Who Is the Most Valuable 'B' in Internet Healthcare’s Shift from 2C to B2B2C?
Ambar Bhattacharyya, Vice President at Bessemer Venture Partners, mentioned in a recent interview that many digital health startups are shifting their business models from an initial B2C approach to exploring a B2B2C model. We have also observed this exploratory trend in China. What is the rationale behind this shift?
Here, the “C-end” primarily refers to ordinary consumers or patients. This attempt at a B2B2C model does not necessarily entail a complete abandonment of the direct-to-consumer (B2C) approach; rather, it places considerable hope for revenue growth on breakthroughs within the B2B2C framework. The key “B-side” stakeholders in internet healthcare’s B2B2C model include corporate employers, insurance companies, medical institutions, and pharmaceutical retailers. While the former two have received some attention in the industry, the latter two have been less discussed. Pharmaceutical manufacturers are excluded from this list because they typically do not sell products directly to end consumers but instead distribute through pharmaceutical wholesale and distribution companies. Consequently, they do not serve as bridges to bring internet healthcare products or services to the C-end; instead, they tend to leverage internet healthcare platforms as channels for advertising and promotional outreach.
Let’s examine the key characteristics and growth potential of these B-side players, and explore how to accurately address their core demands.
Corporate Employers: Non-Essential Demand, Challenging to Scale
Corporate employers purchase online medical services and provide them to employees as a benefit. Several prominent U.S. telehealth companies, such as American Well and Teladoc—which recently went public—nearly all offer such employer-focused services.Sherpaa caters exclusively to employer clients., with no direct B2C business. In May this year, Chunyu Doctor began launching its “Personal Physician” service for large enterprises, exploring an employer-paid revenue model.
Although Chinese enterprises are not subject to mandatory policies akin to those in the United States that require employers to purchase commercial insurance or other health-related service products beyond social security, some large corporations still allocate annual budgets to procure health-oriented welfare benefits, such as commercial health insurance, gym memberships, and medical check-ups. Many companies also incorporate fitness activities into their efforts to promote a healthy corporate culture, establishing institutional incentives to encourage employee exercise, and even using quantified metrics of departmental fitness participation as one of the performance evaluation criteria for department heads. However,After all, such corporate demand is not a rigid necessity in China. The procurement shortlists of corporate benefits management departments already feature a long array of alternatives, while annual benefits expenditures cannot be increased substantially. Therefore, it remains challenging to capture a share of this market.However, the employee health checkup services that began to rise 10 years ago serve as a successful precedent for capturing this market share.
Insurance Companies: Ultra-rare, suitable for strategic bundling, not suitable as target customers
Insurance companies procure internet healthcare products or services for multiple purposes. First, to enhance the added value of their insurance plans, thereby facilitating the sale of insurance products. Second, to implement positive health interventions for policyholders through internet healthcare measures, utilizing incentive-based approaches to reduce disease risk and, consequently, lower the probability of claims. A further objective is to capitalize on the value of health data collection, aiming to acquire more personal health data to optimize insurance product design through data analysis.
These objectives are deeply intertwined. For instance, insurance companies collaborate with online consultation providers, such as the partnership between Teladoc and Aetna, where policyholders can access online consultation services free of charge. This not only enhances the added value of insurance products but also effectively reduces claims costs. With the availability of online options, insured individuals are less likely to visit outpatient clinics in person. Moreover, the cost incurred by insurers for purchasing online consultation services at wholesale rates is likely significantly lower than the outpatient fees associated with visits to physical clinics. Another example is that insurers procure fitness trackers to incentivize use among policyholders, thereby promoting greater self-management awareness and reducing the likelihood of disease onset. Simultaneously, insurers can correlate personal health data with claims data to identify underlying factors, thus optimizing the design of insurance products. Some insurance companies offer health management apps featuring electronic personal health records, aiming to encourage usage by policyholders while also acquiring valuable health data.
