Wiser! #18 (Premium): BigTech has eyes on the US Healthcare market. It's expensive, inefficient and broken.
Insights: Premium Content
Apple, Amazon and Google are pursuing different strategies with the same end goal: GROWTH!
Disrupting a $9.7 trillion market
The global healthcare market is estimated to hit $9.7 trillion by 2023. By any measure, it’s a huge industry. And one that’s ripe for change.
Which is why BigTech have their eyes on a piece of healthcare pie.
In this week’s WiserIn5!, I look at why Healthcare is an attractive target for BigTech.
And what Apple, Amazon and Google are all doing about it.
For Apple, it’s all about the Attention Economy and getting more of yours.
For Amazon, turning their biggest costs (such as employee healthcare) into sources of profit sets them apart.
For Google (Alphabet), the key is an order of magnitude better use of data.
For BigTech to be disruptive, they need to do 2 things…
(a) disintermediate the traditional supply chain and take a service or product directly to the consumer (think Amazon home delivery cutting out the High Street),
(b) deliver that product or service with a 10x improvement (think free next day delivery of the toothbrush you ordered at 9pm last night!).
So, when you look at industries to find our which one's are ripe for disruption, you look for key indicators from a macro perspective. One of these is customer satisfaction.
Namely, a low Net Promotor Score as a key indicator of fertile opportunities.
Which industry stands out when it comes to low NPS in 2020 (in the USA)?
Skyrocketing US healthcare costs
The amount of money that the USA spends on healthcare is almost twice the average for the wealthiest nations.
Across the OECD nations (which excludes the poorest in the world) the average spend is 8.6% of GDP. However the United States spends almost twice that at 17% of GDP on healthcare.
This equates to a per capita spend that is just over $11k compared to an average across the OECD countries of under $5.5k.
In the spending list, Switzerland comes 2nd at $7.7k per person.
And it's getting worse. Almost of a fifth of the US economy goes on healthcare and it is forecast to grow even more at 5.5% per year for the next 5 years.
Ironically, even though the US spends relatively more on Healthcare than any other nation, it does not mean better health outcomes.
According to the OECD, average life expectancy is almost 5 years longer if you live in Switzerland compared to the US.
Child mortality at birth is 5.8/1000, which places the USA 5th in the league table of OECD countries.
In the calculation of Potential Years of Life Lost (this is a measure of preventable premature death), the USA is 4th in the list of OECD nations behind Mexico, Lithuania and Hungary.
This is partly explained by the significant proportion of US spending on administration. According to the OECD, the US spends over 3x MORE per capita on Administration than any other wealthy nation.
And yet it spends 3x LESS on long term care than The Netherlands, who spend the most of Long term Healthcare per capita.
Emergence of Telehealth and Telemedicine
Telehealth and telemedicine are the new ways to provide healthcare services through the use of technology.
Whether that is through a more effective home delivery of prescription drugs (see Amazon’s purchase of PillPack), to in-home consultations (approx 2/3s of Emergency Room visits are avoidable) to AI enabled tech (such as detecting brain tumours more effectively than human clinicians).
According to McKinsey research, willingness amongst consumers to use telemedicine services has risen from 11% to 76% through the pandemic.
The point is that these new healthcare services promise an explosion in innovation and opportunities, as well as a massive redistribution of value away from traditional providers to new tech firms.
This is why Big Tech are all over into the Healthcare space.
Amazon's move into Healthcare is driven by primary 2 dynamics.
Amazon has to find new ways to maintain the stellar top line growth it has enjoyed over the past decade.
Since 2017, Amazon’s annual revenues grew;
- 31% from 2017 to 2018
- 20.5% from 2018 to 2019
- 37% from 2019 to 2020
- 41% from 2020 to March 2021.
To sustain these levels of growth, Amazon has to go after big elephants, and there is non bigger than Healthcare.
