Walgreens Teams With Microsoft as Both Wrestle Amazon Threats

(Bloomberg) -- Walgreens Boots Alliance Inc. is teaming with Microsoft Corp. to design new “digital health corners” for its stores, as both companies look to battle an ever-expanding Amazon.com Inc.

For Walgreens, the pharmacy giant must contend with looming competitive threats from Amazon and other upstarts looking to disrupt the drugstore business. Meanwhile, Microsoft is angling to gain ground against Amazon Web Services by offering back-end computing muscle to retail, grocery and health operators that don’t want to give more business to one of their biggest foes.

As part of the accord, Walgreens will begin using Microsoft’s Azure cloud-computing software, moving applications and data to the tech giant’s data centers, the companies said. For Microsoft, it’s the second major Azure-centered deal with a retail chain this month, following a pact with grocer Kroger Co. last week.

Walgreens has forged a series of agreements designed to insulate it from a rapidly evolving health-care and retail landscape. After rival CVS Health Corp. agreed to buy health insurer Aetna Inc., Walgreens set up a senior health clinic joint venture with insurer Humana Inc. And to ramp up its technological and e-commerce sophistication, it has inked deals with Verily Life Sciences, a unit of Google parent Alphabet Inc., and cosmetics retailer Birchbox.

“Health care is too complicated, too big and if I can say, a little too messy,” Walgreens Chief Executive Officer Stefano Pessina said in an interview. “We cannot be helpful to our patients if we don’t team up with many, many different, practically all, the players in this industry.”

The deal with Microsoft will start with a pilot of digital health corners in as many as 12 stores this year, which will be designed to promote the sale of health-related devices and help patients manage chronic diseases.

Microsoft has made earlier forays into health software before pulling back. For the past two years, it has been working on cloud and artificial-intelligence products that can be used to reduce data-entry tasks for doctors, triage patients and provide more-targeted cancer care. This time, Microsoft is aiming to partner with health companies rather than competing with them, as well as getting them to use Azure.

“One of the core challenges in health care is a little bit the fragmentation of the data, but also when you say ‘Let’s bring it all together,’ it’s important to remember that this is a regulated industry and users deeply care about their privacy,” said Microsoft CEO Satya Nadella. “We are doing a lot of work on how can you uphold the promise but also be compliant with all the regulations.”

Financial terms weren’t disclosed. The pair have committed to a multiyear research and development investment to develop other health-care tools that could ultimately lower costs. The companies may establish joint innovation centers in some markets.

Besides being a win for Azure, the deal involves a commitment by Walgreens to use Microsoft 365 -- a collection of software that includes Windows 10, Office cloud services and security and mobile-management software -- for the drugstore’s more than 380,000 workers.