In general,The primary demand of insurance companies centers on cost control.If you can demonstrate your ability to effectively control costs for insurance companies, it is possible to enter this market. However, the number of insurance companies is very limited, and after being divided among a few first-tier internet healthcare companies, other similar fields will find it difficult to enter. Companies that have already entered willSeek more strategic-level collaborations, aiming to establish long-term partnerships with insurance companies. Cooperation with insurers is not always a linear B2B2C model; it may also involve B-to-B alliances that jointly serve consumers (B2B2C).This refers to collaborations between insurance companies and internet healthcare firms, such as jointly designing health insurance products, co-selling them, and sharing the resulting profits. Relying solely on direct transactions with insurance companies—a massive yet scarce customer segment—has a negative impact on the rationalization of corporate revenue structures. Furthermore, some insurance companies prefer to directly invest in and independently develop internet healthcare-related products, rather than engaging through procurement-based partnerships.
Healthcare Institutions: Potential Demand Drivers of the Future
In China, internet healthcare projects with medical institutions as the payer remain rare. In this regard, hospitals have only IT procurement needs related to healthcare informatization and have not yet developed a strong drive to actually adopt internet healthcare software and hardware tools. In contrast, U.S. hospitals operate more openly and are undergoing a transformation in management philosophy—one that is patient-centered, places greater emphasis on patient experience and coordinated care among healthcare professionals, and prioritizes efficiency and outcomes. Driven by this shift in thinking, innovative hospitals represented by the Mayo Clinic and Cleveland Clinic are exploring the application of new internet healthcare approaches. Examples include equipping physicians and nurses with mobile devices to enhance collaborative efficiency, or providing wearable monitoring devices to hospitalized patients or those recovering post-discharge for real-time data tracking. For instance, the Mayo Clinic previously partnered with Fitbit to monitor the recovery of cardiac surgery patients. Additionally, Massachusetts General Hospital has collaborated with American Well, the first company certified by the American Telemedicine Association, leveraging its telehealth platform to enable virtual consultations and extend its services from the hospital setting into patients’ homes. (Further reading: VCBeat recently compiled)Mayo ClinicandCleveland ClinicInternet Innovation Status)
For a long time, private hospitals in China have lingered in the low-end market. However, with continuous national policy encouragement for social capital to establish hospitals, the influx of foreign-funded hospitals, and the further liberation of high-quality physician resources, private hospitals are undergoing upgrading and iteration. The new generation of private hospitals is more willing to introduce advanced management concepts and tools, enhance patient experience, and improve efficiency to secure their position in China’s healthcare industry. Once this trend takes hold, some public hospitals will follow suit. In addition, national healthcare expenditure continues to grow, and the government’s most direct expectation from healthcare reform is cost reduction. Reforms centered on this objective are being gradually advanced. If internet-based models can effectively meet this need, a portion of government procurement funds will also flow into public hospitals. Therefore, I personally believe thatIn the future, much like traditional medical equipment procurement, hospitals’ acquisition, collaboration on, or in-house development of internet-based products will gradually gain momentum, although the process may be relatively protracted.
Notably, the core value of hospitals is concentrated in the following aspects:
1. Enhance patient experience and treatment outcomes, thereby increasing patients’ willingness to ultimately pay for premium services.
2. Extend hospital services beyond the institutional setting, thereby prolonging the duration of value manifestation and expanding the spatial scope for value realization. This also implies that healthcare institutions can access more opportunities to monetize their service value.
3. Improve resource utilization efficiency and reduce costs. Achieve better therapeutic outcomes with the same level of resource input, or reduce costs while maintaining equivalent efficacy.
Internet healthcare startups may explore opportunities from the aforementioned perspectives; however, clinical trials must be conducted where required, and necessary market access permits and certifications must be obtained. Otherwise, lingering in regulatory gray areas will hinder breakthrough growth.
Pharmaceutical Retailers: Cooperation or Competition?
In the retail sector, pharmacies have been among the slowest to undergo transformation. In recent years, however, several large overseas pharmacy chains with a strong innovation mindset have aggressively expanded into internet healthcare. Major players such as Rite Aid, Walgreens, and CVS Health have notably introduced remote online consultation services for their pharmacy members.
