Capital Frenzy Fails to Unlock Profitability in China's mHealth Sector

A PwC assessment report has led many to see the dawn of spring for mobile health. After hitting a financing high in 2014, the mobile health sector still saw $4.3 billion in inflows in 2015. Despite the prevailing narrative of a “capital winter” in China, mobile health companies announced several major financing rounds in the second half of 2015.

According to PwC’s forecasts, the global mobile health market size was projected to reach $23 billion in 2017, with China expected to account for $2.5 billion. Meanwhile, a domestic market research center reported that China’s mobile health market had grown to RMB 4.5 billion. This may explain why capital has favored mobile health; however, domestic mobile health projects are diverse yet largely similar. Given existing revenue models, can the current rush by investors to capture market share truly break through the profitability bottleneck facing mobile health?

Favored by Capital, the "Expansion" of Mobile Healthcare

In December last year, JiuYi160 successfully listed on the New Third Board, claiming the title of the first publicly traded internet healthcare company. Subsequently, BGI Genomics, which underwent personnel changes, also successfully completed its initial public offering (IPO). Notably, JiuYi160 incurred losses exceeding RMB 40 million between 2013 and 2015. Meanwhile, BGI Genomics, though having little direct connection to mobile health but serving as a beacon for the pharmaceutical industry, reported a net profit of only RMB 28.12 million in 2014. The “expansion” of the mobile health sector is closely tied to the favor it has received from capital markets.

Not long ago, Ping An Good Doctor announced that it was planning a Series A financing round. If all goes well, its valuation would reach $3 billion to $4 billion, meaning it would fully surpass Guahao.com, which previously raised $394 million at a valuation of over $1.5 billion. These two companies are merely typical examples of substantial financing in the mobile healthcare sector. In addition, Chunyu Doctors secured $50 million in its Series C round, DXY received a $70 million investment from Tencent, and other enterprises such as Apricot Forest, Tie Xin Yi Sheng (Considerate Doctor), and Purple Medical have also announced financing deals worth tens of millions of dollars. Companies like Xunyi Wenyao and Kuaisu Wen Yisheng have also revealed plans to raise funds. It can be said that the entire mobile healthcare industry appears to be a highly sought-after opportunity in the eyes of investors. According to StartUp Health’s financing report, Tencent ranks fifth alongside Khosla Ventures, Rock Health, and Venrock in terms of the number of investments. Even though Tencent has not directly entered the mobile healthcare market like Alibaba and Baidu, its moves should not be underestimated.

But are these mobile health companies truly worth such high valuations? Take one example: a mobile health practitioner revealed in conversation that their company was about to close its Series B financing round, with an amount exceeding USD 30 million, equivalent to RMB 200 million. The company’s flagship product is a physician-focused social networking app, which currently has fewer than 200,000 registered physicians. When asked about user engagement, however, the individual remained tight-lipped. It is easy to imagine how a narrative can be spun around these 200,000 registered physicians, encompassing themes such as physician social networking, multi-site practice, online consultations, and medical record management. Yet one undeniable fact remains: the implied valuation per registered user in this Series B round exceeds RMB 1,000, even before accounting for activity rates or physician loyalty. How many other similar companies exist? This is certainly clear enough to the fervent investors.

Venture capitalists ultimately prioritize returns, though companies like Tencent that emphasize mobile internet ecosystems and strategic layouts are also in the mix. While the narrative may be compelling, the ultimate determinant of success or failure for mobile health projects remains their business model.

The Awkward Profit Model: How Can Cash-Burning Businesses Recover?

The term “awkward” is used to describe the profitability models of mobile health projects because few mobile health companies are truly profitable; their so-called business models resemble little more than pie-in-the-sky promises. Consequently, many leading figures in the mobile health sector have characterized the current competitive landscape as a cash-burning race. The question remains: can these potentially profitable development models enable investors to recoup their losses?

Let us first take stock of the mainstream revenue models adopted by mobile health enterprises in China.

First, traffic-based advertising. Some established medical information websites, such as Xunyi Wenyao and Kuaisu Wen Yisheng (Quick Doctor), may not be widely recognized in mainstream media, yet they generate substantial revenue through PC-based traffic advertising and are currently profitable. However, this profit model arguably falls outside the scope of mobile healthcare, or at least does not fully align with its narrative. In fact, both Kuaisu Wen Yisheng and Xunyi Wenyao have launched their own online consultation apps, leveraging their PC traffic advantages to achieve notable success in the mobile sector. Nevertheless, it is clearly difficult to replicate the patchwork-style ad push strategy within apps. At present, major players such as Chunyu Yisheng (Spring Rain Doctor) and Ping An Hao Yisheng (Ping An Good Doctor) also derive their primary profits from traffic-based advertising. This monetization model has virtually no barriers to entry and is unlikely to impress investors as a sustainable source of profit.

Second, traffic sharing. A key profitability strategy for mobile health is traffic monetization, which shares the same fundamental logic as most mobile internet services. There are various forms of traffic sharing, with advertising being just one example. In the era of big data, many mobile health companies attempt to leverage big data to direct user traffic to upstream and downstream medical service providers. For instance, they may channel young female users to beauty clinics and providers specializing in women’s health conditions, drive user acquisition for medical device and pharmaceutical manufacturers, or even capitalize on their position as a gateway to charge commissions from hospitals and physicians. However, JiuYi160 faced significant controversy for recommending HPV vaccines available in Hong Kong to female users. On one hand, healthcare inherently involves user privacy, and mobile health platforms lacking proper medical service qualifications risk provoking user backlash or even lawsuits. On the other hand, if the user base fails to reach sufficient scale, so-called traffic monetization remains an empty promise, inevitably leading to the elimination of many participants in the healthcare industry.

