Policy, Technology, and Capital: Understanding the Three Key Barriers to Internet Healthcare Entrepreneurship
The so-called trend of “mass entrepreneurship” in recent years has been significantly driven by two major factors. First, the low-interest-rate environment has reduced financing costs, leading to a massive influx of capital into the venture capital market. Second, the barrier to entry for startups in the internet boom is much lower compared to traditional asset-heavy models. Many teams attempting to penetrate the relatively conservative healthcare sector through internet-based models have flocked to the industry. The number of early-stage financed projects peaked in the first half of 2015, partly because many entrepreneurs believed that industry barriers had lowered considerably compared to the past. Let us carefully examine this phenomenon by analyzing the three decisive thresholds: policy, capital, and technology.
Policy Thresholds Have Never Been Lowered
The Inescapable Specificity of the Industry
Healthcare differs from the general consumer sector, as it is not a fully market-driven domain. The healthcare industry bears significantly greater social responsibility than most other industries. Consequently, state regulation of healthcare is extremely stringent, both in China and in developed Western countries.
Another critical specificity is that the majority of medical bills are submitted to the government. Whether in traditional healthcare or internet-based healthcare, as long as the primary payer remains unchanged, engaging with government-related regulatory bodies, ensuring compliance with regulations, and obtaining necessary approvals are indispensable. These requirements are not directly contingent on whether the service is delivered via the internet.
Reform is about improving efficiency, not lowering standards
Although healthcare system structures vary significantly across countries, they are not suitably compared based on their degree of openness or freedom. The fundamental criterion for comparison should be which system achieves higher efficiency under the premise of cost control. Therefore, reform does not imply less regulation; rather, the focus and methods of regulation will differ. For instance, policies such as the "Special Approval Procedures for Innovative Medical Devices (Trial)" continue to emphasize quality and safety issues while reducing certain non-core requirements. The aim of the reform is to improve approval efficiency, not to lower approval standards. In other words, products with robust technology that meet the standards can enter the market more quickly, whereas those that do not will remain stuck in a gray area, struggling to gain traction.
The System Adjustment Process Is Lengthy
Healthcare reform will ultimately evolve in a direction that enhances efficiency. However, as a vast, entrenched, and highly specialized system, its transformation will proceed more slowly than that of other industries. This relatively sluggish pace of change is also attributable to the unique characteristics of the healthcare sector. All opportunities for new entrants stem from “change”; those who can anticipate and align with the rhythm of change even half a step ahead will gain a first-mover advantage. Yet, given the overall slow pace of transformation, latecomers are afforded greater opportunities to catch up, while established players are granted more time to adapt and adjust.
The difference is that traditional sectors have already established mature entry models, with specific paths paved by predecessors to serve as references. They at least have a better understanding of government agencies’ preferences and how to engage with them. In contrast, internet healthcare startups entering from the periphery of the medical system must proceed tentatively, feeling their way forward step by step to identify viable routes that can cross or circumvent policy barriers. Therefore, in reality, policy barriers have not truly been lowered; instead, numerous uncertain risks persist.
Capital Thresholds: Low Initially, High Later
Let us now examine the capital threshold. In the field of internet healthcare entrepreneurship, operations indeed tend to be asset-light. Whether manifested as a mobile app or other system solutions, O2O platforms are essentially software products. Even those involving hardware typically consist of small smart devices or wearables, which significantly reduce manufacturing costs compared to traditional medical equipment. In many cases, the capital barrier to developing a software or hardware product from scratch is remarkably low. In the early stages, a team of just three to five people can create a product prototype in a short period by completing planning and design, procuring a small quantity of key components, and engaging a contract manufacturer or a small IT outsourcing team.
However, product development costs dominate in the early stages. Once a product is launched and formally enters this red-hot market, operational and promotional budgets skyrocket, far exceeding the direct costs of product development. It is particularly noteworthy that, over the past year, the concept of internet healthcare has gained immense popularity, prompting institutions to flock into the sector. This has made angel and Series A financing significantly easier than before, resulting in an excessive number of competitors reaching Series A within niche segments. Due to the low barrier to entry for initial product development, severe homogenization among competing products has emerged, turning fierce competition into a brutal battle of cash burn. Nowadays, financing rounds in the internet healthcare sector frequently reach tens of millions of US dollars. At this stage, the capital threshold is undoubtedly high, and without robust fundraising capabilities, survival in this market is nearly impossible.