2) Employee Costs
Unlike any other other company in the history of the world, Amazon have made a virtue out of turning its largest costs into profit centres.
First it was fulfilment. When Bezos started out, this was their biggest cost. So, Amazon built a delivery business that now makes money for Amazon.
The same for cloud computing as Amazon started to scale on the Internet. Today, Amazon Web Services is the market leader and a $40bn a year business.
So, what’s Amazon’s next biggest cost? Employees!
In 2020, Amazon hired more people in less time than any other firm in American corporate history. They increased their workforce by 62% off the back of the pandemic and now employ 1.3m people worldwide.
Providing employment benefits, including healthcare, to its Employees is the next largest cost centre that Bezos is going to turn into one that makes a profit.
Earlier this year, Amazon announced that it was opening up its employee healthcare service, called Amazon Care, to its partners. Amazon Care provides both virtual healthcare services as well as physical drop in medical centres.
But the big prize is not the partners, but the 82% of American households who have an Amazon Prime account.
And it’s already started.
In 2018, after Amazon bought PillPack for $750m, they created Amazon Pharmacy. Now, Amazon manages the medication needs of Prime customers and delivers their drugs to their home for free.
When it comes to the health in the home, Amazon's Halo fitness tracker records sleep patterns, fitness levels and even BMI.
And Alexa, the centrepiece for Amazon's in-home healthcare solutions, has a range of HIPAA compliant "skills" to enable customers to check on prescriptions or monitor blood sugar levels
Amazon even knows what you eat. They bought Whole Foods in 2018 for $13.7bn and now they have opened a chain of fresh food stories and provide free delivery of fresh food to Prime customers.
The bottom line is that, when it comes to understanding their customer's health, Amazon already know so much (what they eat, what drugs they take, how well they sleep, how active they are).
Add to this the ability to deliver virtual and physical healthcare services, and I would not be surprised if Amazon become the de facto national health service and fill the gapping hole in the US health insurance system.
Apple is going through a strategic shift from product based revenues to recurring services revenues. This means shifting from selling you a new iPhone every couple of years for a one-off payment of, say, $1,000 to selling you a bundle of services where you pay between $50-100 a month, but every month.
Like Amazon, Apple’s motivation is top line growth.
But it is also about Attention. Getting and retaining yours for as long as they can. And you can see this in the Apple Healthcare strategy.
When you break it down, Apple's Healthcare push falls into 3 areas that converge to make their healthcare strategy;
- Hardware, like the Apple Watch, iPad and iPhone,
- Software, like the Health App and ResearchKit, and
- Services, like Fitness+, Apple’s newest subscription service.
Today, the majority of Apple's Healthcare services revolve around the iPhone ecosystem. But that’s changing, with wearables and services quickly picking up steam.
iPhone sales have increased an average of about 4% quarter-over-quarter, and about 2% year-over-year since 2017.
However, Services have increased an average of about 4.5% quarter-over-quarter, and about 22% year-over-year since 2017.
Apple doesn’t break out revenue for the Apple Watch but its “wearables, home and accessories” business, which includes AirPods, Apple Watch and other accessories, has grown the most by far, increasing at an average of almost 9% quarter over quarter, and nearly 35% year-over-year since 2017.
This business unit earned $6.45 billion in revenue during the third quarter of 2020.
With these products and services creeping closer and closer to medicine and medical devices, Apple has had to meet new regulations from the Food and Drug Administration.
Apple has found creative ways to get FDA approval without declaring itself as a medical device manufacturer.
The Apple Watch has a De Novo classification under the FDA for its ECG feature, meaning it is the first of its kind, and therefore cannot be compared to anything else on the market regarding standards.
Recently, Rockley Phototonics, the British based tech provider to Apple, revealed that the Apple Watch may soon measure blood glucose levels, your blood pressure and even the alcohol levels in your blood.
