Why I Am Betting on Health Incumbents, Not Startups
Dec 29, 2016
Health incumbents have the upper hand over startups as long as they implement new technologies on the front end and build new, innovative processes on top of the infrastructure they’ve already built.
Technology is bringing change -- and disruption -- to long established industries across the board, and health insurance is no exception. Incumbents in the payer market face serious headwinds as new, agile competitors like Oscar flood the space, promising to revolutionize the established system. These would-be disruptors are flashy and well-funded, and with a customer base largely made up of digital natives, they can make the health insurance experience feel more like Uber than Yellow Cab. But I’m betting on the incumbents to win out in the end.
Rome wasn't built in a day; neither are successful businesses
Consider the challengers who are setting out to solve the problems in the healthcare space with new applications and businesses. They have some serious advantages -- they’re brand new, and coming of age at a time when new technologies can deliver a better, digital-first customer experience from the jump. They can also build from scratch, and aren’t saddled with legacy systems that hold larger companies back from implementing large-scale change. These new businesses focus on one mantra: simplify, simplify, simplify. They are using the latest technologies to make health care appear easier, friendlier, more accessible. And that’s a huge advantage in this space, where the system is historically complex, slow-moving, and difficult to navigate.
But here’s the thing: you can’t disrupt an entire established industry with a better app. You need more than a simple, effective frontend to impact a business landscape in a way that genuinely threatens the players already there -- because even if you do that incredibly well, it’s only half the story. The other half, and the much tougher one, in my opinion, is building that core business. In healthcare, that means the partnerships, distribution networks, industry relationships and infrastructure that the incumbents have at their disposal from decades in the space. Building this takes time. The legacy players are starting with legacy systems -- but they also have massive installed customer bases, acceptance by large networks of hospitals and providers, a deep understanding of the inner workings in this decades old system. This is where the startups will struggle. It’s great to have a shiny new tool on the front end, but it’s everything behind it that gives the incumbents the ultimate advantage.
The path forward for incumbents in healthcare
The trick for incumbents, then, will be to implement the latest technologies on the front end and build new, innovative processes on top of the infrastructure they’ve already built. Leaders in the healthcare space absolutely recognize that they need to innovate to meet customer expectations; they know it’s not something they can put off. The revolution may be in the early stages here, but it’s only going to pick up speed moving forward.
It’s going to take a long time for startups to build up the same product suite that incumbents have, and some certainly might; others will get acquired or leave the ring. For proof that this scenario will play itself out, look no further than the banking industry. Twenty years ago we saw an explosion of disruption in finance similar to what we’re seeing in healthcare today. NextCart, BankSimple, and others raised millions betting they could overhaul the system. One real winner emerged -- PayPal -- but for the most part, many faded into the background or were bought for their essential, but ultimately unwhole, technology.
This will happen all over again in the healthcare space. You’re not going to displace Citibank, Chase, or Capital One simply by coming up with a new app or a better engagement tool. The same will hold true for Aetna and UnitedHealthcare. To win the customer experience race, someone needs to disrupt the system. But as the disruptors as we know them fight the customer experience battle, they are more likely to be the catalyst for change than they are to win the war.
See how Relay is helping companies create a better healthcare customer experience.