The importance of healthcare to both the investor (VC) and executive (Big Tech) attention peaked in 2021, as VCs investing in the space surged to $31.6B while Big Tech (here defined as FAGMA – Facebook (now Meta), Amazon, Google, Microsoft and Apple) has invested in deals with a cumulative value of $6.8B since the start of 2022. In addition, Big Tech companies took new steps to increase their market opportunity in healthcare. Facebook launched a preventative health solution in the US as well as a provider search tool to help users find affordable care in their communities. Apple updated Watch and iOS to capture more health metrics, including blood oxygen level, and created a data sharing feature so users can share medical data with providers. Microsoft paid $19.7B to acquire Nuance, a leader in conversational AI for healthcare. MSFT also launched Microsoft Cloud for Healthcare, which consists of a tech stack for healthcare organizations combining AI, automation, and low-code app software development tools into a single package. Google launched a camera-based search tool that uses AI to diagnose skin conditions. The company also launched an EHR search solution for providers, an interoperability solution for payers, and a return-to-work test and trace program for employers. Meanwhile, Amazon launched Amazon Care, Amazon Pharmacy, and AmazonDx in the past year, all consumer-focused healthcare services. AMZN also unveiled AWS for Health, a web-based suite of software infrastructure built to support the data science efforts within enterprise healthcare organizations.
It has been known for some time that healthcare is a growing industry, and the advent of the Covid-19 epidemic only highlighted the need for scalable solutions for public health and healthcare in general. Healthcare spending globally exceeded $8.3 trillion at the end of 2019, growing at a CAGR of 3.9% annually from 2020 to 2024. This cost burden weighs on payers, risk- bearing providers, employers, and consumers and creates opportunity for industry outsiders to establish healthcare vertical offerings. This has attracted the attention of Big Tech (or ‘FAGMA’ companies), who see a massive opportunity to disrupt what they see as an old-fashioned, technology-phobic industry. In addition, the US spends far more on healthcare than any other country, and employers, like FAMGA, bear much of that cost. In addition, despite increases in spending, life expectancy in the US is falling, and remains far lower than in other developed countries. As cost-reduction pressure continues to drive healthcare out of a clinical (hospital) setting, healthcare revenue continues its decades-long march into outpatient markets, where the barrier to entry is far lower. As consumers seek an increasingly oversaturated ambulatory care market, FAGMA companies are positioning themselves to own a piece of the new digital healthcare infrastructure. Startup companies such as Heal ($140M raised); Dispatch Health ($407M raised); and Medically Home ($148M raised) are transforming the primary, urgent and acute care markets with on-demand house-calls, while virtual-care startups such as Babylon Health ($735M raised); Current Health ($66M raised); and Pear Therapeutics ($285M raised) are scaling digital care delivery. In addition, Covid-19 has accelerated the adoption of digital health. Approximately $250B or ~20% of all Medicare, Medicaid, and Commercial outpatient, office, and home health spend, could potentially be virtualized, according to a McKinsey 2020 Virtual Care Study. In particular, the adoption of telehealth, wearables, and digital health tracking all surged in 2020.
Where Big Tech (FAGMA) Companies are Targeting Healthcare
To transform the healthcare market, big tech can fund moonshots, pursue acquisitions, introduce their own new solutions and services, and place strategic bets in startups. In addition, the FAGMA companies can leverage their massive user-bases to improve savings, scale benefits, and aggregate even more data that they can use to create even more compelling solutions. Amazon has 200M+ Prime Members; Microsoft has 1.5bn Windows users; Apple has 1.65bn active devices (watches, iPhones, iPads); Meta (Facebook) has 1.85Bn daily users; and Google sees 5.5bn searches per day. In addition, each of these companies has massive data and technology capabilities. In particular, their expertise to leverage vast user bases to scale and undercut incumbents on costs; harvest their growing health data; and use data and innovation to offer the latest technologies, enables a virtuous cycle where products get smarter as users contribute more data and more people use the service as the benefits accrue. It is extremely difficult for legacy companies or startups to compete in these types of markets, as the cost to scale the needed infrastructure and acquire the requisite number of users is prohibitively expensive. It also helps that these are some of the world’s most recognized brands (contrast that with the brand recognition of most health-care companies), that are trusted by their users. In general, there are five major trends driving Big Tech’s activity in healthcare:
- The Consumerization of Healthcare: The consumerization of healthcare is creating opportunities for new entrants to outshine industry incumbents with low-cost, convenient services.
- Explosion of Health Data: Interoperability mandates such as FHIR are exposing more health data than ever before. Big tech is particularly good at building the tools and services needed to help consumers and organizations put that data to use.
- Demand for AI and Automation: The unrelenting administrative burden (everything from manual data entry into EHRs to transcribing doctor’s notes) has created opportunities for big tech to streamlines processes and workflows with AI and automation.
- Enterprise interest in wellness via smart devices: Consumer devices such as wearables and smart speakers are finding a home in healthcare and are drawing subsidies from industry incumbents eager to drive down healthcare costs by maintaining wellness amongst their employees.
- Cost Burden: Employers and consumers alike are bearing the brunt of rising healthcare costs that have far outpaced the rate of inflation and are seeking cost-containment strategies.
