News — Recent speculation about Amazon seeking to sell prescription medicines has prompted the question: Will pharmaceuticals will be the next industry Amazon disrupts?
Vijay Gurbaxani is the Taco Bell Professor of Information Systems and Computer Science and Director of the Center for Digital Transformation (CDT) at the UCI Paul Merage School of Business. His research, teaching and consulting interests are at the nexus of business strategy and information technology (IT). He focuses on analyzing how emerging information technologies enable business model innovation; on developing and evaluating business-driven strategies for the sourcing of information services; and on valuing IT investment. His approach is distinctive in its use of economic principles as the lens with which to analyze strategic management questions.
Professor Gurbaxani has extensive experience in management education and advisory services, having lectured worldwide on management issues, taught extensively in degree and executive education programs, and consulted for and provided research expertise to many organizations, including Fortune 500 companies, technology service providers, and leading consulting firms.
Gurbaxani stated:
"Amazon’s entry into “new (to them)” industries can have devastating consequences. The stock market reaction to the announcement of its purchase of Whole Foods was remarkable. Grocery retailers and their suppliers lost a total of $35B in market value on that day. Kroger was down almost 9%. For good cause it turns out. On its very first day as an Amazon subsidiary, Whole Foods cut prices on hundreds of items, attacking the modest margins that most retailers are able to achieve.
"Amazon brings incredible assets: a massive and extraordinarily loyal customer base, an unmatched technology platform, a willingness to play the long game, and more. But its key competitive advantage is that it thinks like a software company. It understands that the big value creation opportunities in the future accrue to those who codify their innovative ideas in software, which allows them to scale its impact.
"At the University of California, Irvine Paul Merage School of Business, we’ve been arguing that disruption is closer than many executives think, and that software is the new core competence that every company must acquire. Yet, many companies still aren’t ready. They haven’t understood that many of the assets that created competitive advantage in the past no longer do. It takes a new set of assets, organized differently, to build the businesses of the future.
"Amazon’s entry into pharmaceutical distribution will upend the industry. Pharmacy Benefit Managers (PBMs) and traditional pharmacies do not have the operating efficiencies that Amazon achieves. One key difference is that this sector is highly regulated which may slow Amazon down somewhat and incumbents have strong relationships with health plans which will give incumbents some time but they cannot wait any longer."
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