In March 2023, Amazon acquired One Medical for $3.9 billion. For those that don't know, One Medical, a $GOOGL backed
startup, is a membership-based primary care practice that provides a blend of human-centered design, technology, and an exceptional team to deliver quality care more affordably, accessible, and enjoyable for all. Most of their clinics are in urban areas and many companies offer One Medical memberships as a work perk for their employees.
Recently, Amazon is offering Prime Members access to One Medical for $9 a month or $99 annually. Users get 24/7 virtual care and access to in-person treatment at their clinics. With an estimate
of 167 million Prime member subscribers in the US (March 2023), there's a significant number of people that can sign up for this service.
- About 12%, aka 20 million Prime members, sign up for the service
- All subscribers pay the annual $99 fee
- Total revenue comes out at $1.98 billion
- 18% profit margins (source)
- We exclude all of the pre-existing business happening at OneMedical
- total revenue comes out at $1.98 billion
- $356 million in operating profit
- 9% ROI
If margins were 30% instead of 18%, then the ROI on Amazon's OneMedical acquisition would grow to 15% (operating profit would be $594 million in that case).
At a projected 18% profit margin on healthcare subscriptions from Prime members, acquiring OneMedical appears to deliver a ROI of approximately 9% for Amazon. While on the surface this may seem low, there are several strategic factors that likely make the deal worthwhile:
- It provides Amazon with a large footprint of physical primary care clinics, enabling more convenient in-person care as part of the new healthcare offering. This boosts the value of the program.
- The service drives more loyalty and stickiness with Prime subscriptions by integrating healthcare benefits. This provides long-term subscriber retention value not captured in the direct financial ROI.
- Data and insights gained from real-world treatment can be used to improve Amazon's telehealth services and any future digital diagnosis tools.
- The move lays the groundwork for Amazon to potentially integrate pharmacy services and prescription fulfillment.
In summary, the OneMedical acquisition delivers strategic benefits well beyond just the Subscription revenue and margins. When taking a holistic view, the deal is likely worthwhile for Amazon even at a 9% ROI given the future potential to expand their healthcare footprint.
If you're curious about the One Medical experience, read this BusinessInsider article