"From Healthcare To Payments: Supposedly ‘Amazon-Proof’ Industries Are Turning Out To Be Vulnerable" (AMZN)
From CB Insights:
As Amazon continues eating up industries as varied as grocery, logistics, and apparel, startups and investors are looking for a place to hide. Where won’t Amazon go? What sectors are Amazon-proof?
Analysts, business leaders, and journalists are hunting for the safe
spaces. But are the “safety zones” they’re spotting really as safe as
analysts make them sound? When it comes to most industries, the question
isn’t whether Amazon will enter or not; it’s how the internet giant will enter, and how big the impact will be.
Following a few recent reports on industries that could evade Amazon’s capture, we used intelligence from our database and our Amazon Strategy Teardown to take a critical look at whether so-called “Amazon-proof” sectors are good hiding places (or not).
Payments
According to a recent Goldman Sachs report, Amazon is not “an imminent threat to PayPal or the card networks.” But
imminent isn’t the issue; in this area, Amazon is a looming threat
extending into all aspects of the online payments and financial-services
ecosystems.
Goldman’s analysis pits Amazon Payments against PayPal, looking at
the threat entirely in terms of merchant volume (where PayPal has the
upper hand). Since Amazon Payments has seen middling success to date
(with just $6B processed in 2016 compared to PayPal’s $336B, according
to Goldman reports), and since PayPal remains available at a
reported 90% of the same places Amazon Payments is, PayPal been deemed
by some as “Amazon-proof,” for now.
But that limited view discounts Amazon’s customer-first focus and
larger financial services vision. Data shows that Amazon has been
interested in financial services — either to reduce friction in the
purchasing experience, or to own more of the payments value chain —
since at least 2003, when the company applied to patent a network-based transaction processing system.
As they absorb more and more of that value chain, Amazon Payments may
evolve into an integrated payments platform underneath the “Bank of
Amazon.” Consider the recent launch of Amazon Cash, which allows
individuals to deposit cash into their Amazon accounts by presenting a
smartphone-scannable barcode at the cash register of a physical store.
That initiative, designed to welcome underbanked individuals into the
Amazon ecosystem, is just one operational area in which Amazon already
behaves like a bank: the company partnered with Wells Fargo in 2016 with
a mind for offering student loans to Prime customers, and the Amazon
Lending service has surpassed $3B in loans to small businesses since it
was launched in 2011.
The company is also now offering thousands of loans to e-sellers in
India, the world’s largest e-commerce market, and has also been quietly
expanding its relationship with Stripe, using the unicorn online payments startup to handle a growing share of its e-commerce transactions.
Those underpinnings have “primed” the company’s payments foundation
to serve individuals, not just merchants. As Amazon keeps making it
easier for customers to both store and spend their money in the
Amazon ecosystem, more of them will — extending the company’s infamous
network-effect cycle, pictured below, further into financial services.
As sellers follow customers over to Amazon, it will put PayPal in a
more precarious place than Goldman’s projections play it. (As for
Amazon’s ambitions in banking and card networks generally, note the
rumors that Amazon was interested in buying Capital One in Q1’17.)
Pharma
Several analysts have also recently cited pharmaceuticals as an
Amazon-proof industry. On Investors Alley, for example, Tim Plaehn remarked that
he doesn’t “expect Amazon to get into the drug making business anytime
soon.” This seems sound: while Amazon made a few moves in Q1’17 toward
serving customers’ health in diagnostic ways (for example, investing in AI-powered cancer detection start-up GRAIL
and integrating WebMD with Alexa), we have yet to see them
invest resources into drug discovery- or development-related efforts to
date....
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