Report

Market sectors and drivers

Over the course of a month in May-June 2014 Samsung, Apple, and Google showed new health and fitness platform initiatives to integrate the tracking and wearable devices that have become popular in the past several years. What is driving these efforts?

In healthcare the opportunities are more expansive yet more challenging due to the regulatory requirements for handling data in a manner that complies with privacy and security standards such as HIPAA (Health Insurance Portability and Accountability Act). This is why many players choose to enter the fitness market first. Each of these sectors has a number of sub-segments.

The healthcare market can be broken down into the following sub-markets:

  • Chronic disease management. This is one of the most important areas at the moment with B2C opportunities as well as platforms for health plans, employee wellness, or Accountable Care Organizations (ACOs).
  • Pharma and clinical research. Pharmaceuticals companies are expanding “beyond the pill” and building systems for end-to-end disease management of the conditions their drug portfolios include. Other opportunities exist to connect users of wearables and tracking devices, including cutting the cost of clinical trials and research, as well as the post-marketing of drugs and medication adherence.
  • Health insurance. The traditional lines of provider and payer are blurring as insurers are acquiring health care delivery organizations and developing digital health tools for disease management and health data analytics (e.g., population health management, actuarial or risk analysis, etc.).
  • Primary and secondary markets for health data. There will be many new data customers as the industry shifts to value-based care in the coming years, fueling the growth of businesses focused on consumer-driven care, risk modeling and new employer-based wellness programs.

The fitness/wellness market can overlap with the healthcare market in areas such as employer wellness programs, but largely comprises unregulated B2C markets around tracking devices, including:

  • Athletics. Professionals and serious amateurs, such as triathletes, are the lead users collecting data to optimize performance. Some of these devices may also intersect with formal medical markets; e.g., concussion sensors in the NFL.
  • General wellness. This segment includes sleep, diet, and activity tracking whether linked to a wellness program or directly purchased by consumers.
  • Performance analytics. A small number of companies are providing more sophisticated analytics for quantified self (QS) practitioners that offer laboratory tests to personalize nutrition and training on top of the data that individuals collect. Inside Tracker uses a blood test to provide athletes an overview of their fitness then offers a customized nutrition solution to optimize performance.
  • Aging in place/home health. Depending on the type of monitoring, these services can be tied to a disease management system and offer sophisticated medical biometrics monitoring, or can be sold direct to consumer for monitoring location, newborn infant monitoring, etc.
  • Quantified pets. The QS is no longer just about humans. Expect the major platforms to offer APIs for pet-tracking data. Examples include Whistle, Voyce, Tagg, and Fit Bark.

Healthcare and fitness/wellness are both at a major turning point where new business models powered by sensors, data analytics, and cloud access will change healthcare as we know it. These new models will address several key issues:

  • Transforming the price structure of care. The cost of U.S. healthcare delivery and most products and services is more expensive by an order of magnitude than in international markets. New entrants will disrupt the status quo through business model innovations that leverage data and connectivity to move care to the home and that support self-care.
  • Moving from volume-based to value-based. This will induce a great amount of pain for many incumbents while offering the major platform providers opportunities to partner for significant value capture.
  • Moving from place to space. Distributed healthcare models that rely less on the clinic are gaining momentum.
  • Shifting to the consumer. Personalization and customization fueled by multiple streams of data both medical and non-medical will be crucial to tailoring services as well as building new business models.
  • Population health management. The emerging value-based incentives for healthcare reimbursement depend on more than just individuals. Value-based care puts a stronger emphasis on prevention, and today’s healthcare systems have been poorly designed to do preventive care cost-effectively. Furthermore, a growing body of evidence supports the view that our social status and social networks play an important role in health outcomes. (See N.A. Christakis and J.H. Fowler, “The Spread of Obesity in a Large Social Network over 32 Years,” New England Journal of Medicine)

These current trends will need to be nested within an understanding of where the business of data analytics for each will go in the near future. As I’ve mentioned before in earlier reports and my book, “Connected Health,” healthcare is in the early days of the Algorithmic Revolution that blurs the boundaries between products and services. It’s not clear whether vertical integration and end-to-end services have an advantage, or whether a new type of system integrator will emerge that can build the “operating system” for a digital health economy.

Challenges: sustaining usage, data integration

Acquisitions such as Dropcam by Google’s Nest signal a trend towards integrating data from multiple home devices via open APIs with the object of creating more seamless services for consumers. The same scenario is playing out in health and fitness as the number of trackers, smartphone apps, sensors, and wearables proliferate. Currently, too many one-off sensors or sensors capable of tracking one to five vital signs result in lots of data “dressed up with no place to go.” The market lacks data services that provide feedback loops and create user engagement.

ABI Research predicts that 90 million wearable sensors will be shipped in 2014. Fitbit dominates wearable fitness, with about 50 percent of the global market according to Canalys. Nike, until its recent refocus on apps, had about 10 percent of the market. Endeavour Partners conducted an internet-based survey in September 2013 of American consumers over the age of 18 and found that 1 in 10 consumers owned a fitness tracker.

But market sustainability is questionable at the moment. The dirty secret about wearables and tracking devices in both health and fitness is that the average user sustains active use of a device for 6 to 12 weeks before it joins the junk heap on their desks. Would-be platforms must support data-driven services that offer new user experiences around the data to address the challenge of the 3-month dropoff.

Endeavourchart

Source: Endeavour Partners

The other challenge is that, while the growth in health-related wearables is impressive, the products have relatively little differentiation yet little compatibility. A recent market analysis by Rock Health shows that, in addition to the big players, we have a virtual “long tail” of smaller companies in various stages of development, creating a very siloed and fragmented ecosystem. Meanwhile, electronic medical record (EMR) systems – considered by many to be the keystone of a health IT ecosystem – can rarely integrate data from competing EMR systems or elsewhere in the same hospital. The growth of wearable devices and sensors will reach a bottleneck in the formal health sector unless some form of platform or system integrator role is created to bridge devices and systems. Already we’ve seen a number of companies jump into the vacuum in hopes of building a business around the integration of devices.

Qualcomm’s 2net hub was developed to integrate Bluetooth sensors in the home into the cloud for a data analytics layer to provide feedback to users. Qualcomm Life, the division that developed the 2Net platform, targets both device manufacturers and ACOs with an offering that facilitates coordination of care from the home across the spectrum of healthcare providers. It also has specific programs for medication adherence and patient engagement programs.

In the formal healthcare sector Validic has been leading the pack in integrating a wide number of devices into specific health provider or insurer systems.

Google Fit and Apple appear to be going head-to-head in the easier-to-navigate fitness/wellness segment, though Apple also has its eye on healthcare. And Google may come up against Asian wearables companies uneasy with potential platform lock-in.

Disclosure: Fitbit is backed by True Ventures, a venture capital firm that is an investor in the parent company of Gigaom. Om Malik, founder of Gigaom, is also a venture partner at True.

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