How Much Should A Startup Charge Its Early Customers?

Last week I had a conversation with a founder about how much they should charge their first few customers. Cost plus a fee? Slightly below the incumbent? The same as the incumbent? Some fraction of the estimated ROI? My answer to this question is pretty simple: charge as much as you can get, charge whatever the market will bear.

At an early stage, a founder's time and focus is the firm's number one asset. Any compromises made in getting less than the absolute maximum amount that a client will pay creates an unrecoverable opportunity cost. Early-stage companies can't afford to not charge what the market will bear.

Pushing for the max more has other benefits. It helps to determine the product's real worth and the real challenges the client is having in buying the product. When pricing makes buying too easy you don't get a good sense of the challenges you'll encounter down the road, you don't get the real story. It also generates a level of respect from the client (we've all heard the stories of people appreciating things more because they cost more regardless of the true value).

Finally, often a startup's instinct will be to charge less because it'll move the deal along faster. This is a myth. The opposite is true. The larger the deal the more attention it will get, the more senior people will need to be involved and it'll move faster as a result.

This post isn't meant to say that you shouldn't negotiate, do a pilot and be flexible where and when it makes sense. You should do all of that. But in lieu of a defined market price, charge a simple one -- the absolute most that you can get.

The Interface Layer & The New Economy

I've been thinking a lot about this notion of the "interface layer" in web services and how it's changing the economy and the way money flows. The concept of the "interface layer" is pretty simple. It says that the old economy was about building tangible infrastructure -- cars, buildings, stores, etc. And the new economy is about building really slick and beautiful and easy to use web services (interfaces) on top of that infrastructure;AirBnB for lodging, Uber for ride sharing, OpenTable for restaurants, Expedia for planes, etc. These companies don't own buildings, cars, restaurants or planes, but they make a lot of money by allowing consumers to easily access these things. It's no longer about building infrastructure, it's now about building beautiful, slick, mobile, easy to use 'layers'.

One of the big complaints about these layers (or interfaces) is that many believe that they commodotize the underlying asset. Uber users don't really care which cab company the driver is a part of, they just want the cheapest ride that gets them from point A to point B. This detachment from the brand drives down the cost of the ride and drives down the income that goes to the driver. Uber is commodotizing drivers. And drivers need to think really hard about how they're going to separate themselves from the pack if they want to continue to charge a premium.

Uber's layer is winning the taxi space.

But with the increasing use of mobile and the decreasing use of the desktop web, mobile is quickly becoming a platform on its own. And soon, instead of Uber being the 'commoditizer', Apple's iPhone or Google's Android could easily commodotize Uber.

Let me explain. Today, if I want a ride somewhere I go to Uber or Lyft or Sidecar or some other app to book a ride. This is a bit clunky in that it's hard to know which of the services has the best option for me based on the time of day and where I want to go.  I have to download all of the ride sharing apps and scroll through them to find the best deal.

Of course I'm not the only one that's annoyed by this. Very soon (if not already) we can expect that there will be services that will aggregate all of the top ride sharing apps into one so I can pick the best option for me (just like Kayak does for plane tickets).

This would be really bad for Uber. Now they're the one getting commoditized. 

But when mobile is a platform, it gets much worse.

Apple and Google could easily add their own layer on top of these aggregation layers. At some point soon, instead of going to the Uber or Lyft app, I could just open up Siri and say, "give me a ride to SoHo". And Apple will scan all of the ride sharing apps or ride sharing aggregators (even if I haven't downloaded them from the App Store) and deliver the best result. This is absolutely what Siri wants to become -- the entry point to the web.

In an extreme example, I could tell Siri, "take me to my friend's apartment and let's stop somewhere to pick up a bottle of wine that pairs well with Italian food." Siri then decides which ride sharing app, which business directory app, and which wine app to use to bring me the best experience.

Apple could easily cut a deal with a ride sharing aggregator, Yelp and HelloVino (a wine discovery app) and take a fee from each of them. In this case, not only is the Uber driver getting commodotized, so is Uber and so is the ride sharing aggregator.

This is an important issue for any web based service to think about. The new economy might be less about the battle for the most beautiful interface and more about the service that can get closest to the user. And it's beginning to look like platforms rather than interfaces might win the war.

How Mobile Is Impacting Facebook & Healthcare Strategy

Many people used to believe that Facebook was an extremely defensible business and that it would be almost impossible for another social network to compete. It has grown to an enormous scale with massive troves of data and more than 1.5 billion monthly users. The thinking around their defensibility was that because all of your friends and photos and updates are already stored on Facebook, it would be tedious and unnecessary to switch to another social network. Everything you need is there. Why go somewhere else?

Facebook did have quite a bit of defensibility back when the predominant access point to the service was the desktop web. Moving your data to a new social network was painful and impractical. But now that the main access point to social is our mobile phone (more than half of Facebook’s traffic comes through mobile) things have changed dramatically.

We now carry around all of the key elements of a social network on our cell phones. Our phones carry our location, our photos and our address book and allow us to message anyone at no cost from anywhere in the world. With the click of the touchscreen we can view and connect with all of our friends on a new social network and instantly recreate our social graph. We can take a photo and instantly send it to a multiple social networks. We can easily join different social networks with different groups of friends focused around different needs. The friction of leaving Facebook and joining a new network has disappeared. This wasn’t possible with the desktop web, or it was at least much more difficult.

