Why Amazon’s three biggest deals ever were for a grocery chain, a movie studio and a healthcare provider

Amazon it still generates most of its revenue from orders placed through its online stores, and most of its profits from its cloud computing arm. Both companies were built almost entirely in-house.

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

Amazon on Thursday said will buy One medical for $3.9 billion, marking a major expansion of the company’s move into healthcare. The primary care provider will join Amazon’s other health offerings, such as its online pharmacy, telehealth services and emerging diagnostics business.

One Medical was preceded by Amazon’s two biggest acquisitions to date Purchase for $13.7 billion grocery chain Whole Foods in 2017 and its Purchase for $8.45 billion of film and television distributor MGM Studios last year.

These deals underscore how much Amazon and other Silicon Valley giants like them Google, Facebookand Apple Emilie Feldman, a professor of management at the University of Pennsylvania’s Wharton School, has morphed into “modern conglomerates” in an effort to continue growing from their already huge bases.

“What they’re doing is a strategy of looking for growth in the adjacent areas of that core area, which in itself might be somewhat limited,” Feldman said. “So, e-commerce is e-commerce, but either we can kind of look at niches that might grow faster, like healthcare, or we can accelerate our ability to get in front of people with ads or something like that through MGM.”

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

Amazon also can’t make acquisitions in its core markets, lest it risk angering regulators who already want to scrutinize its market power. Instead, the company must buy heavily in areas where it has less of a presence, such as healthcare or autonomous driving.

The MGM and Whole Foods deals also tie into the company’s Prime subscription offering, which gives it a steady stream of recurring revenue from millions of consumers and drives loyalty.

A medical one might follow the same suggestion. Amazon has already added pharmacy benefits to Prime.

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

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

Since the mid-2000s, Amazon has poured money and top talent into breaking into grocery delivery with services like Amazon Fresh and Prime Now. But about a decade later, it is made little progress in addition to its grocery delivery service, it acquired Whole Foods, giving it industry expertise and a large footprint of physical retail locations.

Amazon’s Prime Video remains a serious competitor to its peers Netflix, Disney and other streaming services and the company spends billions of dollars every year to create original content for members of its Prime loyalty club. By capturing MGM, he secured Amazon immediate improvement of the content librarywhich gives it access to storied titles such as the James Bond catalog and premium cable network Epix, among others.

Similarly, Amazon has been involved in healthcare for several years. Amazon bought PillPack in 2018 for $750 million, and then introduced his own online pharmacy. It also launched Amazon Care, a service that offers both telehealth and in-person services, first for your employees before opening to other employers last year. The offer competes with One Medical.

Amazon has certainly been successful in diversifying with the businesses it has built at home. Launched in 2006, Amazon Web Services has grown into the market’s leading cloud computing platform, making Amazon a major player in business software and creation $18.5 billion of the company’s total $24.9 billion in operating income in recent years. Amazon has also become a strong competitor in online advertising, recently revealed the company recorded $31.2 billion in revenue in 2021, which is more than Microsoft, Snap and Pinterest ad revenue.

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

SEE: Amazon will buy One Medical for about $3.9 billion