The End-All Be-All of Operating in Volume with Razor Thin Margins: Government Business and Why Amazon Is the Perfect Fit
As Amazon continues to expand its capabilities and revenue, government contracts hold untapped potential.
The Big 3 won over $11 billion dollars in contracts from the US Federal government in 2015 alone. Taking into account State government contracts and other suppliers of pharmaceuticals and medical devices, there is a lot of business to be done with the government. Amazon understands the opportunity to win sustained volume and has the logistic footprint to execute.
Amazon’s Government Contract Wins
Amazon Web Services won a high-profile contract with the federal government back in 2013 for a “private-cloud” project with the CIA. That contract was worth $600 million over 10 years. Naturally, an incumbent powerhouse, IBM filed to block the deal and come in at a lower price. But they lost. Twice.
In 2016, Lydia Leong called Amazon the “primary cloud infrastructure provider to government,” showing how Amazon’s growing lobbying practice and RFP chops are strengthening.
Profit Not Required
It has long been proven that Amazon simply does not have to show a profit to make shareholders happy (a “tech unicorn” if you will), unlike almost every other company on Wall Street. This allows them to continue to invest into the future, taking on big capital investments and research and development for new technologies. It will also allow them to make even a smaller profit on their government contracts. Standing as low as 4% for some government contracts, this plays a huge role in winning contracts.
The Big 3, however, has their dividend, revenue, and earnings watched closely, every quarter. They are forced to make big strategic acquisitions rather than growing organically and building capabilities in-house.
Formulary + Footprint = Easy Win
Government contracts often have established formularies that make logistics easier – the government part numbers could easily be mapped to specific “ASINs” that are designated for Prime delivery. With 100+ warehouses in only the US, Amazon already has more locations than the Big 3 combined!
Further, with warehouses popping up internationally (most recently in India and Australia), Amazon could serve as the imminent supplier of choice to the US Armed Forces.
Government business can be an easy step forward for Amazon as it adds and strengthens its’ medical supply and pharmaceutical portfolio. As big of a bombshell their $600 million AWS contract was, we can only imagine the shockwaves when they announce a large medical supply/pharmaceutical contract!
1. “Top 100 Contractors Report Fiscal Year 2015” (XLS). Federal Procurement Data System – Next Generation. General Services Administration. Retrieved 27 December 2016.
Photo: “Top 100 Contractors Report Fiscal Year 2015” (XLS). Federal Procurement Data System – Next Generation. General Services Administration. Retrieved 27 December 2016