The Battle for Offline Entry Points in Internet Healthcare: Tencent, Alibaba, and Ping An Enter the Fray

In recent years, the rapid development of internet healthcare has increasingly demonstrated that online models—such as lightweight consultations and knowledge bases—can only address superficial needs, while ultimate medical care must be delivered through offline channels. Consequently, many internet healthcare companies that originated online have extended their operations offline over the past two years. For instance, Chunyu Doctor and Dingxiangyuan (backed by Tencent) have established offline clinics through partnerships and self-operated models, respectively. Meanwhile, Weiyi (also backed by Tencent) and AliHealth (under Alibaba Group, founded by Jack Ma) have launched the “Wuzhen Internet Hospital + Pharmacy Partnership Program” and the “China Pharmaceutical O2O Pioneer Alliance,” respectively, forging extensive collaborations with chain pharmacies across China. Recently, Ping An, a financial and insurance giant, has introduced its “Ten Thousand Clinics Initiative,” aiming to build a nationwide diagnosis and treatment service platform.

The significance of offline medical institutions lies not only in the ultimate delivery of healthcare services, but also in their potential to evolve into gateways for internet-based healthcare. It is through these gateways that various internet- and IoT-enabled medical services can be effectively launched and implemented. The battle for control over these gateways is already underway among tech giants such as Tencent, Alibaba, and Ping An. Meanwhile, innovative enterprises with strong offline capabilities that are expanding online are securing a more advantageous position in the evolving future market landscape.

Clinics, Pharmacies, and Family Doctors: The Three Major Gateways to Future Healthcare

Clinics and pharmacies are the two most likely entry points under the major trend of healthcare services shifting toward the grassroots level. Compared with pharmacies, clinics (including clinics, infirmaries, and community health centers) are specifically designed for medical purposes, offering greater flexibility in spatial layout and functional planning. However, the overall number of clinics is relatively small, with only 222,300 nationwide (according to the “2014 Statistical Bulletin on the Development of Health and Family Planning in China,” released in November 2015, which includes three types of urban grassroots medical institutions: clinics, infirmaries, and community health centers). Moreover, most clinics are privately owned and operated at a relatively low management level. For external internet healthcare companies seeking collaboration with clinics, strong ground-promotion capabilities are required, making it a labor-intensive endeavor with limited effectiveness.

In contrast, the number of pharmacies is significantly larger. According to the "2015 Statistical Analysis Report on the Operation of the Pharmaceutical Circulation Industry" released by the Department of Market Order under the Ministry of Commerce on June 3, 2016, there were a total of 448,057 retail pharmacy outlets across China as of the end of November 2015. The advantage this brings is that internet healthcare companies can achieve twice the results with half the effort by partnering with chain pharmacies.

Of course, the limitations of pharmacies are also quite apparent. As pharmacies primarily focus on drug sales, the space available for establishing remote consultation points is limited, resulting in constrained functions and services. Moreover, it is difficult to generate substantial revenue in the short term.

Therefore, for pharmacies, it is crucial to determine the appropriate methods and entry points for integrating into the broader internet healthcare ecosystem and achieving a transformation from mere drug sales to becoming offline gateways for internet-based medical services. The primary challenges currently facing pharmacies include a lack of general practitioner teams aligned with medical access points, insufficient internet technology capabilities, and an inability to provide comprehensive follow-up medical services. Companies capable of streamlining these service components into a holistic solution will be highly sought-after partners for pharmacies. At present, large corporations with the capacity to integrate all aspects of internet healthcare services, such as Ali Health and WeDoctor, as well as innovative companies that originated from offline operations—such as Wei Wenzhen, which began building a remote consultation model through offline pharmacies as early as 2014 and has now onboarded more than 15,000 pharmacies—are most likely to gain a competitive advantage in the prevailing trend of pharmacies evolving into medical access points.

Family medicine is currently a sector with relatively ambiguous market recognition, yet it holds substantial potential for the future. According to the “Guiding Opinions on Promoting Family Doctor Contract Services” issued by the central government, the core role of family doctors is to provide residents with comprehensive, systematic, and coordinated health management and medical services throughout their entire life cycle—namely, “comprehensive, continuous, and collaborative basic medical and health services.” This positions family doctors as a potential entry point into the healthcare system.

A key feature of the family doctor contracting service, which is being vigorously promoted by the state, is that there are no strict restrictions on the service location; it can be provided at primary healthcare institutions or through home visits. This undoubtedly places companies with clinic and pharmacy resources in a more advantageous position.

Chain Clinics + SaaS: The Dominant Strategy for Capturing Clinic Entry Points

Family doctors may become an important offline healthcare entry point in the future, but it will take considerable time to explore and establish mature models. Meanwhile, competition is accelerating for clinics and pharmacies, two entry points with already strong certainty.

