More from Ken
In 2018, Scott Galloway, a Professor at New York University’s Stern School of Business, gave a take-no-prisoners talk at the Kaufman Hall Healthcare Leadership conference, making it quite clear that Amazon, Google, Facebook, and Apple had forever changed the most basic rules of business.
Now Galloway has published a book called Post Corona that presents a similarly brazen and frequently frightening assessment of how legacy business needs to respond to the destructive path of the COVID-19 pandemic.
From Brand Age to Product Age
To be sure, the pandemic has not made losers of all businesses. The winners have been those that had already been successful disruptors, and their advantage during the pandemic has been the same factors that already provided them unprecedented tailwinds: the ability to provide a huge variety of direct-to-consumer goods and services using virtual connectivity and without a heavy capital footprint.
In short, according to Galloway, the losers are part of the Brand Age, and the winners are part of the Product Age.
Companies that provide the engine for the Product Age have been the most successful companies in history like Apple, Amazon, Google, and Facebook. And among those companies, the most resilient have been those whose business model is based on subscriptions. Of course, the mother of all subscription offerings in the modern economy is Amazon Prime.
In this context, the subscription business model means offering a highly valued bundle of products and services at a highly desirable price. This model has many prized features: revenue reliability, durability, and consumer loyalty. This model also has a high barrier to entry. Companies face a steep climb to develop the kinds of products and services that consumers will find unique, essential, and sufficient in number to warrant a subscription. And even once a sound number of subscribers is achieved, benefits need to continue growing in order to keep those subscribers.
The subscription model is so desirable on Wall Street and in the executive suite that even Apple, the most successful brand in history, is moving into subscription bundles as a way of diversifying its revenue.
Amazon and Healthcare Subscriptions
For years, I have been writing about the goals of healthcare’s new entrants. First, what they don’t want: They don’t want your inpatient business. They don’t want the flat payment, they don’t want the high costs, they don’t want the slim margins, and they don’t want the complexity of acutely ill patients. What they do want is everything else that moves in healthcare and pays cash.
We can expect that as new entrants continue to encroach on the healthcare space, they will apply the principles of the Product Age and the subscription business model.
They will not rely on their brand as a product attribute, but will connect consumers to healthcare services in the most affordable and convenient way imaginable. Strike that—in a way that is so convenient we cannot yet imagine it. And they will use the subscription model to achieve a loyal customer base and a sturdy cash flow.
Galloway suggests that Amazon could develop “the most robust, liquid remote healthcare platform on the planet.” This platform, which Galloway suggests might be called Prime Health, would be a subscription product fully integrated into the Amazon retail platform that allows “members [to] get to just the right physician, right now, at lower cost.” Galloway offers this example:
“Your son has a rash, and you ask Alexa to connect you with a dermatologist, who asks you to hold up his arm to the intelligent camera. The dermatologist is likely not an Amazon employee, because that part of the business doesn’t scale. Instead she pays a percentage of her revenues to Prime Health…. You don’t have to do anything but log on, and the Prime dermatologist has instant access to your kid’s medical records…”
What Should Legacy Healthcare Do?
As COVID has accelerated the success of companies like Amazon, it is likely to accelerate those companies’ entrance into healthcare, especially with the increasing use of remote and virtual options due to COVID’s pressure on healthcare delivery in general.
As legacy healthcare organizations consider their competitive position in relationship to companies like Amazon, they do have some advantages. The most important advantage is that many community members and patient populations still have a strong attachment to their traditional hospitals and health systems. The questions are: how long will that attachment last as other sectors of the economy transition away from the Brand Age, and how should healthcare organizations capitalize on that attachment in the meantime?
My first suggestion is to focus on the bundle. What services would be viewed as highly desirable by a high volume of consumers? Consider screenings, tests, vaccinations, smoking cessation, weight loss, yoga. Consider the many low-acuity services that constitute so much of a clinic’s daily traffic. And consider service benefits, such as at-home or in-office services, shorter wait times, direct communication with physicians and other care providers, and high-quality video visits. (For ideas, you might check out CVS Health’s subscription service, CarePass.)
My second suggestion is to assess the economics of the bundle. This is an extremely sophisticated analysis requiring an understanding of fixed and variable costs, potential demand, potential downstream revenue, clinician payment, and consumer price sensitivity, among many other factors.
Other areas requiring critical attention include availability of a platform to execute services and marketing sophistication to successfully promote the subscription. However, the core for success is a desirable and economically viable bundle of services.
Reality of the Threat
Once upon a time, Amazon was a customer of FedEx—a really good customer. However, as Amazon Prime increased the quantity, cost, and competitive differentiation of Amazon’s shipping, Amazon took a different tack. Rather than depending on a vendor—even FedEx, credited with revolutionizing shipping speed and efficiency—Amazon decided to get into the shipping business. Now Galloway points out that by any measure, Amazon is a more successful shipping company than FedEx.
This is the power of Amazon’s capacity for capital and innovation, along with its aggressive culture. Amazon is already in healthcare. It is lining up assets such as pharmacy fulfillment, data analytics, and on-demand primary care. Amazon can and will continue its encroachment into healthcare—not all of healthcare, but the areas that it views as profitable. And expect that Amazon’s healthcare profitability will come at the expense of hospital and health system profitability.
But first things first. Focus on the bundle, the foundation of what you can offer to consumers for a subscription within the post-COVID business realities. As Galloway writes, subscription bundles are expensive and hard to develop, but they are an accelerating key to endurance through turbulence.