Counterpoint: Digital Health is Just Getting Started

Posted September 14, 2017
By Matt Ripkey


Recently, CNBC posted an article by Rob Coppedge titled “Digital Health is Dead, Says this Health Tech Investor”. Obviously, such a bold headline caught the attention of just about everyone at Redox, and the article (and our thoughts about it) circulated through our Slack channels for about a day.

Because the title is so incendiary—and because what we do is at the forefront of this claim—I wanted to take the time to respond to a few points Coppedge puts forth but doesn’t adequately back up.

To do this, though, we need a little background on the industry.

Where We Are and How We Got Here

My working theory is that when SaaS technology is rolled out, it first finds the place with the lowest barriers to entry. In the mid 2000’s, this was in consumer tech, iPhone apps, and those sorts of things. Then you saw SaaS move toward some of the more regulated industries that were a bit more difficult to fight into—taxis and hotels were disrupted with Uber, Airbnb, etc in the early 2010’s.

Now, you’re seeing the SaaS model move into the last places left, the hardest industries to live in due to regulation and other externalities: healthcare, finance, etc. These industries make it really hard to bring new technologies in because of established rules, sticky user habits, and a healthy dose of anti-gadget skepticism. Complicating things further are laws around user (or, in our case, patient) privacy. After all, health and finance apps aren’t like your run of the mill selfie app for an iPhone. They need to be a bit more sophisticated.

So, you can see this big explosion in digital health kind of as the end of what started with the Ubers, Airbnbs, and other early-2000s unicorns. What we’re seeing right now is that same kind of investment coming into later stage industries, and what happens when you do that? Well, the first thing is that you flood a whole bunch of money into a multitude of little companies—and we see that new investment is strong in the industry today. That’s true, but while the finances are strong, the companies are still relatively fragile and weak.

Coppedge points out that there’s been $16 billion dollars poured into health tech in the last three years. Which is great! That’s what’s supposed to happen, and that money is kind of like the seed fund for the entire industry. What happens next, though, is equally important: after you’ve got all these companies started and you give them a few years to grow, there’s going to be winners and losers. Winners and losers leads to consolidation.

When this happens, you’ll see the consolidation of tech underneath other tech. This happened when Lyft bought Cherry, an on-demand car wash service, just so that they could use their location services technology and operations experts in their ridesharing product. To be sure, we’ll begin to see that sort of consolidation of tech in digital health over the course of a few years, and then all of a sudden, you’ve got really bonafide market leaders. You’ll see telemedicine companies buying patient engagement tools and scheduling apps and rolling them together for complete patient portals.

Coppedge says digital health is dead, and it’s absolutely the wrong conclusion. If anything, digital health is officially born, and now it’s time to feed it, watch it grow, pick the winners, and nurture the companies that are going to consolidate technologies under one roof.

Patience Will Pay Off

The other thing that Coppedge says is that “better mousetraps aren’t enough”. And thats true—the world doesn’t need a thousand scheduling apps, it just needs one really good one. And we just have to be patient. We currently have groups who build out single-functionality products, and if they’re really great at that one functionality, are going to get acquired by other companies. This is something that’s good for the investors, founders, and usually employees. Coppedge knows this as an experienced VC, which is why it’s shocking he’s so quick to declare death to digital health.

Instead of thinking that the digital health world is saturated by small companies solving single functionalities, be patient and let these companies consolidate. If you do, you’re going to have really strong digital health platform companies that can do a whole bunch of amazing things, and all of that $16 billion dollars worth of investment the last few years will come back tenfold. Once that begins to happen, people are going be really excited with the things that can be done, especially as we move value-based healthcare and get better at the things we can do with an iPhone in everyone’s hands.

I understand the path that Coppedge takes in his argument, but I disagree with his outcome whole heartedly. This is a natural progression in a birth of a brand new industry, and you just have to give it a little time to let the natural effects of development take place.

Lastly, Coppedge says,

If digital health is dead, then what? I am hopeful that my venture capital and investment banking colleagues will not rush to replace it with yet another buzzword. Without question, buzzwords help us sell companies – but they certainly don’t help us build, run and sustainably grow them. Instead, we need to get real, going deep to build the connections between new technologies and the legacy healthcare enterprises consumers work with daily and entrust with their care and finances.

Interestingly, this call-to-action is something we responded to three years ago when Redox was founded. Building connections between new technologies and legacy healthcare systems is something that is already going on—it’s not even the hot new thing that might be coming down the pipe. Instead, it’s already in place, proving that you can get legacy tech to benefit from the addition of functional-specific tools.

The Future of Digital Health

There’s a lot in Coppedge’s post that rings true, but he doesn’t take into account the natural progression of how an industry evolves. Ultimately, this makes for a thesis that is both short sighted and easily disproved by stepping back and looking at the larger picture.

Christopher Tobin-Campbell, one of our Senior Software Developers, summed up my concluding thoughts pretty succinctly:

“Saying that digital health is dead because it’s harder than some people anticipated is like saying hand held devices were dead when not everyone bought a palm pilot. Digital health is hard because there is no platform and no functional standard for people to build on. While that’s true, that’s a solvable problem.”

Christopher’s right, and we’ve been solving that problem since Redox was founded. Digital health isn’t dead—give us time, and give it some patience, and we’ll show you it’s alive and well.