Third, O2O (Online-to-Offline). This is a broad concept. Home delivery of medications constitutes O2O, as do the offline clinics pioneered by platforms such as Chunyu Doctor. Some mobile health players that control key entry points, such as appointment registration, are still exploring a series of processes including patient triage, payment, and diagnostic information push notifications. Their aim is to integrate the three segments serving hospitals, patients, and doctors—connecting with hospitals on one end and linking to online platforms on the other—and generate revenue through commissions and other means. This model is also essentially O2O. Baidu has leveraged its Baidu Waimai delivery team to pilot home medication delivery, while Alibaba has partnered with Didi Chuxing to test pharmaceutical O2O services. However, widespread adoption of such services has yet to materialize. Particularly within China’s healthcare system, while the prospects for pharmaceutical O2O are promising, significant challenges remain. Companies like WeDoctor Group are attempting broader-scale medical O2O models through tiered diagnosis and treatment systems and internet hospitals. Whether this vision can be fully realized remains uncertain.

Fourth, medical insurance. Kaiser Permanente in the United States is highly regarded by many players in the mobile healthcare sector. In 2015, China’s commercial health insurance market was exceptionally active. Relevant national authorities successively issued notices and measures related to health insurance; although these initial steps were insufficient to fully address industry needs, they marked the beginning of substantive progress. Meanwhile, insurance companies actively ventured into this vast potential market with aggressive expansion strategies, with Ping An Group and Taikang Insurance emerging as leading pioneers. Concurrently, mobile healthcare platforms have become sought-after partners for insurers. Currently, companies such as WeDoctor and Ping An Good Doctor have collaborated with insurance firms to enter the medical insurance market. However, it remains uncertain whether mobile healthcare will become the cornerstone of the health insurance sector. Beyond health insurance, mobile healthcare must also strive to capture a larger share of the broader medical insurance market.

Beyond the aforementioned points, mobile health initiatives are also attempting to scale up online consultation services to generate revenue by charging physicians service fees. In this fiercely competitive landscape, only those mobile health companies that survive until the end will truly reap the benefits. One factor that cannot be overlooked is that the healthcare industry has a significantly higher barrier to entry than other sectors. If physicians already face long queues for patient registrations during their hospital shifts, will they still have the energy to conduct online consultations? Conversely, how can hospitals and doctors with few patients attract patient interest? Furthermore, as vested interests, will hospital directors allow mobile health platforms to take a share of the profits? The explosive growth of online consultations still has a long way to go.

Mobile Health Needs a Broader Vision

Whether mobile health can achieve its aspirations depends, to some extent, on whether the national healthcare reform is completed as scheduled. Moreover, from Chunyu Yisheng to WeDoctor Group and then to Haodf Online, although their strategic layouts differ, their profit models are remarkably similar. Compared with the current state of mobile health abroad, domestic mobile health enterprises need to adopt a broader strategic vision.

First, overseas markets may offer greater potential. Developed countries in Europe and the United States have long implemented policies long anticipated by Chinese healthcare practitioners, such as tiered diagnosis and treatment and independent practice, which to some extent create more opportunities for mobile health. For instance, although independent practice is widely adopted abroad, many physicians lack effective electronic medical record (EMR) management tools, giving free EMR-related services from China a significant competitive edge. Additionally, many countries have established family physician systems, where Chinese apps offering online consultations and team-based collaborative care may find even stronger market demand. Naturally, mobile health companies can identify broader opportunities in these international markets.

Secondly, transitioning from fragmented operations to strategic alliances. As analysts at iiMedia Research have noted, the rapid growth of China’s mobile health market relies on the collective efforts of the entire industry chain, including mobile carriers, information platform system providers, medical device manufacturers, and app developers. However, existing mobile health models remain confined to peripheral services such as consultation, appointment scheduling, and payment processing. By establishing platforms that integrate pharmaceutical companies, private hospitals, medical device suppliers, and insurance providers, mobile health can bridge the online-to-offline gap. This approach would prevent mobile health from becoming a hollow concept, enable medical device manufacturers to move beyond mere equipment sales, and create more entry points for medical insurance, thereby unlocking significant potential.

Once again: Serving hospitals or replacing them? In 2015, many mobile health companies and hospital directors were fundamentally at odds, primarily because mobile health was perceived as undermining the interests of hospital administrators and even seeking to replace hospitals. For many mobile health entrepreneurs, adopting a model centered on serving hospitals may offer a more viable path forward. Traditional hospitals have already embraced third-party software solutions such as Hospital Information Systems (HIS) and opened up internet-based entry points for appointment scheduling and referrals. If mobile health platforms can shift their mindset—transforming online consultations into a platform that facilitates doctor–patient interactions while returning management control to hospitals—they can create significant value. By leveraging hospital data flows and combining them with big data from the internet, these platforms can help hospitals interpret, organize, analyze, and structure data, thereby supporting diagnostic decision-making for physicians and institutions. This, too, represents a valid form of existence for mobile health.

There are now nearly 3,000 mobile health apps in China. The most debated issue in the industry remains how far mobile health can truly go. Clearly, the influx of capital will only intensify competition in the mobile health sector; it is by no means a guarantee of survival for mobile health companies. Capital bubbles eventually burst, and stories come to an end. When that happens, how will the mobile health industry ultimately fare?

▶ This article is a contribution to VCBeat by the author, Alter. The views expressed are solely those of the author and do not represent the position of VCBeat.
Alter, an internet observer, has long been dedicated to observing and researching industries such as smart hardware, O2O, and mobile phones. WeChat Official Account: spnews