CB Insights: Four industries that Amazon will disrupt in the next five years
Amazon and market disruption have become synonymous. And it looks like that will remain the case at least for the near future, according to a new report.
A CB Insights research brief outlines the four industries where the online giant’s disruptive intentions are clearest. It also names the three industries where Amazon’s efforts are more nascent.
Here is a very brief overview of the CB brief (all comments are from the brief). For the full report go to cbinsights.com/research/report/amazon-disruption-industries.
Pharmacy chains like Walgreens and CVS have already seen their retail revenues suffer from the rise of Amazon’s convenient “everything store.” Today, they have a new challenge: In addition to disrupting their “front of store,”Amazon is angling to disrupt their core business of drug distribution.
Amazon’s interest in disrupting the drugstore is decades old. In 1999, Amazon bought 40% of Drugstore.com (at the time, a pre-product and pre-revenue company). Bezos would later hire its CEO, Kal Raman, to run hardlines (retail products which are hard to the touch) at Amazon.
Amazon proceeded to lay low in the pharma space until 2016 when Amazon reportedly received its first licenses to sell pharmaceutical products and drugs from various state boards across the United States.
In 2018, Amazon made another move towards gaining footing in this notoriously complex and highly regulated space: it acquired PillPack in a deal worth around $750 million.
Amazon’s acquisition of a $100 million-plus business with pharmacy licenses in all 50 states caused the tickers of Walgreens, CVS, and Rite-Aid to lose about $11 billion in value overnight — and represents Amazon’s first significant move not just against the major drug store chains, but against the powerful pharmacy benefit managers (PBMs) that manage the dispensation of drugs for major employers, and others in the healthcare supply chain.
2. Small business lending: A direct, data-driven source of financing
Amazon took its first steps into commercial loans back in 2011, when the company began offering small-business loans to merchants participating in its Amazon Marketplace via its new Amazon Lending arm. At that time, conditions were well-suited for Amazon’s entry into the commercial lending sector: the global financial crisis of 2008 had shaken confidence in even the largest commercial banks, initiated a credit crunch, and left millions of small businesses struggling to secure the capital they needed to survive.
But seizing that lending opportunity wasn’t an isolated move. Over the last decade, Amazon has taken significant steps into the payments space, credit cards, business checking, and various other financial functions — in other words, doing everything a bank does short of actually applying for a license to become a bank.
Of all these functions, however, Jeff Bezos has been the boldest about his plans in the lending space. And considering Amazon’s thousands of third-party merchants, that’s not surprising.
Between 2011 and 2017, Amazon loaned more than $3 billion in short-term loans to merchants in the United States, United Kingdom, and Japan.
Amazon has a vast number of independent merchants that use its platform, information on the financial health of those businesses, and the customer-first culture to build a compelling lending platform.
3. Online groceries: Faster delivery and better logistics
In 1998, Jeff Bezos and his biggest VC advocate, John Doerr, began investing in promising dotcom startups trying to bring the grocery store online. Most would go bankrupt — Pets.com, Wineshopper.com, Homegrocer.com, and delivery service Kozmo.com — but the experience seeded Amazon’s future ambition to dominate the US grocery industry, estimated to be worth more than $800B.
A decade later, Amazon would hire four former executives from Webvan, a prominent online grocery company and failure of the dot-com era, and set its sights on online grocery again. Today, that project, Amazon Fresh, has merged with the 2-hour Prime Now delivery service. In select metropolitan areas, Amazon is already delivering groceries from both its own warehouses and Whole Foods stores within 2 hours.
Today, online groceries represent one of the biggest opportunities in retail. Many consumers have embraced online grocery shopping, particularly younger, tech-savvy shoppers who lack time to shop and are willing to pay a premium for the convenience of door-to-door grocery delivery. Now, supermarket chains all over the country are battling for their attention.
Traditional grocery retailers, however, have struggled to provide consumers with both the seamless experience they expect from online retail and competitive prices — cracking the market is being made all the more difficult by Amazon’s aggressive expansion into the online grocery vertical.
With its constantly expanding nationwide logistics network and immense spending power, Amazon is a formidable opponent in an already intensely competitive vertical.
4. Payments: Giving small merchants a cheaper option
Amazon has been building out a presence in the payments space for years, with Amazon Cash, Amazon Reload, Amazon Pay, and Amazon Prime Visa.
The logic behind this kind of financial ecosystem is clear: if the company can get consumers to put money into an Amazon-owned account, they will ultimately spend more with Amazon. For example, the Amazon Prime Visa rewards users with Amazon credit.
If Amazon can create a payments channel that’s good for Amazon consumers and saves merchants money, it could have the edge it needs to disrupt the payments industry in a tectonic way.
As to what industries Amazon could go after further on down, CB Insights listed mortgages (“owning the distribution end”), home & garden (capitalizing on supply chain expertise”) and insurance (building value into the shopping experience”). The disruptive possibilities in these industries remain speculative for now, the report noted, but with Amazon’s scale and advantages, they could soon be a reality.
For the full report, click here.
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