The race for clinic foot traffic has taken two forms. One approach involves chain clinics securing substantial financing to accelerate replication and expansion. For instance, Johnson Medical Group, which focuses on grassroots community care, recently closed an A-round financing round worth tens of millions of RMB, led by Legend Capital and participated by its Pre-A investor, Dehui Capital. It is reported that Johnson Medical currently operates 15 clinics, a number expected to reach 30 by the end of 2016.

The trend of accelerated replication and expansion is even more pronounced in chain traditional Chinese medicine (TCM) clinics. Gushengtang, characterized by its standardized chain operations and rapid expansion, recently announced the completion of a $70 million Series C financing round. It is predictable that Gushengtang will certainly accelerate its pace of replication and expansion in the near future. Another TCM chain, Junhetang, also recently announced the completion of RMB 50 million in Series B financing. Currently operating seven facilities, it may also pursue offline expansion plans in the future. Heshuntang, which originated in Shenzhen, has an even more ambitious expansion strategy, reportedly planning to increase its number of mainland China stores to 100–150 within two years.

Internet companies also place significant emphasis on the layout of clinic entry points, with DXY and Chunyu Doctor being the most representative examples. DXY operates its clinics through a self-run model, focusing primarily on chronic disease management. In contrast, Chunyu Doctor’s offline clinics adopt an asset-light approach by optimizing and integrating two underutilized resources: “idle hospital space” and “doctors’ spare time,” catering mainly to common illnesses.

However, the development of both models currently appears to be relatively slow. DXY’s self-operated model demands substantial capital investment and imposes stringent requirements on talent pools and management systems, posing significant challenges for companies with an internet background. Chunyu Doctor operates offline clinics by leveraging “idle hospital space and doctors’ spare time,” which indeed captures the essence of the sharing economy. Nevertheless, policy developments over the past six months suggest that the advent of physicians’ independent practice may arrive later than expected. The entrenchment of physician resources within the public healthcare system is perhaps the most significant factor constraining the smooth development of Chunyu’s clinics.

While capital and the industry have focused their attention on chain clinics and internet companies, the 220,000 clinics scattered across China may represent a more worthwhile market to watch. In fact, chain clinics account for a relatively small proportion of the entire clinic market, with the vast majority being private individual practices. However, as previously mentioned, the biggest challenge in tapping into the individual clinic market is its extreme fragmentation, which requires strong offline promotional capabilities—a significant hurdle for internet companies that have primarily operated online.

The SaaS model, which has been repeatedly validated in many traditional industries, may offer a viable path—beyond chain operations and internet-based approaches—to penetrate the private clinic market and capture offline healthcare entry points.

Individual clinics, which account for the majority of the clinic market, generally exhibit low levels of operational service quality and B-side negotiation power. Third-party clinic SaaS platforms can not only enhance the informatization and management capabilities of these clinics but also establish cooperation channels with a wide range of B-side providers—including medical services, pharmaceuticals, medical devices, and laboratory testing manufacturers—thereby fostering an industrial ecosystem centered on primary healthcare.

Currently, clinic SaaS providers are concentrated in niche segments such as traditional Chinese medicine (TCM) and dentistry. The primary SaaS platform serving general practice clinics that integrate both TCM and Western medicine is Minkang SaaS, under Shenzhen Tianfangda Company. It is reported that the Minkang SaaS platform has over 7,000 registered users, with nearly 1,000 active users, and processes approximately 10,000 outpatient visits daily, establishing itself as a leading clinic informatization platform in China.

Li Dianzhao, founder of Tianfangda, told VCBeat that the company has been cultivating the medical informatics field for 20 years. Over the years, it has successfully developed Hospital Information Systems (HIS), departmental informatics software, and regional informatics systems, accumulating strong technical capabilities and a highly effective marketing team. Compared to companies that have only recently entered the medical SaaS sector, Tianfangda is well-versed in developing clinic SaaS platforms.

Li Dianzhao revealed that the long-term goal of the Minkang SaaS platform is to build an industrial chain ecosystem based on the primary healthcare market, integrating upstream and downstream sectors. Currently, the Minkang SaaS platform has established strategic partnerships with third-party testing institutions such as KingMed Diagnostics and Da An Gene, jointly promoting outpatient laboratory testing services. Efforts are also actively underway to enable seamless two-way referral collaborations with tertiary hospitals. In the future, more large-scale institutions and partners will join the industrial chain ecosystem of the Minkang SaaS platform.

Notably, Ping An Insurance has officially launched its “Ten Thousand Clinics” initiative. The underlying strategy appears to leverage standardized information systems, a franchise platform, and industry chain resources to integrate small and medium-sized primary care clinics scattered across China, thereby creating an integrated online-offline diagnosis and treatment service platform.

