How to Turn a Mobile Health Application into a Real Business

1/13/12Follow @SkipFleshman

2011 has been a big year for health sciences technology and, specifically, mobile health. Venture capital investors, looking for the next big thing, are beginning to invest in companies developing mobile applications in the health and wellness sector. Smartphones are making new health care applications feasible, and one doesn’t have to look far to see tangible examples of companies creating some buzz. Fitbit, Lark, Zeo, and Jawbone (UP) have all raised capital and developed hardware solutions often tied to Apple’s iOS or Android based phones. Hundreds of companies are targeting weight loss, wellness/ fitness and women’s health with software-only applications. Incubators like Rock Health are popping up, bloggers are beginning to write about the sector, and gamification has become a term commonly used in healthcare. As cleantech investing predictably dies, mobile health and Health 2.0 are taking its place.

Many of these startups, however, are targeting rather niche applications. These applications can often get a large number of downloads when they are offered for free, but never generate big dollars or recurring revenue. So what kind of companies are venture capitalists looking for in the mobile health sector? Here are some of our criteria for what can make a mobile health company a viable, stand-alone business.

Make the output measurable and actionable. Many mobile health products capture data, but what’s important is that one’s progress is measurable and the information provided to the user is actionable. Sure, it’s OK to measure and track someone’s pulse or activity, but what does the user do with that data? What’s important for these products is that they lead to an actual lifestyle change, improve a person’s health, or lower healthcare costs. Startups should think about partnering with companies like WiThings, which has products that wirelessly track progress by capturing data like blood pressure, weight and body fat percentage.

Seamless and easy to use. Data must be transferred to the cloud in a seamless manner. Use Wi-Fi or Bluetooth but, for heaven’s sake, don’t make users connect a device to a USB cable to download data. On a similar note, the user experience must pass the Apple test. It’s got to be easy enough for your three-year-old daughter or 75-year-old grandmother to interpret and use.

Have some defensibility. Sure, if you get enough traction, users, or eyeballs you can monetize later, right? That’s true if you reach tremendous scale. But by and large, if you are not developing something that is inherently or legally difficult to copy, you’ve lost some value.

Address a large, no huge, market. Part of the success of Facebook and Twitter is that anyone in the world can use them. The obesity and weight-loss markets are large but their products are often fads and short-lived. Many mobile application companies addressing niche markets such as brain workouts, pregnant women, or hard core athletes are inherently limited.

Have the ability to monetize long term. Few venture capitalists want to invest in a one trick pony. If the application costs $.99 and you get 10 million downloads, that sounds cool and would be great for an individual founder, but it does not make an independent, sustainable company. Mobile health applications need to have a long-term development path and quick release cycle to add features and capabilities that:

1. Maintain stickiness and reduce churn, getting people to continue to use and pay

2. Increase initial premium uptake or conversions to a paid subscription from freemium.

Plan to work with the healthcare system. Yes, direct-to-consumer sounds cool and seems like a great approach, but it’s important to realize that consumers expect other people to pay for their health care. Certainly weight loss and some wellness markets are large, but these sectors produce a lot of short-term money and the products and services are almost always fads. If you want to build a real company, then solve a real medical problem and start, from day one, with a plan that works alongside the payers, providers, and physicians. That is where long-term money is made.

Hardware is OK! Well, this is a shift away from the traditional venture paradigm. The fact is that hardware development, like software development, is much cheaper and less risky than it was even five years ago. China has become an inexpensive design, manufacturing, and assembly powerhouse and companies like PCH International are actively helping startups get their design and manufacturing right the first time. It’s still risky though…just ask Jawbone.

Forget selling to corporations. Many startup founders still believe that large corporations can be a great customer or channel for health and wellness products. The idea is that this will help keep employees healthy and reduce absenteeism and insurance premiums. Well, I still haven’t heard which specific organization at IBM, United Airlines, or P&G has budget to buy this stuff and I find it hard to believe the ROI will be quantifiable. I’d focus valuable sales assets elsewhere.

The use of GPS receivers, cameras and accelerometers in the mobile device and the development of new health-related product sensors will enable consumers to greatly improve their health and wellness over the next decade. Although this sector is still in its infancy, there will undoubtedly be large markets for products that are easy to use and show results. The signal-to-noise ratio, as with other mobile applications in the app-stores, will still be very low, but this is a sector that venture capitalists, health care providers, insurance companies and physicians should be paying much more attention to. Entrepreneurs already are.

Skip Fleshman is a Managing Partner at Asset Management Ventures, which has invested in Health 2.0 companies such as CardioDx, HealthTap, Lark, Proteus Biomedical, and Maverix. Follow @SkipFleshman

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  • Henway

    Great article and matches most of my own personal cynical views…

    Altho I wished you haven’t posted it. Now my competitive intuition may be gone =(

  • http://ducknetweb.blogspot.com MedicalQuack

    The entire issue here is that technology may be ready but at what cost to consumers? Any day I would choose a direct input to HeatlhVault PHR rather than rely on 3rd parties who collect and sell data for profit. I just happen to like privacy and think we should tax those big corporate conglomerates who make billions with “free taxpayer data” and a couple years ago I never I thought I would make a statement as such but it is what it is today.

    Certainly when you have big companies like Walgreens stating their data selling business is worth just under $800 million, who doesn’t stop and give this some thought? It’s not fair to have to adapt a healthier lifestyle to have to support corporate greed at the same time? I don’t think so and this leads only to more inequality and lack of transparency. Was it not Fitbit that dumped out via a Google search the sexual activities of some consumers that were naive enough to wear one during that time:)

    License and tax the big corporations for this use and give something back I say as we all become data chasers to fix flawed data that denies opportunities for many. Insurers are right up on this when you look at all their analytics and behavioral risk assessments and those who do not keep up on mergers and acquisitions may not have a clue here on how deep their analytics run, but they are there and they sell a ton of data too.

    http://ducknetweb.blogspot.com/2011/12/alternative-millionaires-taxlicense-and.html

  • civisisus

    so much problematic with this short piece it’s hard to know where to start, so let’s stay simple: employers pay for over half of health care in the US, but Skipper wants you to “forget selling to corporations” and yet to “…start, from day one, with a plan that works alongside the payers, providers, and physicians. That is where long-term money is made.”

    what Skip has told you here, alongside with the usual VC blather: “first, bring me the broomstick of the wicked witch of the west” – is that what he doesn’t know about the US healthcare marketplace would fill a book…shelf. if you believed what he’s written, it’s doubtful you’d invest much if anything in any of the firms his outfit is backing.

  • http://www.ageinplacetech.com Laurie Orlov

    Skip, your advice is good — but I am seeing companies come and go because of additional issues that they didn’t consider and that you didn’t cover. Although I was thinking about the tech market for boomers and seniors, the same advice applies to the even more nascent mobile health app market.

    http://www.ageinplacetech.com/blog/5-prerequisites-sustaining-good-business-idea

    Best regards,

    Laurie Orlov
    Founder, Aging in Place Technology Watch

  • http://www.publicis-healthware.de Aleksandar Stojanovic

    Very good analysis! Only thing missing from my perspective – pointing out the importance of a solid diffusion strategy. Getting money and building services and technology is not enough. Every new health 2.0 service and m-health app is facing a huge lack of visibility due to an overcrowded marketplace.

  • Dave Monahan

    Skip,

    Great article. Just 1 question – What markets would you target? Consumer? Any others?

    Thanks

    Dave