Contrasting B2B and B2C business models in digital health, with a deeper look at funding for both models, potential opportunities and investor perspectives. Purchase the report here: https://gumroad.com/l/ujcjC

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 these CHANGES
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
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