A tad over a year ago, an investment group Bespoke (B.I.G) created an index called "The Death By Amazon Index".

It tracked the performance of company stocks exposed to the rise of Amazon, and the result was startling. The Death by Amazon Index underperformed the market index by 80 percentage points, turning downwards in mid-2015.

Contrast this with Amazon, that has only gone up and right since mid-2015. B.I.G, was probably inspired by the $12Bn market wipeout from Walmart et al. on Whole Foods' acquisition.

History is a great teacher, and the same was repeated this week with PillPack's acquisition by Amazon. $15 billion was wiped out from pharmacy retailers this time.

The photo of Bezos' threatening swagger while walking a robot dog is now again in vogue.

"Death by Amazon Health" might be a new expression of irony, but the delivery of pills/packs is a natural extension of Amazon's juggernaut.

The entire infrastructure that Amazon has built for logistics, with the engagement through Amazon Prime makes PillPack a neat fit. Amazon needs more "customers" for its infrastructure (i.e. companies that utilize it) and PillPack is its newest customer after Whole Foods.

Apart from video, groceries, books and other consumables - you can also get your meds from Amazon. It only deepens your relationship with Amazon, and frighteningly, your dependency.

The other products, apart from food, may not be essentials like pills are. Additionally, Amazon also knows what pills you are taking, and can recommend food, books or videos based on your medical history.

This is exactly why I have always flagged Amazon as a bigger threat to Google than Facebook. 

Online pharmacies like PillPack are not a game-changing concept, an extension of e-commerce to another product line.

These pharmacies provide all the benefits of e-commerce viz. price discovery, transparency and convenience. The issue is with the regulatory framework and incumbents, and it is especially true in India.

India's drug distribution laws are still governed by the archaic 1940 Drugs and Cosmetics Act (yes, 8 years before independence). The act has last been amended 23 years ago, and it suffices to say that it is not "online-ready".

The act was obviously built with consumer protection in mind, but the gist is that you need a license to distribute drugs in each and every state in India. It will be clear why this is an issue after we spend some time on the business model.

Just like any other online retailer, e-pharmacies are governed by wafer-thin contribution margins on their product (of the order of ~10-15%). If they manage to get a wholesale license, these contribution margins could expand to 20-25%. For products that sell for 20 INR, the e-pharmacy makes 2-4 INR at best.

Revisiting the unit economics from the Swiggy piece, a customer acquired for 75-100 INR would need to be serviced at least 40 units to get payback. It is thus evident that this business is a natural subscription, and a utility.

With wafer thin margins on low priced products, the company needs to scale to grow into a sizable business (unless the aspirations are single store). Scale is necessary - and to scale you need access to the national market. 

Divergent from other e-commerce businesses in India, an e-pharmacy presently needs a license in each state it distributes.

For the myriad states and regulations in India, this is incredible friction for a company that is a startup. You can only have access to the Maharashtra market with one license, and each state needs a new process.

With limited resources, this is scale limiting - despite the market's potential. You can now see why the license structure is such an issue. Additionally, incumbents with vested interests (the story of every disruption) have managed to create obstacles.

Ironical calls for "transparency" have resulted in witch hunts, resulting in the internet pharmacies forming an association to demand a fair playing ground.

The signs over the two years are encouraging - there may soon be an e-pharmacy regulation that allows distributing nationally with a single license. The incumbents say "We are against e-pharmacy" in the meantime.

They may not be able to move quickly to evade a fate similar to the Death by Amazon Health.