As a result of the increasing use of mobile, we’ve seen lots of new social networks emerge (there are now dozens of social networking apps with 1 million+ downloads in Apple’s app store, including Kik, WhatsApp, Tumblr, Google+, Instagram, Snapchat and many others).

This increased use of mobile has reduced the friction of launching a new social network to near zero and as a result has shifted ownership of data away from the network and back to the individual. Trying to own the data and lock-in the consumer is no longer a viable strategy.

Facebook is well aware of this and has adjusted by rapidly buying up many of these new networks. We’ll likely see more acquisitions like these in the months to come.

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Over the last several years, large healthcare provider organizations and healthcare software vendors have been employing a similar strategy to that of Facebook. Health systems have been growing by buying up ambulatory, community-based sites and employing doctors to build out giant systems that can offer clinical services across the entire continuum of care giving the patient no reason to go anywhere else. In parallel, providers and software vendors have been creating a single patient record (including blood tests, physician notes, imaging and other data) that flows across the entire provider organization and can be easily shared with providers across the system. This avoids all of the classic frustration associated with having to fax your x-rays from one provider to another. Everything exists on the web in one single record. Providers then roll out a patient-facing portal that lays across the patient record where the patient can access all of their data (mostly through the desktop web).

The strategy is simple. Providers are telling the patient to 1.) stay with us because we do everything and you don’t need to go anywhere else and 2.) you can’t go anywhere else because we have all of your data.

But as we saw with Facebook, now that a consumer’s primary entry point to the web is their mobile phone, this strategy has some flaws.

Not only do our phones enable messaging and carry our location and address book and photos, they can also carry data on our movement, our sleep, our heart-rate, the prescriptions we’re taking, our body temperature and, with the use of implanted devices, much, much more. This real-time data that we carry on our phones is arguably more valuable than the data stored in our clinician’s patient record that only gets refreshed while we’re sitting in the examination room.

Increasingly, providers will own some patient data but the patient will own more data and better data.

Like Facebook, healthcare providers are trying lock in their customer by owning the data. But the increasing use of mobile has changed the game. Just like social network users can effortlessly syndicate their own data out to multiple social networks, a patient will be able to syndicate their real-time clinically relevant data out to multiple providers, regardless of which system they’re associated with.

Mobile has put patients in the driver’s seat.

Meanwhile, with the emergence of home care and tele-health and urgent care clinics and apps and implants that manage more serious and chronic conditions, in many ways healthcare has actually become more fragmented. The traditional providers may be consolidating, but new players are creating new channels for care and causing more fragmentation across the industry. Where and when and how care is delivered is being completely reshaped.

But unlike Facebook, large healthcare providers can’t buy their way out of this conundrum. First, because they don’t have enough cash (most are non-profits with microscopic profit margins) and second because healthcare is local. Health systems are no longer just competing with the hospital across the street, they’re competing with web services that are available to the global market.

As a result, large provider organizations are going to have to consider new ways of providing value and will have to select which segments of patients they want to serve.

In short, they can’t own the patient because they can’t own the data.

The idea of locking the patient into one network of providers was always a bit flimsy. But the strategy was somewhat understandable. A lot of this was driven by the trend towards value-based payments and the convenience of 'owning' a patient under that model.

But the lessons of Facebook are clear. Locking up the data is not a path to success.

Social networks and healthcare providers must focus on what they do best and focus on serving the consumer they want to serve and abandon their attempts to win by owning data that isn't theirs to own.

The Death Of Enterprise Sales

A few weeks ago I was chatting with a guy that specializes in something called "disruption consulting". Basically he goes into mature companies and works with their management teams to help them think through how they would disrupt their own business. This is a healthy exercise for large, successful organizations and something individuals ought to think about with regard to their own company and -- more importantly -- their own role in their own company. This got me thinking about enterprise SaaS sales and the theory that salespeople have become less of a necessity in this new world. As I've written in the past I actually think the opposite is true. Sales is growing, not shrinking, in importance. That said, here are some of the trends that I've seen out there that are giving the skeptics some ammunition:

1. Micro budgets. With the 'consumerization' of enterprise software, lots of companies are letting their employees directly buy and expense their own productivity tools circumventing the traditional buying process. 
2. Pay-per-use contracts. Traditionally enterprise salespeople have sold large buckets of access to their software -- e.g. Salesforce has negotiable pricing tiers based on the number of licenses purchased. Companies like Slack and others are getting away from this model and are pricing based on who actually uses the system. At the end of a month, they look at how many people logged-in and then send an invoice accordingly. This pushes the revenue responsibility pendulum far away from sales and much closer to product.
3. Freemium enterprise software. This is a model where software can be accessed for free by an individual employee and an enterprise deal gets triggered at some critical mass of employee usage (e.g. B2E2B).
4. Standardized contracts. More enterprise software companies are creating click-through agreements that can't be negotiated by the buyer. And there does seem to be a very slow but steady move towards more consistency across companies in what they want a contract to look like. Corporate attorneys will make this really difficult, but the idea does seem to be gaining momentum. 
5. Data in the cloud. The advent of the cloud has made the old-fashioned, big, CIO-based sale a bit less prominent. Cloud-based software programs require much less of an implementation burden and thus much less of the need to sell the bureaucratic IT department. That said, much of the work these teams do has moved towards integration into the cloud, which still requires a hefty sales process.

There's no doubt that the landscape in enterprise sales has changed. And all of these trends are worth watching. But what the skeptics miss is that this is nothing new. Buyers and sellers always been trying to minimize the cost of their transactions. These are just new variations of that process. It simply means that to stay relevant enterprise salespeople must continue to shift their energy towards larger, more complex deals and higher value sales activity.

