Microsoft's partnership with Walgreens Boots Alliance, announced this week, has the potential to transform healthcare, and help both companies compete with rival Amazon, according to analysts.

Microsoft Corp. (Nasdaq: MSFT) and the Walgreens Boots Alliance (WBA) said Tuesday they are partnering in a seven-year agreement to provide healthcare using Microsoft's cloud resource in the healthcare company's stores, as well as mobile applications. WGA also plans to move much of its IT infrastructure to the Microsoft Azure cloud for its 380,000 employees. (See Microsoft & Walgreens Fend Off Amazon With 7-Year Healthcare Partnership.)

The partnership has the potential to improve patient outcomes for Walgreens, Forrester analyst Arielle Trzcinski said in an email.

Figure 1: Times Square Walgreens, NY, 2008. Photo by Jazz Guy(CC BY 2.0)

"Retail pharmacies offer an opportunity to engage with the patient much more frequently than at an office visit," Trzcinski said. "Chronic care patients see their pharmacist frequently -- I've seen figures that indicate the average diabetic patient sees their provider once every six months. This gap creates an opportunity for the pharmacist to help monitor the patients' health and prompt the patient to receive preventative care in the retail clinic or through a virtual care visit. Using an enterprise health cloud, like Azure, you create a more connected ecosystem so that we can share that data with the patient's additional providers, track outcomes, and intervene earlier when an issue arises."

Trzcinski added, "Walgreens, like many other retail pharmacies, have made onsite clinical services available as well as supported the shift to virtual care though 'Find Care Now.' Forrester's data indicates that 74% of online consumers are interested or have already used virtual care. We expect to continue to see a big shift of volumes from outpatient care to virtual care."

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The shift to virtual care satisfied consumers who are shouldering more of the financial burden for their care and demand more convenient options, Trzcinski said.

Virtual care will be in even greater demand as up to 20% of hospitals are at risk for closure in 2019, according to Morgan Stanley, Trzcinski said. Most of these are in rural areas. "Consumers will turn to retail locations like Walgreens, Walmart, and CVS for convenient care options as well as virtual care delivery to fill the gap," she said.

And Azure AI will help Walgreens gain insights from their data, to help improve therapies and lower cost by tracking outcomes, Trzcinski said.

For Microsoft, the deal helps penetrate a key vertical market, says Ovum Ltd. analyst Roy Illsley. Google is known for artificial intelligence and machine learning, and the Walgreens deal will help Microsoft "build vertical disciplines it can exploit," he said.

Microsoft is particularly focused on retail, previously partnering with Walmart and Gap Inc. (See Microsoft & Walmart Heat Up Amazon War and Microsoft Scores Another Retail Win, Taking Gap to the Cloud.)

Amazon Web Services Inc. is also building vertical disciplines, "so it will be interesting to see how the market evolves along vertical line," Illsley said.

Last month, Walgreens signed a deal with Verily, Alphabet's life sciences company, on projects to help improve outcomes for people with chronic conditions, with a particular focus on getting people to take their medication. And Cleveland Clinic CEO Toby Cosgrove joined Google Cloud.

Amazon competes with Microsoft in the cloud, with retailers, and with pharmacy companies. Walgreens and other pharmacy companies are being more threatened by Amazon, as Amazon bought online pharmacy Pillpack in June for $1 billion. But even before that, Amazon was already cutting into pharmacy business by selling paper towels, shampoo, toothpaste and other items that consumers often buy in pharmacies and other local retail stores.

— Mitch Wagner Executive Editor, Light Reading