A summary of each of the company’s forays into healthcare are summarized below:
Meta/Facebook: Consumers are wary of sharing health data with Facebook or trusting health information on the social media giant’s platform; a problem that will limit its ability to pursue a meaningful healthcare strategy. The company is working to repair that reputation through customer-facing industry partnerships. Expect Facebook to ramp up efforts at combating health-related misinformation by creating dedicated communications channels for trusted partners. For those interested, Facebook could become a valuable patient engagement partner. Also, there is established demand for smart devices in healthcare, with incumbents showing a willingness to subsidize the cost on behalf of patients in some cases. Facebook is actively cultivating AR/VR, smart speakers, and potentially wearable devices to compete in this market. Expect Facebook to pursue its own device subsidy partnerships within the industry. Facebook will continue investing in AR/VR- based digital therapeutics and publishing research derived from its existing Portal partnerships.
Apple: Apple has been a leader in its effort to make health data easier for consumers to access. It launched Health Record in 2018 so consumers can store their medical records in iOS. Apple recently announced that customers will be able to share those records with caregivers and other healthcare providers. Apple is generating its own health data through iOS and Watch sensors and algorithms. Apple will engineer an increasingly comprehensive picture of consumer health. With medical record data on hand, consumers can seek care from new locations, locally or virtually. Apple will continue to lead in this space, building sensors, algorithms, and apps to engage consumers on health and wellness. In addition, Apple is negotiating with health plans to offer subsidized Apple Watches to members. The company has established an active subsidy arrangement for iPhone and is working to replicate that for Watch. The company has seen moderate interest, landing agreements with two of the largest payers in the nation, Aetna and UnitedHealthcare. Expect Apple to make smartwatches a standard member benefit. Subsidized smartwatches are going mainstream. Beyond Apple, Google has also inked deals with Anthem and BCBSA to bring free or heavily discounted smartwatches to members.
Microsoft: Microsoft is building an innovation platform for enterprise by combining Power Platform, Azure, and Teams to support AI, automation, and low-code app development efforts. This tech stack is HITRUST- certified and FHIR-enabled and comes with architecture plans to address common innovation use cases in healthcare. Expect Microsoft to rapidly expand its market position supporting enterprise health innovation. Microsoft is the best-positioned big tech vendor to support digital transformation efforts among enterprise healthcare organizations. Its acquisition of Nuance will further accelerate its already strong momentum. In addition, traditional health IT vendors and enterprise incumbents are fielding models that perform poorly in the wild, lack clinical justification, and in many cases are biased toward already disadvantaged members of society. Microsoft is investing and partnering to position itself as a leader in how to implement AI safely and fairly in healthcare. Microsoft will differentiate on AI strategy and governance, rather than just building more tools. For several years, cloud providers have been competing for enterprise healthcare market share by lowering the technical barriers to adopt AI and automation. Expect the next generation of tools to focus on responsible AI, model monitoring, and data governance needs.
Alphabet/Google: Google’s consumer health efforts span the breadth of its organizational chart, with Search, Fitbit, Android, and Nest. The company has been much slower to market in some areas – such as medical record data aggregation services or atrial fibrillation alerts – but first to market with others, like DermAI. However, Google’s consumer health strategy and pace of innovation will remain fractured. Google’s consumer health strategy is also poised to remain siloed. Google Health recently dissolved its consumer health teams, moving them to other parts of the business. Do not expect a well- orchestrated consumer health strategy. Behind Microsoft, Google has the most publicly disclosed healthcare clients leveraging its industry cloud solutions. The company was also just behind Microsoft on securing HITRUST certification for its public cloud infrastructure and introducing native support for FHIR data ingestion. Google (and Microsoft’s) cloud offerings will become cornerstones of the enterprise tech stack. Expect cloud services to be as critical to healthcare operations as the EHR, with market share disproportionately landing with Google and Microsoft. These new enterprise revenue streams will accelerate GCP’s healthcare innovations.
Amazon: Amazon is the first and so far, only big tech vendor directly engaged in care delivery. It has shown it is willing to compete for patients in areas where it can deliver a better experience: patient care, pharmacy, and now, diagnostics. The company has the assets to expand into additional areas should its initial efforts prove profitable. Expect Amazon to expand its diagnostics offerings next. Amazon will continue building solutions catering to patients and employers. Anticipate a larger geographic footprint for Amazon Care, more diagnostic tests for Amazon Dx, and forays into new areas, such as diagnostic imaging or a direct contracting market for health systems and employers. Amazon was late to the industry cloud strategies being pursued by GCP and Azure, but today it offers rich support for FHIR data modeling, native support for clinical fact extraction from unstructured text, and a compelling model marketplace. AWS will see slow growth in the enterprise healthcare cloud services market. Expect AWS to continue investing heavily in its healthcare- focused cloud services. The company’s growth in this space will likely trail competitors but should yield an increase in digital transformation partnerships with health systems and payers.
The aging of Western societies will place an increasing financial, administrative, and logistical burden on healthcare systems across the globe. As healthcare costs continue to rise, Big Tech (‘FAGMA’) will extend their reach into patient populations, leveraging the ‘virtuous cycle’ of more data, deeper insights, better (health) outcomes, and increased participation, to further insinuate themselves into the health and wellness of people on the planet. Innovative startups and incumbent healthcare organizations alike would do well to hone a strategic focus that enables them to thrive in this environment, rather than trying to compete head-to-head with FAGMA. While there have been some notable early stumbles by the FAGMA companies as they get into healthcare, there can be little doubt that they will eventually leverage their heft, scale and data-first strategies to drive down costs, increase participation, and optimize wellness.