When real estate listings became available to everyone on the web, real estate brokers didn't disappear (in fact, there are more of them now). They simply started focusing on higher value activity. Instead of their core asset being access to listings, their new asset is helping someone navigate the process of buying a home (over half of home buyers find their home online, but 90% still use a broker to make the purchase).

Similarly, when employees begin buying their own software, enterprise sales teams will just shift their activity towards more strategic, higher value deals. They'll focus on the things that can't be bought or implemented by a single employee.

In short, enterprise sales drives new and incremental growth. It's the hard stuff. The easy stuff gets automated. And diffusion of the greatest innovations and the highest value deals can't be automated.

Companies that aren't growing their enterprise sales teams are likely either very early-stage and don't have enough product to sell, or they're later stage and aren't trying hard enough.

Disruption & Access

I came across thIs chart the other day on Twitter showing camera production from 1933 through 2014.

This chart is great because it perfectly illustrates the good and bad parts of disruption. Better, more portable cameras destroyed the incumbents (Polaroid, etc.). But at the same time these innovations massively increased access to and use of cameras (this is the point that most people miss). It's estimated that there were more photos taken in the year 2014 than there were in all of the years prior to 2014. That's incredible.

The fact is that while disruption can cause some short term pain it almost always results in a greater good for those in the industry. More people travel because of Expedia. More people go out to dinner because of Open Table. More people listen to music because of Spotify. More people get a ride because of Uber. And on and on.

This is perfectly analogous to what needs to happen in healthcare and education. We need the incumbent analogs to go away and the innovators to take over and give access to a lot more people at a much lower cost. We just need the regulators to get out of the way and allow it to happen.

Some Thoughts On Apple & Software For Cars

The tech world is buzzing about the rumor that Apple's plans to build a car. They bought Beats a while back because they needed talent that knows how to make things that people will wear (e.g. a watch). And now they're hiring talent from Tesla that knows how to build cars and software for cars. Benedict Evans had a great post on this topic on Saturday where he offered lots of ideas on the risks and benefits of such a venture. Please go read it if you're interested in this kind of stuff.

I wanted to point out two key points he made in the post here.  From the post:

...can Apple create new value in the industry in the way that it did in phones?  With the iPhone, Apple created a new price segment and (with Android following) made the phone industry's revenue much bigger - the average price of a phone sold has more than doubled since 2007. But cars are, pretty obviously, more expensive than phones. Many people can find $400 for a better phone or, this year, a smart watch, if they're persuaded that they really want one, but rather fewer can find an extra $40,000 for a better car, or to replace their car every two years instead of every 4 or 8.  If you're in the market for a $20,000 car, there is very little that anyone can do to a car that will put you in the market for a $60,000 car. Cars do not come out of discretionary spending.

This is an important point. The iPhone was such a success largely because, in reality, they created a new (high-end) category that didn't exist before. The beauty of that high-end category is 1.) it's actually a mass market category because most people can afford a iPhone -- lots of people that make $50k a year have the exact same phone as people that make $30 million a year and 2.) people buy a new device every two years (that's a pretty nice recurring revenue stream for a hardware business).

Generally, neither of these factors have existed in the car business (most people can't afford high-end cars and the average driver replaces their car about every 10 years).

That said, these dynamics are changing a bit. Celebrities like Leonardo DiCaprio have been photographed driving around in a very affordable Prius (Frank Sinatra wouldn't have been caught dead in a low-end car). And while it's unlikely that the masses will start buying a new car every two years, it is becoming clear that fewer and fewer people are going to need to own their own car -- both because of the astounding growth of on-demand rides and the coming emergence of self-driving cars.

Benedict writes about this later in the post.

...self-driving cars might support both an on-demand model and an AirBnB model for cars - does your car drop you off at work and then roll off into the city to earn you some extra money driving other people around? Would people want to do that? Would that reduce the opportunity for 'dedicated' on-demand vehicles? Who knows. Of course, it's also possible that self-driving technology, said to be a decade away now, will remain a decade away indefinitely, as so many other AI projects have done.

In short, on-demand rides, shared self-driving cars and artificial intelligence are going to lead to massive changes in the way we get around and the way we manage our own personal transportation and the things that we do while we're travelling. And all of it -- I mean all of it -- is going to be driven by software that will become a large part of our day-to-day routine. Apple has to be in the middle of that. Apple has to make a car.

Healthcare Technology: Who Owns The Data?

A couple weeks ago I was listening to a panel discussion with a bunch of venture capitalists and someone (I can't remember who) made the point that the value of so many of today's web services comes down to one question: "who owns the data?" For example, while Uber has some nice UI/UX, the real reason they're so valuable is that they own the data. For them, the data is knowing where all the cars are located. I go to Uber because I can quickly locate and communicate with the drivers in my area. I like the app, but the real value is the location data. Same thing with AirBnB. It's not the app, it's the data they have on all the properties that I'd like to rent.

With this in mind, last week I read that Stanford Healthcare announced that they built the first patient facing app that integrates data from devices such as Fitbits and Withings scales into Apple's Healthkit app. Apple can than transmit that data to the patient's provider through the provider's patient portal app (in this case, MyChart, which is built by Epic Systems, a huge health IT vendor that builds software for hospitals and health systems).

This is an enormous step forward for the integration of patient captured health data with provider captured health data. It's awesome news.

