This piece was originally published in Medizin + Elektronik by Phillipe Van Hove, Area VP Continental EMEA, Zuora.
While political leaders are still discussing data protection in the digital patient file, some providers from the medical technology sector are already much further along. Tailor-made service packages are increasingly replacing traditional product sales. And all sides can benefit.
We live in an increasingly digital society – and this is currently leading to major changes in all areas of life. Communication in particular has undergone significant changes in recent years. Constant networking in all areas of life – such as the intensive use of social media – is also changing consumer behavior. Instead of owning a certain product, the focus is on usage. Streaming services are a typical example. Today, customers no longer buy content such as films or music, but simply use it when they need it. Spotify, Netflix and DAZN are currently very successful. In addition to consumers, companies that have traditionally pursued a more traditional business model also face major challenges. The classic business model, in which products are developed and then sold as often as possible, is under increasing pressure. Instead, flexible usage-based offerings are on the advance, with which customers can precisely meet their needs. In the software sector, for example, the Software-as-aService (SaaS) model has been the standard for some years now. Flexibility of the offering is one of the greatest advantages of the new business models – both for the customer and for the provider. The customer receives exactly the service he wants. But these new business models also have many advantages for the companies offering them. On the basis of user data, they can track exactly which services are accepted by customers and how well they are received. Exact evaluations of this data help to constantly improve the offering and at the same time strengthen customer loyalty. Subscription Economy is the buzz word; it subsumes all business models in which monetization takes place via additional digital services, flexible subscription models or pay-per-use.
In Oral Healthcare, Philips is developing new business models, such as subscribing to the electric toothbrush attachments and combining them with additional services.
Subscription Models in Medical Technology
In the above examples, the transformation towards Subscription Economy is comparatively simple, as digital content is already involved. But what about traditional, producing companies that produce physical products?
A look at the automotive industry shows that the future will also see models in traditionally product-oriented industries. It is becoming less and less important for customers to own a particular car. Rather, they want to get from A to B comfortably. Consequently, car-sharing services and driving service providers such as Uber are currently experiencing a boom. The fact that BMW and Daimler have merged their car-sharing services this year shows just how seriously car manufacturers are taking this development. Almost every company has launched digital transformation programs in recent years.
The Internet of Things, artificial intelligence, cloud solutions and blockchain are the main technological drivers from which companies want to profit in the future. It is clear to everyone involved that data is an important resource in the digital business world. But which business models are suitable for transforming this data into profitable sales?
The medical technology company Philips has brought the first interesting models to market here. The possible business models are also manifold in medical technology. Technological developments make continuous communication possible, enabling patients to exchange data with medical professionals, for example. The regular collection of health data also opens up new diagnostic possibilities. Since Wilhelm Conrad Röntgen, imaging techniques have been an important component of medical diagnostics. Based on his training, the physician can make a diagnosis from the data, i.e. from the image. In addition to his training, his many years of experience also play an important role in correctly interpreting the data. If the data and the corresponding reliable diagnosis for a large number of treatments are available, the diagnostic possibilities can be improved considerably on this basis. In practice, the experience of not just one, but all physicians working with the system is available. The
data transfer from the imaging devices and the central evaluation do not pose any technological difficulties. In the future, improved business models may look like not only selling the device for the imaging procedure, but also providing online diagnostic support at the same time. Particular attention must always be paid to ensuring that patient data remains strictly protected. If, however, the data is transmitted anonymously, there are enormous possibilities.
The transformation of the business model calls for ambitious goals: Companies should work towards generating 20% of their revenues from recurring revenue within five years through “as-a-service” solutions for devices and services.
The Product Becomes an Organism
As one of the largest suppliers in medical technology, Philips has been developing and marketing healthcare products for 128 years. About five years ago, the company divested itself of its Lighting division and focused entirely on medical technology. At the same time, it was decided to focus the business model much more strongly on pure customer centricity. “Gil Adato, Vice President Digital Health at Philips, explains, “The idea behind the realignment was to use our insights, both on the patient and the medical side, to offer integrated solutions focused on the users. Philips offers these solutions for the two main customer groups: Patients and healthcare facilities. “Like most product-oriented companies, we launched a specific product in the past and then waited several years for the launch of the successor model,” Adato said. In the Subscription Economy, this product cycle is much shorter – “the product is seen as an organism that is constantly changing”. A classic product business that is traditionally aimed directly at end customers is the Oral Healthcare segment with electric toothbrushes, for example. Here, the manufacturer has already introduced a subscription model in which customers receive a new brush attachment every three months. “In the future, we may be able to offer a complete oral care program that, in addition to replacing the brush attachments, also includes dental examinations including professional tooth cleaning,” concludes Adato.
Monetization opportunities for OEMs
The new business models also open up new sales opportunities for manufacturers of medical devices. This, however, requires a rethinking within the companies. Instead of developing a physical product and then selling it as often as possible, the user should focus on the application. Monetization should therefore also be geared to usage. Digitalization, the Internet of Things and constant cloud connections make it possible to design business models with extreme flexibility. For example, additional functions can be billed individually, and only if the user actually uses them. As with software licenses, flexible terms or licenses can be realized on the basis of the number of users. For the manufacturer, these usage-based subscription models have the advantage that a constant and largely predictable turnover is generated. And also the user profiles: Since at least part of the revenue is generated via subscriptions or usage-based billing models, the investment in the device and thus the capital commitment is lower. The subscription models offer further advantages for the supplier of medical devices: The data collected on the basis of usage can be ideally evaluated – for example as a basis for further product development or for improved usage-based offers. The user benefits from continuous further development that is precisely tailored to his needs. The result is better customer retention, which in turn secures recurring revenues.
Paths to new growth
The Subscription Economy Index, which is regularly surveyed by Zuora, shows how successful companies can be if they further develop their business models in line with flexible subscription and pay-per-use models: Compared to the Standard & Poor’s Index, companies in the Subscription Economy have grown five to nine times faster on average in recent years.
Developing new business opportunities in the Subscription Economy is a complex task. Since it is a matter of material goods, the approaches of the software and media industry cannot be transferred one-to-one. The white paper “Reaping the recurring Benefits of Industry 4.0”, published by Roland Berger together with the software company, provides managers with a step-by-step guide to tackling digital transformation. The focus is on – not only the new possibilities for monetization, but also the changes that are necessary within the corporate structure. In any case, a rethink on the management level with regard to value creation and value enhancement is urgently required. Numerous examples of already successful industrial companies in the Subscription Economy show how growing revenues can be generated from digital offers marketed in flexible business models.