Alphabet (Google) Healthcare
(In case you didn't know, Alphabet is the parent company for Google)
Alphabet's focus in healthcare is based on its expertise in AI, innovation and the use of data.
The goal is to improve predictive analytics and precision medicine. An example of this was reported last year by Deepmind. They published a study in Nature that found Google's AI identified breast cancer from mammograms more accurately than doctors.
At the heart of Alphabet's healthcare business is a company called Verily.
Verily's mission is to digitise healthcare. The key to all of Verily's various areas of interest is "data"; collecting it, analysing it, discovering what's useful, and then figuring out how to turn it into inexpensive and accurate products that can be used to improve human health.
Verily is involved in a wide range of disparate projects and initiatives, such as
- a preventative eye care company with Japan's Santen Pharmaceuticals,
- a virtual clinic for diabetes management
- a JV with GlaxoSmithKline in neuromodulation
- sleep management through Primasun
- cancer detection with Freenome
- immuniology with DiCE Molecules,
- tech based health insurance, and
- machine learning drug discovery
A key area of activity for Verily in 2020/21 has been Covid testing and antibody research. In 2020 alone, Verily tested 2 million American's for Covid.
In addition to Verily, Alphabet have a biotech innovation lab called Calico.
Reported to have at least $2.5 billion in its R&D funding chest, Calico is looking into the process of "ageing", or more precisely, anti-ageing.
One example is their study of the ageing process in yeast cells. Using their own MAD machine (Miniature-chemostat Ageing Device), Calico have purified 50 million year old cells in a single test tube.
Essentially, this speeds up the ageing process and the scientists are able to observe the entire ageing process in hundreds of thousands of single cells. From this, they can screen for life extending factors and apply them to the yeast cells.
Using computer vision tech and machine learning, they are able to observe the ageing process
Earlier this year, Alphabet completed the $2.1 billion acquisition of wearable fitness tracker FitBit. The deal had been delayed over competition concerns that Google would use Fitbit user data to enhance the targeting of ads on Google's search engine.
However, Google have been clear to say that the deal is "about devices, not data".
Essentially, this is all about owning the rails, and with Alphabet (Google) "owning" the Fitbit tracker, it can add its extensive expertise in smart watch software in return for building its presence in the health and fitness space.
The Jetsons gave us a vision of what’s to come…in 1962
Set 100 years into the future, The Jetsons was a 1960’s cartoon series that accurately portrayed a future with such innovations as drones, pill cameras, flat screen TVs and digital media.
This was exceptionally amazing considering they created The Jetsons in a time when colour TVs were just being introduced and the personal computer was still another 13 years away from launch.
Writers Hanna-Barbera had a vision for the future that offered the convenience of modern technology, but preserved the natural human interactions of its users.
It was not uncommon to see Jane Jetson making dinner with the press of a button, followed by the meal being enjoyed as a family at the dinner table.
Hanna-Barbera also envisioned the role telemedicine would play in the future delivery of healthcare.
In the 10th episode of The Jetsons, aired in 1962, Jane Jetson calls up her doctor via video chat from their living room.
The interaction was personal and similar to what would have been experienced at a family doctor’s office in the 1960s.
Hanna-Barbera assumed that all future video collaborations would be as natural and real as the in-person interaction.
Have a laugh!
Finally, I couldn't help but include this clip of Rhod Gilbert and how his girlfriend gave him a smart toothbrush for Christmas.
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Sources of interest and relevance
Amazon and rise of Personal Healthcare Healthcare IT Today
Big Tech in Healthcare Business Insider
29 Stats about Telehealth FS Health
US Healthcare spending Peter G Peterson Foundation
Robots in Healthcare Delve Insight
Wearable Tech in Healthcare Digital Health Centre
Calico analysis Analyze
Instant Dentist Rick Huckstep
Internet of Medical Things Deloitte
Everything you need to know about Teladoc Airus Eich
Future of Virtual Healthcare Futurized Podcast