The Digital Transformation of Mobile Health Markets
With 5 billion mobile phone users and a dramatic increase in global “connectivity”, both health care providers and patients are beginning to realize the potential benefit of utilizing mobile technology to both advance the quality of health services and drive down the cost of healthcare. Mobile health, or mHealth, is a segment of the overarching digital health market. Implementing mHealth technology could help to drive down costs by limiting in person visits, increasing patient-provider communication, and providing meaningful data to optimize healthcare quality. Substantial growth in the mHealth market can be attributed to patients demand for more access to their medical health professionals. This growth potential will increase as consumers gain trust in the security of the data systems that hold their private personal health information.
The mHealth market can be segmented by service to include:
Fitness and Wellness Services
The digital healthcare market is more broadly segmented into healthcare information systems and wearable devices. Wearable devices have been a power-house driving market growth due to an increase in the use of health monitoring devices that are compatible with mobile applications. These devices are currently being used to track anything from overall fitness to glucose levels in diabetic patients and everything in between. Nearly 24% of Americans now own a wearable device and the market continues to grow. However, this growth rate will likely plateau due to rapid discontinued use. A survey done by Rock Health found that over 25% of wearable device owners claim that they no longer use their device. In most cases, owners discontinued using their device because they had either achieved their goals or the device was ineffective for achieving their goals.
According to Stratistics MRC, the global digital health market was worth $182.63 Billion in 2017 and is expected to reach $665.36 Billion by 2026 growing at a CAGR of 15.4% from 2018-2026. Some of the key motivators driving the market include:
Rapidly improving healthcare IT infrastructure
Increased emphasis on patient centered healthcare delivery
Rising number of “connected” individuals downloading mobile health apps
Low cost and convenience of medical devices
Growing number of Venture Capital investments
Venture Capital and M&A Activity
2017 was the digital health space’s biggest year for venture funding so far, inching towards $6 billion in investments. 2018’s Q2 out paced both 2016 and 2017 reaching $3.4 billion invested over 193 deals. The average annual deal size has increased from $16.4 million per deal in 2017 to $17.9 million per deal so far in 2018. The top 6 funded value propositions in 2018 are:
Diagnosis of disease ($279M, 5 deals)
Monitoring of disease ($270M, 13 deals)
Consumer health information ($267M, 10 deals)
R&D Catalysts ($216, 12 deals)
On-Demand Health Care ($169M, 11 deals)
Health Benefits Administration ($166M, 6 deals)
This enthusiasm is a testament to the maturity and stability of the digital health space.
M&A seems like a natural path for many early stage digital health start ups that are quickly creating novel, valuable technology that larger players are struggling to duplicate. These technologies are adding tremendous value to larger companies and many digital health start ups are being offered generous acquisition deals before they have proven their revenue models or shown they can function independently. Successful industry players have utilized M&A strategies and invested in R&D to add tremendous value to their company and secure their position in the market. Some key players include AT&T, Cerner Corp, McKesson Corp, Cisco Systems, Allscripts Healthcare Solutions Inc and Qualcomm.
There were 60 disclosed acquisitions of digital health companies in the first half of 2018 which is on pace with 2017. The number of acquisitions of digital health companies peaked in 2015 with 189 deals and has declined since. Notable deals in 2018 thus far include:
Acquisition of Flatiron Health for $1.9B
Inovalon’s Acquisition of ABILITY Network for $1.2B
Amazon’s Acquisition of PillPack for an estimated $1B
Market PitFalls & Opportunities
While the aging global population and an increase in instances of chronic disease or illness have created a need for digital health technology, patients are hesitant to adopt the technology due to privacy concerns regarding their personal health information. These concerns don’t seem to be improving any time soon and have, in fact, gotten worse in recent years. Confidence in the data security of tech companies declined from 31% in 2016 to 24% in 2017. Facebook’s recent data security issues have most likely made this problem even worse.
Chronically ill seniors represent the greatest opportunity to improve health using digital technology, however they are the least likely to both trust tech companies with their health data and to adopt mobile health technology.
Developing and emerging economies may be behind in IT infrastructure for their healthcare systems, but there is an enormous market opportunity to serve these communities due to low physician density. Lack of IT infrastructure for healthcare may be viewed as a pitfall, however this allows emerging economies to shape their IT infrastructure around mobile health technology.
Start ups who focus on strengthening their enterprise sales skills may have an easier time finding success in an increasingly B2B digital health world. The B2B business model currently dominates the digital health market, but this wasn’t always the case. 61% of B2C companies shifted to an enterprise model and now B2B and B2B2C companies make up 85% of the market. This shift to a B2B model is most likely, in part, due to the widespread use of applications by employers for healthcare services. Digital health companies that are just starting up would be wise to use that information to steer their business model towards a B2B solution. This could end up saving companies time and energy in the long run; it seems as though the shift to B2B is inevitable.
Like any other sector, companies that can manage to find long lasting novel solutions in large markets will find success. In the digital health space this means addressing security issues to gain the trust of chronically ill seniors, developing IT infrastructure in emerging economies to tap into areas with low physical density, and encouraging continued use among early adopters. Companies that come up with meaningful digital health solutions to help solve real major health issues in massive markets will undoubtedly find success in the steadily growing digital health space.
Jack Bernstein is an Analyst at Impala Ventures, a venture capital and advisory firm and is based in San Diego, CA with offices in California, New York, Istanbul and Nairobi.