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Comment by refurb | Hacker News Reader

This is going to be interesting. Drug wholesaling is a tough business with razor thin margins. Wholesalers don't make much off of branded drugs because the big drug companies have most of the negotiating power. It's not unusual for their cut to be in the tens of basis points.

They make the most money off of generic drugs and often use arbitrage as a revenue source when price increases happen. Price increases for generic drugs have been weak lately and it's hurting them.[1]

[1]http://www.drugchannels.net/2017/09/drug-wholesalers-struggl...

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Amazon doesn't need to make money on it, though. They just want to dominate every aspect of everyone's retail existence. I'm sure they're perfectly happy to make zero profit for a long while and figure it out later, when they're the only ones left in business.

It’s amazing to watch all this happen on the consumer end but how many more industries can they really do this to? Is Bezos not essentially setting up his successor for failure by turning Amazon into a conglomerate with razor margins in so many areas?

This is the thing that I don't understand about the big companies like Google, Apple, Amazon. What's the endgame? Do you just keep going until you accidentally implode? It's not like there is a finish line they can cross to "win the game". It just goes on forever until something implodes.

It literally just (1) keeps printing money for investors and (2) keep some people employed. Ambitious people will take the mantle every 15-20 years and do more of 1 and 2 until they make a mistake.

The goal of a successful company is basically serving those two sets of people, Google may enter the retail market or real estate, or McDonalds will take over Cloud Computing -- they're all just trying to get a consistent return.

> keeps printing money for investors

Amazon doesn't give money to investors. Late investors give money to early investors. (Edit: Amazon has bought back some shares in the past, but that's far from even offsetting all the shares given away to employees...)

> Amazon doesn't give money to investors.

You mean "Amazon hasn't given (much) money to investors so far". It's an important distinction, whether you agree with their argument or not.

At some point, I guess, they have to collide with the US government. I don't mean in minor ways (like access to iPhone) but in a big existential way.

The finish line is full automation. There isn't some breakthrough that's going to happen overnight, you are watching it be created in slow motion by Amazon & Walmart. They are slowly working out every issue in their supply chain until its perfect. Once they finish society gets to move on to its next phase.

i think the theory is that Amazon's ultimate goal is to dominate all of commerce in its entirety, which is obviously impossible. However, if you consider that as the end goal, Amazon is really far from achieving it. And as long as Amazon can continue to build parts of this impossible machine in a way that does not deteriorate the system (i.e cause major losses that hold back the company), the value of the system will keep going up as the Amazon machine consumes more and more of the world's commercial activities. Since it's practically impossible to achieve that end goal, within any reasonable number of lifetimes, bezos's and amazon's wealth is unlikely to decline without government intervention.

Well why not? It's working out well for them so far.

Razer thin margins are still better than the zero margins that they would recieve by NOT entering the market.

If it is possible to make any money at all, then there is no reason not to take it.

Opportunity cost. They don't have an endless supply of cash (though it may seem like it).

They should be going into high margin markets, not just markets that have a minuscule profit margin.

AWS is their high margin product.

It seems to be their strategy is to enter markets that traditionally have razor margins, but the margin can be increased with careful application of technology or scale.

I think retail has always had the problem of margins. It's tough, but if you're big enough you probably end up with the resources to ride out difficult times. So being huge might be the right play here.

In a way this is supposed to be the end-goal of free markets right? No profit left for companies to have?

There's definitely savings that amazon could deliver.. take the (slim) wholesale profits + add the pharmacy profits.

They did something similar with books.. they cut out the wholesalers like ingram, and negotiated directly with the publishers.. allowing Amazon's retail price to be equal or less than Ingrams price that small book retailers pay... meaning even at 0% markup, amazon undercuts the small book retailers. (this was even before ebooks)

They could do the same here.. giving up the retail pharmacy profits.. undercutting every other pharmacy

Plus, at pharmacies efficiency could definitely be improved.. at the very least by reducing the number of $120k/yr pharmacists that are needed.

The 3 big wholesalers (Amerisource, McKesson, Cardinal) also own/operate PSAOs that provide various value add services to independent pharmacies.

I would say PBMs are far more creative with arbitraging and financial engineering, because they deal directly with plan payers, pharmacists, distributors, pharma, DME mfr, and patients.

They offer price guarantee/inflation protection, rebates to payers; they have very granular reimbursement agreement with pharmacies along with performance guarantees or penalties depending on how much generics they dispense, there is copay assistance program with pharma and patients.

PBM is a complex business, but there's no huge pool of money sloshing around. Money is in pharma and overall healthcare systems.

This is a long game for Amazon.

> razor thin margins

That's everything amazon does besides AWS

Yeah razor thin margins is barrier to entry that amazon sees as an opportunity not a threat.

Not exactly - Amazon has traditionally entered spaces with...not exactly razor thing margins, but margins with some wiggle room. Even their grocery play was on 'higher end' groceries and not a razor thin market like Acme/Shop Rite/Kroegers.

They then proceed to wrench out that wiggle room to drive out the established players and create an impossible barrier to entry.

You realize they do that on purpose right?

> a tough business with razor thin margins.

If an industry can be described in these terms, it's likely that Amazon is a potential entrant.

hey, if they could deliver as an add on item I would be happy. still with the the number of grocery and similar around me offering many common medicines for nothing I have done surprisingly well.

if it can be delivered, managed without quick degradation of quality, then it probably can be fit into Amazon's distribution system

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