To The Moon

Everyone is freaking out about $Amazon.com(AMZN)$ getting into telehealth today.

I think Amazon will fail, but it's important to explain why.

Vertical vs Horizontal

Industries often shift between vertical business models winning to horizontal business models winning and back and forth.

Why did $Taiwan Semiconductor Manufacturing(TSM)$ beat $Intel(INTC)$ ? TSMC was horizontal and Intel was vertical.

Why did $Apple(AAPL)$ beat $Microsoft(MSFT)$ in mobile? Apple is vertical and Microsoft is a horizontal services company.

We can even go back to $IBM(IBM)$ and Microsoft. These shifts are predictable.

Amazon's Business Model

Amazon's business model today is about vertical integration.

It started with an online bookstore

then added more products

it built out data centers to run the business (which became AWS)

then bought trucks

then airplanes

it got into streaming

and advertising

and on and on and on

The model is, get people to pay for Prime and then offer them a bundle with everything in it. A little same-day shipping with some Thursday night football. Everyone wins.

A vertically integrated company doesn't have to be THE BEST at anything because the value is being "good enough" at a lot of things.

See Microsoft's entire software suite. It's not amazing, but it's "good enough" and it all works together.

How do you compete with vertical integration? You do something they could do, but you do it BETTER THAN THEY CAN.

The Hims & Hers Business Model

$Hims & Hers Health Inc.(HIMS)$ , like a lot of other companies formed in the past decade, knew it had to build a more specialized, horizontal business.

Hims & Hers can't be a telehealth/pharmacy company and then get into streaming. It has to do one thing and do it better than anyone else.

But it gets to build that specialization on top of the infrastructure Amazon didn't have in the 1990s. Cloud, shipping, AI, etc.

The strategy is to establish a business in some accessible/overlooked niches (ED, hair loss, weight loss) and then expand the platform horizontally to more treatment and vertically integrate in the supply chain where that vertical integration augments the horizontal service in healthcare (think compounding and personalization).

This is why half of Hims & Hers prescriptions are now personalized. It's how Hims & Hers can offer pills, creams, and (soon) gummies for the same treatment. That's a level of service Amazon will never have.

This model requires a platform that's specialized (horizontal).

Hims & Hers isn't going to get into owning data centers or trucks or airplanes. It's going to leave that to companies who specialize in that business.

Where we stand today

Vertical integration often works early in an industry's cycle because "good enough" is great.

Need an obscure item for a home improvement project? How about diapers? And batteries? And groceries while you're here?

Amazon could expand into tons of other products because it was vertically integrated and adding non-differentiated products was an easy win. This was seen as "crushing the competition" but do we really need a site just for diapers?

Where Amazon struggles is with differentiated products. This will be the same in telehealth because it's not FOCUSED only on healthcare. Healthcare is a business stuck onto the rest of the vertically integrated business.

Maybe some customers will choose Amazon because it's "good enough", but I think the long-term growth will be with Hims & Hers because the company is focused on healthcare and that's it. This focus should lead to a better platform, more personalized care, more products, personalizations, etc.

There's precedent here.

$Netflix(NFLX)$ wasn't crushed by Amazon/Apple getting into video

$Spotify Technology S.A.(SPOT)$ wasn't crushed by Amazon/Apple/YouTube getting into music

$Meta Platforms, Inc.(META)$ wasn't crushed by $Alphabet(GOOG)$ $Alphabet(GOOGL)$ 's Circle (remember that one?)

$AppLovin Corporation(APP)$ , $Trade Desk Inc.(TTD)$ , $PayPal(PYPL)$ , $Airbnb, Inc.(ABNB)$ , and on and on...

In fact, all of these companies won BECAUSE of their focus and horizontal business models.

The next decade won't be defined by the vertical integration that won from 2000 to 2023 and led to the big tech companies we know today. It will be defined by specialized companies building horizontal business models that leverage the infrastructure that's in place today (cloud, shipping, advertising, etc).

Hims & Hers will win because it's focused.

Amazon will lose because it has bigger fish to fry than telehealth.

My opinion. Long $HIMS.