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Rock Report: Business Models in Digital Health by @Rock_Health

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Contrasting B2B and B2C business models in digital health, with a deeper look at funding for both models, potential opportunities and investor perspectives

Contrasting B2B and B2C business models in digital health, with a deeper look at funding for both models, potential opportunities and investor perspectives

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Transcript

  • 1. BUSINESS MODELS IN DIGITAL HEALTH A R O C K R E P O R T B Y
  • 2. Rock Health is powering the future of the digital health ecosystem, bringing together the brightest minds across disciplines to build better solutions. Rock Health funds and supports startups building the next generation of technologies transforming healthcare. Rock Health partners include Aberdare Ventures, Accel Partners, Fenwick & West, Genetech, Harvard Medical School, Mayo Clinic, Merck, Microsoft, Mohr Davidow Ventures, NEA, Nike, P&G, Qualcomm, Quest Diagnostics, Silicon Valley Bank, United Health and UCSF. For more information, visit rockhealth.com About this REPORT We wanted to know more about promising business models in digital health. This report sources data and feedback from interviews conducted with entrepreneurs and investors working in the space as well as industry research. Caveat: we are not professional white-paperistas, just curious advocates who like to share knowledge and further the discussion around the evolving digital health space. Produced by Christina Chang M. Jackson Wilkinson Halle TeccoLeslie Ziegler @changcsc @lesliejz @whafro @halletecco
  • 3. 0% 5% 10% 15% 20% 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 20 PERCENT of the United States GDP healthcare spending will be b 2020:
  • 4. nearly HALF NON-VALUE ADDED of national health care spending is (aka waste and inefficiency)
  • 5. REIMBURSEMENT policies are shifting... from being based on VOLUME OUTCOMES to Because of all this inefficient spending, per dollar spent
  • 6. to NEW BUSINESSES are forming in digital health ADDRESS theseCHANGES B2B B2C Enterprise product Direct to consumer product
  • 7. 76%of Fortune 50 companies are now in healthcare. 24% have no health division. 24% are traditional health care companies. 22% are Retailers: using deep customer access to serve new health care markets. 14% are Connectors: using data to tighten the patient-doctor relationship. 14% 2% are Fixers: attacking dysfunctional parts of the system to reduce waste. are Implementers: working across traditional sectors to integrate healthcare. WHAT ABOUT INCUMBENTS?the
  • 8. B2C
  • 9. 32% 15% 11% 11% 8% 8% have had to fill out the same forms or information multiple times. have had difficulty obtaining their own health information (such as labs or records). have had a test or procedure repeated due to inaccessible information during a visit. have registered for a program or purchased a product that did not meet their needs. have required medical treatment because they could not access preventative care. have received an incorrect prescription or one that reacted with a current medication. CONSUMER PAIN POINTS
  • 10. HALF of consumers say they would BUY mobile health tech they’d like to: monitor fitness & wellbeing allow a physician to remotely monitor a condition continue to monitor a previous condition 20% 18% 11%
  • 11. $14 billion dollars Analysts say consumers are willing to spend on certain digital health technology products $8.9 Billion: resources rating MDs & hospitals 25% 50% Age 18 25 35 45 55 65+ $700 Million: mobile health applications 25% 50% Age 18 25 35 45 55 65 + + $4 Billion: health-related video games 25% 50% Age 18 25 35 45 55 65 Willingness by age group:
  • 12. 5 problem: Monitoring and prevention of chronic conditions. 5 solution: Your real-time activity stats so you know how close you are to your goals. B2C Consumers purchase directly and use. CASE STUDY
  • 13. 5 problem: Remote monitoring and personal/family data tracking. 5 solution: The first WiFi body scale, blood pressure, and smart baby monitor connected to iOS devices. B2C Consumers purchase directly and use. CASE STUDY
  • 14. Patrick Chung NEA – Partner on investing in B2C companies: “ If you’re designing for a VP of Engagement at some insurance company, his or her needs will be very idiosyncratic and designed for corporate policy, not for the end user. If you get a better product that’s well-designed, you’ll get better health outcomes. Going direct to consumer is difficult too...but at least there isn’t this overlay of nonmarket complexity. “ “ The benefits of being B2C are that you bypass this huge, antiquated, enterprise-like sales cycle... Why do that when you could actually just go to the market and get really fast data, tailor your product, and let the market speak? “ There has never been an opportunity like now to sell healthcare services directly to consumers. [B2C companies] do have much faster iteration cycles, and you get a better product at the end of the day.