But as all of this finally starts to come together, it begs the question: who owns the data?

Or, at scale, which company benefits the most from all of this data floating around?

Stanford? Withings? Fitbit? Apple? Epic?

Well, Stanford is very local, and isn't terribly focused on data collection, so it's probably not them.

Withings, Fitbit and other device makers contribute a relatively small part of human health data so at least for now they're not going to own a large piece of the data pie.

Apple still only owns well under half of U.S. smart phone market share -- and that number is expected to shrink. And they own even less of the market share of the chronically ill patient segment that can really benefit from this kind of data exchange.

So that leaves Epic, the 30-year-old health IT vendor that currently owns a medical record on well over half of the U.S. population. They have long-term contracts with large providers and (presumably) a long-term contract with Apple and will likely cut deals with Android and other smartphone operating systems in the near future.

In short, more than anyone else, Epic will own the data.

But this raises all sorts of new and interesting questions and conflicts. Will Stanford allow Epic to share its patient records with other Epic providers? Will Stanford allow Epic to share its patient records with other health IT companies? Will Epic allow Stanford patient records to be shared with other health IT companies? Will Apple allow Epic to share data captured from an Apple device with data captured from an Android device?

As I've written before, it seems to me that in the long-term, the answer is a Mint.com for Healthcare, where the patient truly owns the data. But in the meantime, the question of "who owns the data?" will be watched closely by investors, app makers, providers, health IT companies and patients. It's going to be fascinating to watch this play out.

Mint.com For Healthcare

Vince Kuraltis, a healthcare IT consultant, tweeted this the other day:

He’s referring to the fact that each of his healthcare providers has a different patient portal run by a different IT vendor with a separate log-in and separate data and functionality. Providers are launching patient portals to allow patients to view clinical records, refill prescriptions, email their providers, etc. The point is to better engage patients in their health. It's a very important effort. But as Vince points out, the disconnected and fragmented experience can be really frustrating for patients.

This challenge is quite similar to the challenge that banking faced years ago as they took their customer experience online. Personally, I have accounts with Bank of America, Fidelity, eTrade, American Express and a few others. All of these accounts have separate web “portals” with separate log-ins. That's frustrating. But not really. Because I spend very little time on any of them. Most of my time is spent on Mint.com, where I’ve integrated all of these accounts into one place. From there, I can view all of my transactions and balances, track expenses and create budgets. It's great. It's has award-winning UI/UX and everything is one place.

Mint has taken the bottom-up approach. They started by building a platform for the consumer. And the consumer allows data from multiple vendors to be integrated into their account.

Healthcare needs a similar bottom-up approach.

We need a portal that allows us to integrate all of the data collected on us from our dentist that runs Dentrix software, our primary care doctor that runs eClinicalWorks, our gastroenterologist that runs Epic, our wife’s OBGYN that runs Cerner and our child’s pediatrician that runs Allscripps. All of that data could be neatly compiled into a really user-friendly website (and app), similar to Mint. If I move to a new area and select a new primary care provider, she could simply tap into my account and view all of my scans, test results, prescriptions, etc.

As we consider all of the controversy around forcing EMR vendors to become more interoperable and share patient data with one another, in some ways, you can argue that this isn’t their role.

Why should Bank of America freely pass data they’ve captured about me to Fidelity (a competitor)? They don’t want to do this because they want me to stay with them, not make it easy to use other vendors. Why is that any different than asking UCLA Medical Center to pass my data to USC Medical Center? It would be nice if they did, but I'm not sure it's the government's role to force them to do something that might not be aligned with their competitive interests.

The bottom-up, consumer led approach circumvents this entire conflict. We need a patient portal that starts with the patient, that allows providers (and their EMR vendors) to plug-in (if they'd like). Not the other way around.

Real World Healthcare vs. Venture Capital

Fred Wilson, the well-known venture capitalist, wrote a blog post last week with some technology predictions for 2015.  He touched briefly on healthcare:

the health care sector will start to feel the pressure of real patient centered healthcare brought on by the trifecta of the smartphone becoming the EMR, patients treating patients (p2p medicine), and real market economies entering health care (people paying for their own healthcare). this is a megatrend that will take decades to fully play out but we will see the start of it in 2015.

All of these predictions are spot on, of course -- the patient will become more and more in control of their care.

But if you talk to the people on the ground you'll find that these things aren't really being talked about or worked on at the provider level.

Case in point, John Halamka, the CIO of Beth Israel Deaconess Medical Center, considered one of the most innovative thought leaders in healthcare technology, wrote a post the other day reviewing some of the key health IT issues on his plate during 2014 with some predictions for 2015. In short, he's focused on implementing software that will facilitate accountable care workflows inspired the Affordable Care Act; meeting government electronic medical record adoption standards (Meaningful Use); and complying with government regulations around the protection and security of personal health information (HIPAA).

These are very different things than the things that guys like Fred Wilson are thinking and talking about. Venture Capitalists are completely focused on the patient. Real world healthcare operators (CIOs) are primarily focused on meeting government requirements.

This disconnect -- or, at least, that degree of separation from the patient -- isn't the fault of CIOs; they have no choice but to focus on the urgent and intense demands coming from the government to ensure that they continue to receive government incentives and avoid penalties.

Venture Capitalists are focused on where healthcare technology and the patient are going (e.g. where the money will be). Given the intense regulation, health system CIOs don't have that luxury.