If the moves by internet and healthcare companies into the clinic sector can be described as exploratory attempts, then Ping An Insurance, a financial and insurance giant, has made significant inroads into the clinic market, which sufficiently demonstrates the strategic value and growth potential of this sector.

The Battle for Pharmacies: Tencent and Alibaba Have Entered the Fray—How Can Chain Pharmacies Secure a More Advantageous Position?

It appears that Tencent and Alibaba, the two tech giants, have reached a consensus on recognizing pharmacies as an entry point for internet-based healthcare. In March this year, WeDoctor, backed by Tencent, launched the “Wuzhen Internet Hospital + Pharmacy Collaboration Plan,” aiming to establish one million consultation sites for the Wuzhen Internet Hospital across China. It is reported that WeDoctor’s Internet Hospital has already partnered with Simcere Zaikang and Laobaixing Pharmacy, leveraging their offline pharmacy locations as consultation sites for the online hospital.

Alibaba Health recently joined hands with 65 chain pharmacies, including Baijiahui Suhe, Deshengtang, and Kangaidu, to establish the “China Pharmaceutical O2O Pioneer Alliance.” The alliance aims to create a “online hospital + pharmacy” model, leveraging Alibaba Health’s online hospital platform to provide “One-Minute Clinic” online pharmaceutical consultation services to pharmacy outlets under its member organizations.

However, a close examination of the partnerships between WeDoctor and Alibaba Health with chain pharmacies suggests that the latter likely hold a more advantageous position. It is understood that while Simcere Zaikang and Laobaixing Pharmacy are collaborating with WeDoctor, they are also engaging in or negotiating partnerships with Guangdong Provincial Internet Hospital and Haodf Online, respectively. After all, chain pharmacies control offline storefronts and pharmaceutical distribution channels. Moreover, publicly listed companies such as Jointown Pharmaceutical Group are unwilling to serve merely as offline touchpoints for internet healthcare companies; instead, they are striving to build their own closed-loop ecosystems for medical and pharmaceutical services.

As tech giants Tencent and Alibaba made significant inroads into the sector, other companies had already been quietly establishing their presence in the chain pharmacy space for over two years. Founded in 2014, Fudun Technology has built a “Micro-Consultation” telemedicine service system that leverages chain pharmacies as touchpoints to reach grassroots communities. At its core are self-service micro-consultation terminals deployed in pharmacies and an in-house team of more than 500 physicians and pharmacists. The system provides medication and health consultations, remote prescription review, real-time online consultations, and electronic prescription circulation for residents within the coverage area of these pharmacies. Furthermore, it constructs a comprehensive health management service platform encompassing self-diagnosis for minor and chronic conditions, pre-hospital consultation, triage and registration, in-hospital online access to test reports, and post-discharge rehabilitation and chronic disease management.

According to Zhou Congjun, CTO of Wei Wenzhen, in addition to serving the pharmacy network, Wei Wenzhen provides mobile app users with free 24/7 audio-video online consultation services. Zhou revealed that this capability stems from Wei Wenzhen being the first company in China to establish its own in-house team of pharmacists and physicians. The company has set up pharmaceutical and medical service centers in multiple provinces and cities, including Chengdu, Wuhan, Guiyang, and Shandong. Leveraging a team of over 500 physicians and pharmacists, Wei Wenzhen delivers timely and convenient services to users across China.

Fudun Technology’s Wei Wenzhen telemedicine service system has expanded into more than a dozen provinces, including Sichuan, Shandong, Guizhou, Xinjiang, Hubei, Chongqing, Shanxi, Shaanxi, Liaoning, Henan, Yunnan, Gansu, and Ningxia. It has signed contracts with over 20,000 pharmacies, of which more than 15,000 have gone live. Its partners are primarily pharmacy chains, ranging in size from a dozen or several dozen to hundreds of stores.

It is reported that Weiwenzhen has recently co-invested in a startup with Cbyermed, a leading U.S. electronic medical records (EMR) vendor, to develop a remote management platform. Additionally, it will collaborate with a Southeast Asian telecommunications group to build an online remote video healthcare service platform based on 4G networks in Cambodia. This series of moves appears to indicate that Weiwenzhen’s telemedicine model has been successfully validated and is poised to enter a phase of accelerated growth.

In the second half of 2016, the pure online model has been thoroughly “disproven.” With the national promotion of tiered diagnosis and treatment and the gradual implementation of policy targets for increasing the rate of initial consultations at primary care facilities, the focus of internet healthcare will inevitably shift toward offline services. The strategic value of clinics and pharmacies as offline entry points for internet healthcare will receive growing attention in the future. As family doctors serve as the gateway to medical services and even to comprehensive health management in the future, online virtual models represent a direction worth exploring; however, the most viable approach is likely to be one anchored to offline entry points such as clinics and pharmacies.

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