 in private U.S. shipping, it appears Amazon is now taking aim at this duopoly, as well as the even larger but beleaguered U.S. Postal Service.
The most stark expression of Amazon's ambitions didn't actually come from the company itself, but rather the CEO of another company in the industry, Stamps.com's (NASDAQ:STMP) Ron McBride. On its fourth-quarter call with analysts, McBride said it was ending its exclusive relationship with the USPS in order to foster relationships with not only UPS and FedEx, but also up-and-coming shippers, most notably Amazon.
Amazon has built a captive end-to-end shipping system for e-commerce, but it hadn't run its own planes prior to 2016. As McBride described, Amazon has been slowly building up its own air fleet since then, and it now runs 27 planes, with plans to have 40 in operation by June and more to come after that. But even with just its existing 27 planes, Amazon is shipping about 25% of its North American freight. One analyst expects that it could run over half of its shipments on its own planes by 2021.
Amazon has recently begun testing this "Shipping with Amazon" service in Los Angeles and London, whereby outside third parties can ship using Amazon's self-built infrastructure. McBride said:
With their own packages covering the high fixed cost of running their own captive logistics and package systems, their marginal cost of carrying additional packages will be low, and we expect that they will be able to offer their shipping services to third parties at a low price and still be able to make good margins. ... Also according to media reports, Amazon has launched SWA with pricing that is 10% below UPS and FedEx on average. They have also promised to cut out the additional surcharges and fees that the traditional carriers charge to their customers. For example, the residential delivery surcharge. ... We're expecting that Shipping with Amazon may follow a similar strategy as Amazon did with their Amazon Web Services business, where they offered up excess capacity in their own highly reliable systems, and because the infrastructure was already built, they were able to offer the solution at very attractive rates.
While many have long voiced skepticism that Amazon may eventually compete with UPS, FedEx, or the U.S. Postal Service, the CEO of Stamps.com is a believer -- in fact, he's rearranging his entire business and tanking his own stock price based on that premise. Is that proof enough?
Transforming healthcare, too
Amazon also recently set its sights on a second giant industry: the healthcare industry. Amazon has long been attempting to upend the highly regulated pharmacy business, and in 2018 made the bold move of acquiring PillPack, Inc. for $753 million.
PillPack is an online pharmacy that also helps patients manage their self-care at home. Amazon followed the move up by allowing patients to pay for drugs directly through their Health Savings Account (HSA) cards or Flexible Spending Accounts (FSA) directly through Amazon, as you would with a credit card. That saves patients the time and hassle of filing paperwork.
At least one former pharma executive thinks these moves position Amazon to upend the healthcare industry. In a recent interview on Yahoo! Finance, former Aetna CEO Mark Bertolini said that Amazon's actions with PillPack could be even more significant than Haven, Amazon's joint venture with JPMorgan Chase and Berkshire Hathaway, saying, "[Amazon's] move to do HSAs and FSAs through the cloud on his site is a bigger deal than anything Haven's done. ... His idea to go buy PillPack is not about buying drugs. It's about getting into the home."
Not only could Amazon use its scale to directly negotiate with drug manufacturers, but its Prime and PillPack customer relationships could also aim for better preventative care, thereby saving costly trips to the emergency room. "You can take care of people's transportation, food, fuel, and socialization in the home, particularly seniors, for cheaper than it is for one or two [emergency room] visits," Bertolini added.
A disruption platform
With Amazon already so large, some may wonder how much further it has to grow. Well, with a $450 billion U.S. prescription drug market, and a $125 billion market between the USPS, UPS, and FedEx, it appears Amazon's disruption engine may have many more years to run yet.