June 16, 2017. It’s likely a day many retailers can recall vividly. A sleepy Friday morning was disrupted by the surprising announcement that e-commerce giant Amazon was going to buy organic grocer Whole Foods. The upheaval was immediate. Not only did the news send shares of grocer Kroger into a tailspin, a broad swath of retail stocks, including Target and Walmart , lost millions and millions in market value that day. When the closing bell rang, Kroger shares had tallied an 18.9% loss. At that time, it was the stock’s biggest drop in about 18 years. This scenario has played out at other times as well, including when Amazon made its early steps into health care. It agreed to acquire online pharmacy PillPack in 2018 and announced Amazon Pharmacy in 2020. Both headlines sent a jolt through the traditional pharmacy stocks like CVS and Walgreens Boots Alliance and online competitors like GoodRx . Fear factor has faded Fast forward to Thursday. Amazon announced it would buy 1Life Healthcare , which under the One Medical brand provides primary health care and telemedicine services. The deal marks an even deeper move into health-care services , but the market reaction was mild. Telehealth provider Teladoc Health shares swooned for a bit early in the day but ended Thursday up 1%. “Over the last two years plus, Amazon entering a category hasn’t inspired the fear it has historically,” said DA Davidson analyst Tom Forte, citing two primary reasons for the trend. The first is Amazon Web Services, which Forte says has proven that Amazon can work with companies rather than destroying them. “The poster child for this is Netflix ,” Forte said. Although Amazon has invested a lot of money into its Prime streaming service, Netflix’s main issue isn’t Prime, he explained. It’s the cumulative impact of the entire competitive landscape, which includes newer rivals like Disney+ and HBO Max , among others. But Forte sees an even bigger reason: “The inability of Amazon to do to Kroger what it did to Borders in books, or to Circuit City in electronics, or to Toys ‘R Us in toys — that might be the best example,” he said. Amazon spent $13.7 billion to buy Whole Foods, and has invested untold amounts more building other grocery services such as Prime Now and Fresh and Go, but the company remains a small player in the highly fragmented industry. Walmart is still far and away the biggest grocer in the U.S. In the 52 weeks ended June 30, Walmart had grown its market share to 20.9%, according to research firm Numerator. It is followed by Kroger, which controls about 9% of U.S. grocery sales. Whole Foods and Amazon.com each have grabbed less than 2% of the market. (Amazon.com’s share, which includes online Whole Foods orders, was 1.6%, while Whole Foods was 1.3%, Numerator said.) Jassy makes a move The $3.9 billion acquisition of One Medical ranks as Amazon’s third largest deal, behind the Whole Foods and MGM transactions. And it’s a big strategic move for CEO Andy Jassy, who has had a rough first year on the job . Amazon’s revenue growth has slowed, and in April it posted its first quarterly loss since 2015. Since the start of the year, Amazon stock has lost about a quarter of its value. One Medical can help Jassy build out the Amazon Care business and is being seen as a vehicle to offer more health-care services over time. “While One Medical will not be a meaningful contributor to revenue near term, it provides AMZN more touch points with patients, particularly early on while medical decisions are being made, both preventative and reactionary,” wrote JMP analyst Nicholas Jones, in a research note Thursday. “Accordingly, the acquisition should augment growth and adoption of Amazon Care and Amazon Pharmacy solutions.” So far, Amazon Care offers in-person and virtual health services in five U.S. cities, according to a research note from Stifel analyst Scott Devitt on Thursday. Amazon Care has plans to expand to 15 more locations by the end of the year. One Medical’s network will expand that reach considerably, since it operates a network that serves more than 125 U.S. locations. The company offers 24/7 care to about 767,000 subscribers and has partnerships with more than 8,500 employers to provide benefits. Revenue comes from three sources: member subscriptions, providing patient services and through partnerships. The subscription element is novel because it provides patients the ability to get preferred access to appointments for an annual fee. This brings up another important point: One Medical is still a young company, and its purchase won’t automatically provide Amazon with tremendous scale in the sector. This fact may not be lost on investors who have seen the time it is taking Amazon to penetrate the health-care industry. “They aren’t buying Aetna,” DA Davidson’s Forte said. In other words, Amazon’s power to disrupt the industry will take years, not months. In December 2020, Raymond James analysts looked at 47 stocks in 19 industries where Amazon has expanded over the past few decades, and found that the stocks tended to underperform the broad Russell 3000 in the 30 days leading up to and including the news of Amazon’s entrance by 1.9%. In the 30 days after the announcement, the stocks outperformed by 1.9%, effectively erasing the Amazon selloff. Although One Medical is “a startup,” Forte said he’s still excited about the potential for Amazon to use it to build a bigger presence in health care, which has a very large addressable market. Analysts see many ways for Amazon to scale the health-care business. Forte said there’s an opportunity for Amazon to add physical pharmacies to its Whole Foods stores. Stifel noted the possibility to add health-care services to the Prime membership offering. Bernstein analysts suggested One Medical’s business could benefit from “cross-selling synergies” with Amazon’s pharmacy business. Spoiler ahead? David Larsen, an analyst who covers 1Life Healthcare at BTIG, warned that another bidder could emerge. In early July, Bloomberg reported that One Medical was considering its options after being approached with a takeover offer. “Given the high-quality nature of ONEM’s services and the ‘fair’ price it is possible that other bidders might emerge, including CVS Health (CVS, NR), or a major health plan such as UnitedHealth Group (UNH, NR),” Larsen wrote in a research note. The Bloomberg report had said that talks with CVS were no longer active. CVS stock closed Thursday down 1.5%. UnitedHealth ended the day up 0.6%. Amazon didn’t say when it expects the deal to close. Completion is subject to approvals from One Medical shareholders and regulators. Analysts don’t expect the deal to by stymied by regulators. One Medical has a small share of the market, likely well under 1%. Its stock ended the day up 69% at $17.25.