I wrote weekly editorials for a boutique industry newsletter for several years, anxious for both audience and income. I learned a lot about coming up with ideas for the weekly grind, trying to be simultaneously opinionated and entertaining in a few hundred words, and not sleeping much because I was working all the time. They’re fun to read as a look back at what was important then (and often still important now).
I wrote this piece in June 2006.
Vendors Seek to Diversify As the Hospital Systems Market Matures
By Mr. HIStalk
Vendors of traditional hospital information systems are hedging their bets for future success, judging from recent announcements. McKesson said this week it is acquiring RelayHealth to move into consumer health care systems. A group of vendors said they would develop standards to make their home health devices interoperable. And Cerner’s announced growth areas are mostly outside of traditional hospital IT.
The message seems clear – business prospects are better elsewhere. Wall Street likes growth that big conglomerates and publicly-traded vendors can’t get from hospital-only sales, given a finite supply of prospects that are big enough to afford their wares. The recent spike in clinical systems deals may have been transitory, locking up all the laggard customers but leaving fewer for the years to come.
Perhaps we’re in the classic mature market, where the customer base is saturated, vendors are consolidating, product prices go down to reflect decreased demand, and emphasis moves from R&D to solid, user-friendly applications that are differentiated primarily on specific features (think Rubbermaid). Vendors can still make a lot of money, only instead of from product sales, profits come from selling high-margin services and maintenance to existing customers.
Under this scenario, and given high switching costs, hospitals may no longer command the undivided attention of vendors whose gaze is wandering to sexy new markets. Maybe there won’t be any successful hospital-only vendors left, except possibly for Meditech, which is ideally suited for success due to its dominant market penetration, near-universal customer retention, low cost through economies of scale, and private ownership.
Even if the hospital systems market is mature, just about every other health care IT sector isn’t. Business will sizzle in ambulatory systems, various forms of telemedicine, data analysis, payer intelligence, genomics, interoperability, consumer health, drug research, home health, and medical device connectivity. Products in the innovation and growth stages of the product life cycle require high development and sales costs. The aggregate market must be defined and created. Most companies will lose money, but winners will emerge from the turmoil to gain competitive advantage and profitability.
It will be interesting to see how the traditional players fare in these markets, where they’ll need seldom-used capabilities such as technical innovation, nimble execution, and delivery of their message to a much larger number of prospects who behave less cohesively and identifiably than hospitals. Having a good idea isn’t enough. If I were an investor, I’d buy strictly on the quality of company management, choosing vendors with visionary, focused leaders who can rise above a host of new market entrants that are likely to fail due to stumbles in execution.
The original HIT marketplace was first changed dramatically by the emergence of large, full-line hospital systems vendors that moved the industry away from small, innovative best-of-breed vendors and customer self-development. The second change was the absorption of most vendors into unfocused conglomerates or larger competitors. The third wave — obviously underway — is diversification of vendors into non-hospital health care IT.
It remains to be seen whether hospitals will be better or worse off with these changes. We struggled even when we had the undivided attention of our vendors, failing to manage change and gain ROI in an admittedly screwy and ever-changing health care non-system. We may not enjoy giving up the limelight. After many years as a hospital IT person, I’m a little jealous to see the excitement growing in those areas of health care I don’t yet know much about.