  • 15. Jason Jacobs RunKeeper – CEO & Founder on business models: on fundraising: on the future: “ Monetization isn’t what’s most important to where we are today. We’re very focused on growth and engagement – growing our user base, our engagement levels, our menu of different applications. “ It’s much harder to get massive scale than it is to figure out how to make money. We had to show traction and sell our vision and convince investors that we’re the team to do it. “ We think there are interesting opportunities with brands, wellness platforms, insurance companies, doctors. Ultimately, these worlds are going to converge, but it will take a while, and right now we’re not concerned about the ‘how.’
  • 16. Jason Krikorian DCM - Partner on choosing the right investors: on the product: “ The worlds of consumer products/services and healthcare are colliding, and each feature different sets of product requirements, potential partners, operational imperatives and personal networks. Seek complimentary strengths on your board and investor base, just as you do your team. “ It's not good enough to produce a solution that is better than the status quo in healthcare. That's easy. Aim to deliver a product that delights the user with an engaging experience on par with the best consumer companies on the web. “ While the ultimate vision of a horizontal play that aggregates consumer health-related data is compelling, the reality is that we are in early days for readily available data sources.  Today, I'm looking for products that deliver a very specific value proposition to the user, on day one.
  • 17. B2B
  • 18. Access electronic medical records Prescribe medication Monitor inpatients Initiate & track referrals Communicate with patients Monitor outpatients WISHthey could wirelessly: Most doctors
  • 19. 88% of surveyed physicians would like patients to be able to track or monitor their health at home. no 65% 61% 57% 54% 36% 35% 28% 17% 16% 13% 12% Digestive health Acid reflux Bladder controlCardiac rhythm Sleep patterns Pain level Exercise & Activity Vital signs Weight Blood sugar
  • 20. Accessing info when needed Increasing face time with patients Increasing patient compliance Improving physician communication Communicating with patients more efficiently SPECIALISTS PRIMARY CARE Doctors’ biggest obstacles HAVE TECHNOLOGY SOLUTIONS
  • 21. B2B 5 problem: Implementation of “meaningful use” of technology. 5 solution: The fastest-growing free electronic medical records community. Doctors use for free, supported by advertisements. CASE STUDY
  • 22. B2B Rising healthcare costs and insurance premiums for employees and employers. 5 solution: An employee wellness program that combines the best of social media & online games. Employees use, employers pay. CASE STUDY 5 problem:
  • 23. B2B Rising healthcare costs and insurance premiums for employees and employers. 5 solution: Personalized, unbiased views of healthcare price and quality. Employees use, employers pay. CASE STUDY 5 problem:
  • 24. Rebecca Lynn Morgenthaler Ventures – Partner on B2B investing due diligence: on B2B investing: on investing in digital health: “ Do you have a pilot? Is the pilot paid? What kinds of engagement are you getting? How many more pilots do you have set up? What’s in the pipeline? If you’ve been piloting for six months, can you show uptake, engagement, and early results? “ It’s less about monetization early on and more about downloads, engagement, and retention... that’s what we’re really interested in as far as proving the utility of the product. “ Sometimes it’s revenue and sometimes it’s usage, with the belief that revenue can come. Missy Krasner Morgenthaler Ventures – EIR
  • 25. Abhas Gupta Mohr Davidow Ventures – Associate on investing in B2B companies: on consumers’ willingness to pay: on what matters: “ Sales cycles are obviously a big concern. It could take eighteen to twenty-four months to convert a new customer, and that’s funding that isn’t generating value quickly. “ Consumers are financially on the hook for healthcare costs more than in the past, so I imagine consumers will be willing to pay more going forward. “ We don’t know if consumers or payers or anyone else will pay, but if we know that it’s engaging consumers, that’s what matters. “ ...to be able to reduce costs, get sustained engagement, and ideally to demonstrate improved outcomes. That’s the winning combination.
  • 26. B2B B2C vs
  • 27. Who pays? Business Consumer Who uses? Business Consumers use insurance/pharma pays Consumers use, ad supported Consumers use, physicians pay Consumers use & purchase Doctors use for free, ad-supported Organizations use & purchase
  • 28. of 2011 digital health venture funding went to B2B models. $600M 77% $0 $300M $150M $450M Average funding: Consumer: $9M Business: $11M
  • 29. 5 tradeoffs B2B B2C Higher willingness to pay Greater lifetime value of customers Longer sales cycles Requires gatekeeper approval or systems integration Shorter sales cycle Quicker product iterations and user feedback Crowded landscape Lower willingness to pay
  • 30. 5 opportunities B2B B2C With a move to pay-for- performance, incentives are in place for hospitals to adopt new technologies. Consumers are more willing than ever to pay out of pocket for health tech, to the tune of $14B.
  • 31. Sources: • CapitalIQ • CrunchBase • Pricewaterhouse Coopers’ Health Research Institute. The new gold rush: Prospectors are hoping to mine opportunities from the health industry. (May 2011) • Pricewaterhouse Coopers’ Health Research Institute. Healthcare unwired: New business models delivering care anywhere. (September 2010) Presentation copyright © 2012 Rock Health GET IN TOUCH: Rock_Health research@rockhealth.org