All of that said, for the most part, I think government intervention into healthcare IT has been a good thing. Healthcare execs are totally focused on efforts to increase quality and reduce cost. Most stakeholders (providers, payers, regulators) have gotten behind value based care payment models -- the winds are all going in that direction. And providers are now fully onboard with electronic medical record adoption (at last check ~80% of providers are using them). None of this could've happened this quickly without government intervention.

But now that the groundwork is laid, it's time for the government to back off a bit and let the market start to drive more of the innovation in healthcare IT. Providers need the room to move their businesses and IT investments away from meeting the requirements of restricting, top-down government initiatives and closer to providing tools that are centered-on and built around the needs and desires of the patient.

The Consumerization Of Procurement

The other day I was talking to a founder of a B2B software startup about how hard it is for big companies to buy things. Even at a super low price point (a couple hundred bucks a month) software purchases still have to go through a litany of approvals. I was telling her how almost exactly two years ago I wrote a post titled, Individual Employee Budgets, where I predicted that employees would have their own discretionary budgets that could be used to buy things that would make them more productive and profitable employees. With the growing trend towards the consumerization of enterprise and the ability for anyone in their basement to build and distribute a great productivity application to millions of employees, individual budgets, I thought, would be a requirement for companies to succeed and retain employees. For smaller purchases, traditional procurement eventually has to get out of the way.

I still believe this will happen, but it's moving much slower than I predicted.

That said, two years after writing that post, when I think about the software I use to get my job done, much of it is 'consumerized'. That is, it's sold directly to me and in order for me to use it my company doesn't have to go through a painful procurement process. Software like Wunderlist, Google Maps, TripIt, Sunrise, Feedly, Evernote and Google Docs, to name a few. There are only a couple of applications that I use that were procured through a traditional procurement process -- and most of those aren't as useful or as easy to use as those that I procured myself. Self-service software has to be really, really good as the switching costs are near zero.

It's disappointing that the way companies buy hasn't become more flexible as enterprise software has become more consumerized and easy to procure. Employees are ready for self-service productivity tools and software makers are ready to build and distribute them. The only thing we're waiting for is for big buyers to let it happen.

Enterprise Software For Patients

Most readers know that an EMR (electronic medical record) is the back-end software that runs a healthcare organization (think ERP for healthcare). EMRs have been around for a while. Recently most large hospitals and health systems have begun building out the patient-facing version of their EMR; allowing patients to communicate electronically with their doctors, refill prescriptions, schedule appointments, view clinical information, etc. I've written at length about the differences between B2B software and B2C software and how B2B software is generally not very good (particularly from a usability perspective). And it's not very good simply because it can get away with not being very good. B2B companies really just need a good salesperson that can lock-in long-term contracts to be successful.

B2C companies, on the other hand, need an incredible product to be successful. If your user experience isn't flawless, you cannot survive in the B2C space. The switching costs for consumers are near zero -- the user experience must be incredible. Product is much more important than distribution.

Applying this to healthcare, if you're a hospital and your EMR is hard to use, your employees will still use it because they have to.

But if your patient portal is bad you will lose patients instantly. It's too easy for patients to switch to something else.

The Healthcare Information and Management Systems Society (HIMSS) published a good report last month talking about patient portals.  They noted that despite the difficulty of building a wonderful online consumer experience and the totally different skill set required to execute on it, 80% of hospitals surveyed chose their patient portal vendor simply because it was the same vendor that provides their EMR (the top three portals are made by Epic, Cerner and McKesson). All of these vendors have been building B2B enterprise software systems for more than 30 years. They're all wonderful companies. But they have no idea how to build a patient facing product. Their management, engineering talent, sales force, culture and DNA is all about B2B. They have almost no chance of building a world class consumer product. That's not a knock on these companies, it's just reality. You can't be really good at both.

As we transition to a world where the patient is in the drivers seat, exposing patients to old fashioned enterprise software code is a terrible idea. Hospitals shouldn't let a piece of software touch their customers unless it's been vetted and tested fully and it's clear that patients love it. If you check out the satisfaction scores for most patient portal apps you'll find that most patients despise them (one of them had 2,000 reviews in the iOS app store and more than 1,500 of them were only 1 star).

Patients are becoming consumers. They want slick, easy, mobile, beautiful, simple and seamless web experiences. If the software that touches patients doesn't give them that they're going to go somewhere that does.

Now, in defense of these hospitals let it be known that there aren't a lot of great consumer-focused software companies building out patient portals. So in the short term they might have no choice. But I'd encourage CIOs that are making patient portal investments to consider the consumer, and to cautiously enter into flexible and short term contracts with these patient portal vendors.

You wouldn't buy groceries from the company that washes your car and you shouldn't buy a patient portal from the company that built your EMR.

On The Web, Bad Reviews Are Good

The Wall Street Journal had an article a while back on online doctor reviews. It noted that 25% of patients are now viewing doctor reviews before booking an appointment.  For the segment of patients that either don't have a doctor or are unloyal to their doctor (about 60% of patients) this ratio is far higher and growing fast. Like most products and services, patients want to see what the community has to say before "buying".

This has fairly significant consequences for providers. In some ways this trend is commoditizing the big hospital brands. It used to be that you’d want to go to a doctor that was affiliated with one of the prominent hospitals in your community. In some ways this is still true; but today, if a doctor has good online reviews from other patients, the patient doesn’t really care as much which health system the doctor is affiliated with. The doctor can gain trust from patients without the big brand. The community replaces the brand. The larger implication of this is that in the future health systems will have to focus more on their product (cost and quality) and less on their brand. But that's an issue for another day.