Furthermore, once high-threshold technological R&D is involved, there is no fundamental difference in R&D capital investment compared to the traditional medical sector.
Do Technical Barriers Block You or Your Competitors?
If policies treat everyone equally and money shows no favoritism toward you or me, then technical barriers are arguably the most effective means of differentiating your product from others. In other words, if your product lacks technological moats, it will struggle to establish sustainable competitiveness even after entering the market. Whether technical barriers block you or shield you from competitors makes a world of difference.
A Close Look at the Technological Domains Involved in Internet Healthcare. In the concept of “Internet + Healthcare,” beyond the scope of information technology—including internet technologies—the term “healthcare” is by no means merely decorative when faced with technical barriers. The fields of medicine and biotechnology already possess their own extensive systems and numerous sub-disciplines, each presenting significant entry barriers that are not easily overcome. Even within the realm of information technology, possessing proprietary technologies distinct from those of others is fundamentally different from utilizing the same technologies as competitors. Furthermore, the cross-disciplinary integration and recombination of technologies further elevate these technical barriers.
You may argue that even without a background in medicine or biotechnology, you can still develop and launch a specific category of products to the market; however, you cannot ignore the competitive barriers established by other players through technical indicators.
Not long ago, the head of Intel’s Healthcare Division expressed expectations at the 2015 HIMSS Conference for the development of ambulatory blood pressure monitoring hardware in the hypertension field, believing it to be a market with immense potential. Startup teams focusing on wearable blood pressure monitoring devices should not celebrate prematurely. This is because Intel believes that, first and foremost, we need implantable blood pressure monitors, rather than wearable devices that rely heavily on patient compliance to ensure usage; secondly, existing products on the market fail to meet the criteria of being easy to implant, user-friendly, and affordable. Intel holds that whoever can develop a product meeting these standards will create enormous value. The series of market demand characteristics—easy implantation, comfortable wear, accuracy, and affordability—reflects significant technical barriers. Dexcom, which I have previously written about, possesses similar technological competitiveness in the field of continuous glucose monitoring (CGM), enabling its products to deliver a user experience superior to other comparable products. Although Dexcom is regarded as one of the few companies in the medical device sector with an “internet mindset,” without its continuous glucose monitoring technology as support, even the strongest internet-centric approach would likely be futile. Overseas, even software applications intended for clinical medical use must obtain FDA approval before being launched on the market. The apps themselves must undergo rigorous clinical trials to prove their safety and efficacy. Once reliable clinical trial evidence is obtained, the app can be included in prescriptions written by doctors for patients.
Nowadays, many entrepreneurs complain that hospitals are stubborn and doctors are conservative. Yet in reality, how many products can truly demonstrate significant clinical efficacy, with operational workflows that robustly meet the needs of both doctors and patients in their respective usage scenarios? I have never heard of any domestic medical app conducting clinical trials to validate its value.
Many would argue that internet healthcare O2O projects, such as online consultations, have few technical barriers. This is indeed the case. By using "internet healthcare O2O" as keywords, one can find a plethora of startups. The high visibility of O2O in the internet healthcare sector, coupled with relentless capital enthusiasm, has easily created an illusion that O2O projects are highly valuable. In reality, this is not the case; popularity does not necessarily equate to high value, but it certainly indicates fierce competition. Under the O2O model, apart from the relatively low barrier of mobile internet technology, there is often no requirement for clinical medical expertise or other specialized technologies. This makes it one of the easiest models to enter, but inevitably also the most fiercely competitive. Since the vast majority of O2O models lack the technical barriers necessary to establish competitive moats and are highly susceptible to replication, new entrants continue to emerge endlessly. Consequently, engaging in funding races and adopting cash-burning strategies to acquire users has become an inevitable path to winning the competition through user scale. Therefore, while the sector appears vibrant and glamorous, a high failure rate is equally inevitable.
Regardless of the Height of Entry Barriers, Competitiveness Is Fundamental
Ultimately, the height of entry barriers influences the competitive landscape, but core competitiveness is what truly matters. Low barriers are not necessarily advantageous; while they make market entry easier, they also intensify competition. A surge in internet entrepreneurs does not translate to higher success rates; instead, it may exacerbate competition and reduce survival rates. Conversely, high barriers are not inherently detrimental. Although overcoming them is challenging, they can shield you from rivals and deter imitators. Regardless of whether barriers are high or low, possessing substantial strengths and genuine capabilities remains essential.
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