Mobile + Health realities

  • On May 3059, 2012

  • by Sundeep Peechu

There has been a lot of excitement around the potential of digital and especially mobile health of late. The hope is that mobile holds the key to users adopting various technologies and taking control of their own health. In order for m-health to realize its potential of changing behavior, driving efficiencies and eventually improving health outcomes, it first needs to scale and find a business model that works.

And in order to understand the viability of mobile health, one needs to look to the most successful mobile businesses thus far. Let’s rewind a bit first. The web opened up the ability to serve hundreds of millions of ¬†users very quickly but also trained a generation of consumers to not pay for services. So when app stores opened up with credit cards attached, the theory was that entrepreneurs could finally create venture scale businesses (>$25M annual revenues) by aggregating dollars from tens of millions of paying customers. Rovio and Whatsapp are the most successful examples of this approach but for the most part, they are exceptions rather than the rule. The consumer model is rapidly trending towards free in mobile. In part, it was because Android bungled payments earlier on. Also increased competition and attempts to build scale have forced entrepreneurs to create ad-supported services which currently produce very little revenue. Paid to free conversion is still very low (<5%) and for this reason, it will be hard for most apps to generate significant revenue.

The more interesting models are at the middle and lower end of the spectrum. More than 95% of the top grossing apps are games and they tend to generate much higher ARPPU than a dollar. It’s a more proven model to generate $25/yr from 1M users than $1/yr from 25M users. Most mobile gaming companies and a few dating companies do this quite successfully. And on the lower end of the spectrum, you have startups like Uber that will look to generate $50-100/yr from less than a million users.

M-health companies are likely to achieve scale at both these price points. Unlike entertainment, to support these prices, they need to deliver real and physical value as opposed to simply content. Companies like Fitbit have demonstrated that consumers are willing for pay for smart connected devices that offer tangible benefits to users. In the intermediate ARPPU range, there are plenty of services that have demonstrated serious engagement such as Alt12 (Baby Bump), Strava, RunKeeper and Lose It. Each of them is attempting a different form of monetization that is authentic to their brand and users. We are bullish that there is likely to a breakout winner, probably several of them, in the next year or two. Stay tuned!