The article notes that many providers are uncomfortable with patients posting reviews about them for the world to see. This hesitation is completely understandable. But smart providers will embrace reviews rather than avoid them.

Case in point: just look at Amazon. There are 536 one star reviews of the new Kindle Fire on Amazon.com. Why would Jeff Bezos ever allow negative reviews to be posted about his product on his own website?

The answer is simple: it’s all about  trust. Bezos knows that the bad reviews increase trust and actually end up helping him sell more Kindles.

When eBay started many years ago, most of their transactions were small purchases like Pez dispensers and other low-cost items because buyers were worried about giving their credit card to a stranger over the internet.

Fast forward to today and eBay sells all sorts of very high ticket items on their site -- they sell tens of thousands of cars over their mobile app. That's right, people buy cars on their phone.

In order to buy a car on your smartphone you have to really trust the seller. That trust comes from reviews. It never would've happened without the trust that was built through seller reviews.

Providers need to embrace this as well. And some already are: Cleveland Clinic, the University of Utah and other big hospitals are now allowing patients to post negative reviews of their doctors on their websites. Like Bezos and eBay sellers, these providers understand that the trust gained from being transparent about a provider outweighs any negative perception that might come from bad reviews.

From hotels to taxis to healthcare, we're seeing that the community is trumping the brand. Reviews from the community create transparency, and transparency creates trust, and trust creates growth.

Should Amazon Be Profitable?

I've been meaning to write a post about Amazon and its strategy to never make a profit in a given year, but Benedict Evans beat me to it in this great post and podcast from a couple of weeks ago. I recommend reading the post. After looking at Amazon closely, there are three things that really jump out at me:

1. Revenue has grown every year since 1996 and net income has remained flat, at near zero.

2. Every dollar in profit goes directly back into the business. They're investing most of the profit into capital expenditures such as new warehouses and Amazon Web Services but they're also using it to rapidly enter new verticals in e-commerce. There literally must be someone whose job is to make sure they don't make a profit in any given year.

3.  A lot of people are asking how long Amazon will continue reinvesting their profits instead of passing them onto investors (even a great innovator like Apple pays out a nice dividend). How long can Amazon keep investing in themselves? Benedict uses a Wal-Mart comparison. Currently, while Amazon is an enormous player in e-commerce, they still only make up around 1% of North American retail sales. So asking Amazon if they should continue to invest in their growth is a little like asking Wal-Mart if they should've kept investing in new stores back in the 1960s. The answer for Wal-Mart was yes in the 1960s and it's yes for Amazon in 2014.

It's Always Been About Trust

Sherpa Ventures released a comprehensive presentation on the “on-demand" economy the other day. It’s worth flipping through it if you have some time.

Slide 8 contrasts the “village economy” with the economy we have today and it got me thinking...

We’ve gone from:

1. The general store where everyone in town knows and trusts the owner to...
2. Large, main streets with lots of stores with less intimacy and less trust to...
3. Larger, big box retailers with much less intimacy and much less trust.

As stores have become less intimate and less personal, retailers realized that, in order to compete, they had to try to maintain the level of trust that the owner of the general store had with his or her customers. That led to massive investments in brands – Wal-Mart, Best Buy, Macy's etc.  They have built brands so that you know they’re low cost, high quality, reliable, etc.  

Every customer couldn't know and trust the owner but every customer could know and trust the brand, the thinking went.

But in the new economy, constant connectivity, new payment platforms and reputation management programs (ratings and reviews) have recreated this high level of intimacy and trust, without the customer knowing the owner or knowing the brand.

"I don’t know that restaurant but it has a great rating on OpenTable."

"I don’t know this artist, but people on Etsy like her."

"I don’t know the guy that owns this apartment in Paris, but people on Airbnb trust him."

The point of this post is that, regardless of the mechanics that drive our economy, it’s always been about trust. Whether your’e relying on your personal relationship with the owner of the general store on the corner, or you’re relying on Best Buy’s brand when buying an expensive flat-screen TV, or you're relying on a five-star review rating when accepting a ride from a stranger on Uber -- it’s always been about trust.

A Step Forward For Telehealth

A few weeks ago, the Federation of State Medical Boards passed an updated recommendation for telehealth use.  This is interesting because the federal board often guides policy for state boards and state boards often guide policy for providers.  Two notable things:

1. The recommendation notes that virtual visits can be used for first time provider-patient encounters (a 180 degree turn from their prior position where they recommended that telehealth only be used once a relationship has been established).  This propels telehealth companies deeper into the patient acquisition business.
2. To qualify as a telehealth visit, the board requires that the encounter be done using video (as opposed to just audio).  Phone-based telehealth companies won’t be eligible to provide telehealth based on the updated recommendation. Nor would the board recommend that those visits be eligible for reimbursement.

The news is being reported as both a big step forward for the industry (initial consults can move online) as well as a big step back for the industry (it limits vendors' ability to provide services to patients that don't have internet access). Regardless, it's nice to see this channel becoming more officially recognized and sanctioned. For some segment of provider-patient encounters telehealth will lead to better outcomes and significant reductions in the cost of care.

Why Is Foursquare Unbundling?