Since 2011, the Rite Aid pharmacy chain has attempted to offer telemedicine as a value-added service through self-built platforms, later shifting its focus to developing in-store telemedicine kiosks known as Healthspot. Initially, Walgreens also provided telemedicine services to its members using its own pharmacist staff. However, as U.S. online consultation companies such as Teladoc and American Well expanded their scale, their marginal costs decreased significantly. Consequently, the marginal cost of pharmacy-operated online services became increasingly uncompetitive compared to those of specialized telemedicine providers. Furthermore, in-store kiosks are limited in reach because they can only be accessed on-site at pharmacy locations. In September 2014, Walgreens ultimately began partnering with MDlive, an online consultation platform, to serve its members. Just last month, CVS Health, the second-largest pharmacy chain in the United States, announced a robust expansion of its telemedicine system through collaborations with three major online consultation providers: American Well, Doctor on Demand, and Teladoc. Prior to this, CVS Health had already established MinuteClinic telemedicine stations within its stores.
A significant portion of personal healthcare expenditure is spent on purchasing medications at pharmacies. For mainstream physical chain pharmacies, many are equipped to process social insurance reimbursements; however, beyond reimbursable drugs, consumers have substantial demand for purchasing other medications. The field of remote consultation is closely intertwined with pharmaceutical retail. Online platforms need to streamline the offline medication purchasing process, while pharmaceutical retailers seek to extend their influence upstream to shape consumer decision-making. In the past, both sides attempted to encroach on each other’s turf, and in China, we have observed emerging signs of competition: pharmacies launching remote consultation services, and online consultation platforms venturing into pharmaceutical e-commerce. The strategic paths of the three U.S. pharmacy retail giants may offer us some insights.Ponder this, and you will discover: as an online medical consultation startup, if you are strong, you are more likely to form strategic alliances with pharmacies to achieve mutual benefits; whereas if you are weak, pharmacies will not only refuse to cooperate with you but also encroach upon your market share.Once again, this is a chicken-and-egg problem.
What Obstacles Has Internet Healthcare Direct-to-Consumer (D2C) Encountered?
Based on the analysis above, we can identify two distinct approaches within the B2B2C model of internet healthcare. In one approach, the business (B-side) bears the cost directly, offering services to consumers (C-side) free of charge; while the B-side does not generate direct revenue from C-side usage, it accrues other forms of value. In the other approach, the B-side acts as a strategic partner, collaborating to launch strategically optimized products or services that jointly influence the C-side, with the final consumption decision ultimately resting with the consumer.
What Obstacles Have Internet Healthcare Projects Encountered in Direct-to-Consumer (D2C) Models? These obstacles can be categorized into two types: one is the usage barrier, which refers to the willingness to use the service; the other is the payment barrier, which pertains to the willingness to pay for it.
Many internet startups face adoption barriers because the target audiences for their designed products and services lack a compelling, essential drive to use them.Although the product appears valuable, it remains in a state where its use is optional rather than essential. For instance, individuals generally exhibit inertia in managing their own health; even though they recognize that certain actions are more beneficial to their well-being, they have not adopted them in the past and will likely find it difficult to change this behavior in the future. Consequently, many health-beneficial products and services struggle to cultivate habitual usage through consumer self-discipline alone. When consumers lack intrinsic motivation, it becomes logical to leverage B-side entities with inherent drive to promote adoption among C-end users as a viable solution.
Payment barriers stem from established habits in healthcare spending. For general medical services, the primary payer is social health insurance. Although consumers still cover a portion of the costs out-of-pocket, these two payment methods are bundled together and cannot be separated for independent settlement. If internet healthcare startups fail to integrate social health insurance coverage into their services, consumers will be reluctant to adopt this new model, as it would inevitably increase their out-of-pocket medical expenses.
Not all B2C projects are transitioning to the B2B2C model.Having understood the two types of barriers mentioned above, if your product is directly consumer-facing (B2C), you must consider how to circumvent them. Ideally, you should design a product that offers strong usage incentives for consumers, which in turn further drives their willingness to pay. If the incentive is insufficient to generate such willingness, you need to explore alternative payment models where third-party payers cover the costs on behalf of your users.