Foursquare recently announced that they're splitting in two. They're moving the location sharing feature to a new app called Swarm. I've been a fairly loyal Foursquare user for quite some time. And when I think back to why I use it and why I've stayed loyal, I'd say it's a few things (in order):

1. Their search and discovery is really good. It's incredibly useful when I'm in an area I don't know well and random searches like "free wi-fi" or "cappuccino" are really effective. And their GPS is extremely accurate.
2. Foursquare records a history of where I've been. If I'm trying to remember a restaurant that I really enjoyed it's great to be able to look back at my history when I can't remember its name.
3. The gaming component is fun. Their UI/UX is absolutely phenomenal. I have to admit it's pretty satisfying when you check-in.

The one thing I don't use Foursquare for is location sharing. I don't have a large network on Foursquare and I'm uninterested in sharing my location with large groups of people. That said, there are lots and lots of people that love to share their location with the world. But that market was quickly swooped up by Facebook a while back when they released the exact same feature.  So for me there isn't much value to Swarm.

I recognize I'm a sample size of one, but all of this makes me wonder if Foursquare unbundled because they wanted to create two really valuable, standalone apps. Or if the move was more of a spin-off or divestiture of a less valuable and less promising feature (location sharing). I'm not sure. But it will be interesting to see what comes of Foursquare and Swarm as mobile search, discovery and location sharing evolves.

SaaS & Minimizing Buyer Risk

Andreessen Horowitz had a podcast recently on software company valuations. All of their podcasts are excellent by the way and definitely worth listening to when you have some time. This one discussed the fact that, traditionally, big enterprise software deals were sold as "perpetual" licenses. This meant that the enterprise would pay big money upfront for software that could be used forever. This was a nice thing for the seller from an accounting point of view. You'd get big bucks on day one that you could use to pay your engineering team and sales force. Your financials would look really good in that period. The software as a service model (SaaS) is much different. With SaaS, the license is sold as a subscription and revenues and costs are spread out over the life of the agreement. At first glance, the SaaS model doesn't make a seller's financials look so good. When the deal is closed the seller has to pay their engineering team and sales force upfront. All that cash is out the door but the revenue is collected and realized over several years. This is why Castlight Health was called the most overpriced IPO of the century when they went public a couple months ago at a valuation of $1.4 billion on only $13 million in revenue (an outrageous 100x revenue multiple). I don't have a strong opinion on the company or their valuation but what many people in the media missed is the fact that most of that multiple was being driven by the company's "deferred revenue" -- or deals that have been closed but not yet realized from a revenue recognition perspective. Deferred revenue is a critical measure of a SaaS company's health.

I say all of this to make a related point. One of the challenges in selling enterprise software is the buyer's concern about risk -- e.g. a buyer might say "what if we make a big investment in your product and we find that it doesn't work for us, do you provide a guarantee?" When you're selling SaaS (as opposed to a perpetual license) it's important to explain to your buyer that you are totally aligned on risk. The entire SaaS model is built around getting renewals. During the initial contract period, the cost of selling the software likely exceeds the revenue collected so it's critical for the seller to get the buyer to renew. The good news for the seller is that over time the costs are amortized and when the client renews the relationship becomes quite profitable. So the entire model is setup to drive customer renewals -- in many cases, most of the risk is actually on the seller. It's worth explaining some of this simple accounting to a buyer when they push back on risk.

Unlike a perpetual license, the buyer and seller's interests are completely aligned: the buyer needs great software and the seller needs a renewal.

4 Things That Big Healthcare IT Companies Must Do To Stay Competitive

The healthcare IT space is possibly the most exciting and dynamic industry in the United States right now. Healthcare is going through a total transformation driven by massive regulatory change, the “consumerization” of healthcare and the important shift from a system that manages sickness to a system that manages health. Underlying all of this change is the software that runs large healthcare organizations -- specifically, the big EMR systems. Given all of the rapid change in healthcare, the EMR industry -- and the dominant players that lead it -- are ripe for disruption. It's not unlikely that there'll be some big names dropping out of the race over the next several years.

With that in mind, here are 4 things I think the large EMR players should do to remain competitive amidst all of this change.

1. Move to the cloud. Healthcare IT is all about big data. And the large EMR companies host loads of it. In the traditional database space, Oracle and SAP waited much too long to move their data to the cloud. And it seems that some of the big EMR companies appear to be waiting too long as well (though, it's possible they could be making this transformation behind the scenes). Regardless, the fact is that health information is going to have to live on the cloud in the long-term. There is no way around this. Patients are going to demand interoperability of data between their primary care doctor and their gastroenterologist and their dermatologist and their dentist. And there is no way that all of those providers are going to be running the same EMR – the space is way too fragmented. I'd argue that not moving to the cloud is a bigger risk for EMR companies now than it was to the large database companies ten years ago. Patient advocates and regulators are simply not going to allow a big EMR vendor to keep their data in house. Larry Ellison said it took 7 years of development to get Oracle on the cloud. EMRs vendors can't continue to put this off.

2. Open up platform APIs (I mean, really open up platform APIs). I've used the BlackBerry versus Apple's iOS example in the past when discussing this topic. Apple opened up its app store early (effectively employing hundreds of thousands of app developers) and as a result made the iPhone 1,000 times more valuable. Meanwhile, BlackBerry dragged their feet and eventually ended up near bankruptcy. There are a number of reasons why the analogy isn't perfect (EMRs aren't consumer products, there are HIPAA restrictions around exposing personal health information, etc.) but EMRs should take a close look at what caused BlackBerry's demise. Part of the reason they dragged their feet on opening up was that their corporate customers were hesitant to allow their employees to download apps. They let their own customers slow down their development. Now some will tell you that the EMRs have created APIs and are adding services on top of their products all the time. This is not true. Even the most open EMRs are tightly policing the products that plug-in to their platform. The first EMR that takes a true "app store" approach will have a massive advantage. There are a ton of well-funded developers building amazing things that these EMRs can tap into if they open up.

3. Focus on usability. I'm not a doctor and I don't work in a doctor's office. But I've seen enough of these systems and I've heard enough complaints from users of them to know that the usability of most EMRs is not up to par with high quality B2B software tools. This is the classic case of B2B software being bad because it can. These companies have high talent sales teams that only need to sell a handful of executives and the rest of the health system is forced to use it and deal with the usability problems. With the emergence of B2E2B (business to employee to business) sales strategies a lot of this is changing. Staff members expect B2B software to work the same way their consumer tools work (Facebook, Gmail, Amazon, etc.).  Granted, due to high switching costs, the big EMRs can get away with poor usability for a while -- it'll be a long time before EMR software is sold the way Yammer is sold but when big contracts come due in a few years, usability will be a massive competitive advantage.

4. Get out of the B2C business. Many big EMRs are rapidly creating direct to consumer products, mostly in the form of a patient portal. This is being driven by 1.) the belief that consumers will continue to be more and more engaged in their care and 2.) the government is requiring it as part of meaningful use; though it’s mostly being driven by the latter, which is a recipe for really weak consumer products. Take a look at the app store ratings of many of the big health IT apps – consumer expectations of what makes a good app are much too high for an enterprise-focused vendor to meet at this point.  To compete in the consumer space you have to be totally focused on the consumer. It has to be an obsession. Take a look at a company like Oscar Health that has built their entire business around consumer experience. This isn’t a criticism of the EMRs, they do lots and lots of things really well. The point is that they should focus on those things and double down on them. Moving to the consumer space is too hard and too competitive and too much of a distraction.  The better approach is to buy or partner with an organization that is built around the consumer.

4 Ways to Improve Email

Many have written before that email is ripe for disruption. Something has got to give and I think we'll see lots of innovation over the next few years. In the meantime, here are four features I would love to get added to Outlook and Gmail that would make my life a little bit easier: 1. Character count. I'd love a character countdown (from, say, 200) to appear in the top corner of a new email. It would be a critical reminder to keep emails short. I'd even love a feature that would not allow the email to be sent if it exceed a particular character count. 'Pithiness', as required by the 140 character limit, is the best feature of Twitter. There's no reason it shouldn't apply to email as well.

2. Like button. I stole this idea from a comment that Donna White made a while back. One of the best features of Facebook is the 'like' button. It's an incredibly easy way to let people know you appreciate something they've posted without engaging in a back and forth. It's a super-efficient, low effort way to keep in touch with lots of people. Instagram and Twitter do this as well. I'd love the same feature to be added to email. Instead of having to respond with a one or two word response, the reader could just 'like' the email and that could be tracked and not require a new email to be generated. This would probably reduce the volume of email by 20%.

3. Reply tracking. I'd love to be able to click on a folder that show all of the emails I've sent that haven't been responded to for easy follow-up and tracking. I know there are plug-ins like Toutapp and Yesware but they're painful to install -- this is so basic it should be native to email programs.

4. External/internal reporting & filters. One of the pitfalls for people that are externally facing is ensuring that you're focusing the right amount of energy towards customers as opposed to internal work. A simple widget that tracks the percent of email flow that is internal versus external over time would be super useful. In addition, it would be great to have the ability to easily switch between internal and external inboxes and sent items folders.

The Argument For Net Neutrality

The other day I was writing about how I find it odd that most of the prominent venture capital firms seem to only invest in computer and software engineering companies and seem to avoid things like energy, telecom, transportation and infrastructure. The reason, of course, is that computer and software engineering is really the only big opportunity left that hasn't been significantly regulated. Well, as most of you know, that's about to change. ISPs are preparing to charge web services to use their pipes. This would do great damage to the "permissionless innovation" we've seen in the internet. The big companies that can pay the fees will flourish and the small innovators will be shut off. This would be a horrible thing for the industry, and, in many ways, the world.

But, some would argue, if Netflix is using a ton of bandwidth to make huge profits, the ISPs should have the right to charge them. If the ISP market was a completely free market, that would make a lot of sense. But it's not. Most consumers only have a couple of options for which internet provider they use. If those ISPs want to enjoy "duopoly" status, they're going to have to follow some rules.

With that in mind, I came across a comment from Phil Sugar the other day on Fred Wilson's blog that makes the net neutrality argument perfectly.

To me here is the question. I as a citizen through my elected officials have given the cable company, the phone company, the electric company, the water company, the gas company, the garbage company the right to serve me in a non competitive monopoly or duopoly.

I agreed to this arrangement because it is not cost effective to have twenty people digging up my streets, putting in wiring, plumbing, etc.

However, I demand for this right that I am served as a utility.

I do not want to pay more for electricity because I am running super secret trading algorithms on my computer versus having my daughter leave the light on.

I do not want to pay more for my water because I am crafting the best microbrew in the world versus my wife filling the claw foot tub.

I refuse to pay more per bit because a cable or telco company views it as more profitable for the company that is serving me.

Now if you want to cap my total bandwidth, limit my speed, etc, that is a discussion that we can have at the utility level. I don't necessarily think every plan has to be "unlimited" because I don't necessarily want to subsidize my bandwidth hogging neighbor.

Spot on.