How many letters do you need?
Or 'the future of B2C2B vs B2B2C'
tl;dr-
US healthcare is a bifurcated >$5T marketplace, with over $4T1 in payer-managed spend (i.e. national health expenditure, NHE) and an estimated over $1T2 in consumerized healthcare spend
The two halves of the market are colloquially referred to based on the primary business model - B2C (business to consumer) represents value capture mechanisms for the consumerized healthcare spend portion, while B2B (business to business) represents analogous structures for capturing value from NHE
Two core strategic choices for any healthcare innovator are a) where do you start and b) where do you go next; B2C & B2B marketplaces require unique capabilities based on their industry dynamics, as well as unique processes for companies looking to transition between (or combine) the two
Many trade-offs exist; however, the primary trade-off between B2C and B2B is ease of entry vs. defensibility; while B2C companies may be easier to spin-up & achieve short term success using tried & true principles from consumer industries, they face greater competition & risk of commoditization because of those lower barriers to entry
In contrast, while B2B (i.e. payer- or employer-reimbursed) markets have higher costs of entry, mainly centering around evidence generation & regulatory approval, they are more defensible vs. market disruption not only from an access perspective, but also in terms of more robust evidence around their clinical utility & value
The current preferred strategy is focus initially on B2C markets with an emphasis on patient UX, community building, & creating a group of entrenched users before moving to or augmenting with B2B as the business matures (i.e. the B2C2B model)
While the reverse (B2B2C) may have fallen out of favor, the certainty & trust that ‘regulated’ (i.e. FDA approved or payer-reimbursed) innovations provides patients may spark greater interest in this go-to-market model given inundation of B2C options & low levels of patient trust in current healthcare
***
When thinking about these GTM models, I use the term ‘float’ a great deal; that is, because the cost of entering into a B2B model in healthcare is so high, new companies (and intrapreneurs at established companies!) have to figure out how to ‘float’ that cost. Even if you choose to forgo formal regulatory approval - which can get expensive once you factor FDA regulatory costs3 & everything needed to prepare the submission - it is still expensive not only to develop the evidence base to prove efficacy to payers & employers but to make the right connections and hold the right relationships. After factoring the risk of failure associated with each step in that B2B process - the right data, the right process, the right pathway, the right relationships, etc. - it is easy to see why selecting the B2B market first is somewhat unplatable to most investors. Even intrapreneurs at large established companies in pharma & life sciences face similar challenges; after all, there’s a whole suite of consulting & advisory companies making revenue based on managing that level of risk.
That being said, the tides that formerly favored B2C2B are likely receding. One major shift is how the rapid proliferation of digital health options today creates a greater need for certainty among both individual patient-users & enterprise customers alike. This is especially true for therapeutic areas - like mental health - where the number of available solutions has truly exploded, creating a dynamic but at times confusing marketplace for patients to figure out what truly works for them. In reaction to high choice complexity, customers will frequently look for any type of information - reviews, outcomes data, expert opinions as a service - that simplifies their buying decision. Basically, it’s about trust - customer (whether that’s a patient or an enterprise buyer) trust that a given innovation will actually result in a desired outcome.
This is the opening for B2B2C models to return to prominence. If you think about it, a healthcare innovator focused on B2B - whether that is pharma, medtech, or something else - has already established credibility. Certainly, FDA approval is part of the equation (though arguably that’s waning in recent years) but this credibility is also supported by a large volume of clinical evidence, previous consumer confidence & trust based on their experience, and overall percepton of corporate branding. Accordingly, the lack of certainty in what works & what doesn’t in digital health - driven by the proliferation of options due to lower barriers of entry - have created a patient need for a trusted relationship that empowers them on their care decisions. Established companies - whether that is a pharma, a payer, or a provider - are best positioned to address that need.
A great example I’ll be keeping a close eye on is Abbott’s new line of consumer biowearables, called Lingo. As the name suggests, Lingo is focused on using technology to translate key signals - like blood glucose & ketones - into insights for everyday life. While the technology & marketing platform is pretty self-explanatory, what’s fascinating is the implications of a large company with an established brand name looking to explore consumer use cases for proven medical technology. The bet is not only that the technology that Abbott holds is resonant (i.e. ‘it works’), but the Abbott brand - apparently highly trusted among consumers - will allow for more easy adoption of Lingo by consumers of the B2C sector in healthcare even in the face of competition. After all, there’s a reason why as a consumer I still buy Apple Earpods vs. all of the other me-toos; I simply don’t have time to waste on thousands of hours of trial-and-error until I find something that works at my preferred price point (although thanks Men’s Health for spending ‘days’ of research trying to do it for your readers).
To be fair, this trend of established healthcare companies ‘moving in’ to B2C markets is not new. The adoption of telehealth & virtual-first models by payers - basically, scaling a capability that began in many ways as a modified B2C model - has already occurred throughout 2021. On the life science side, product movements from Rx to OTC - essentially the same concept - has been around for quite some time already; similar themes arise when you look into potential interest by pharma innovators in developing nutraceuticals. What is different, however, is the growing lack of certainty patients have in their healthcare experiences resulting in positive outcomes - that creates an opportunity for new consumer-company relationships and for the rise of a B2B2C model based on trust.
The question here is, of course, investor temperament. Intrapreneuers have it a bit easier; doing new things when you know the lights will stay on even if you fail is a different environment than looking to constantly raise money & stressing out over your burn rate. Accordingly, it is more than likely that due to the funding environment, the core GTM strategy will remains B2C2B for new start-ups & younger companies. However, one has to wonder - with a favorable market environment & potentially much higher upside, will there be investors who take a chance at a B2B2C approach? Will regulatory hurdles & securing reimbursement be seen not as a detriment or a risk, but as a positive to securing value? Will the tide shift?
Who knows. But I’ll be watching to find out.
-WY
https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NHE-Fact-Sheet
https://globalwellnessinstitute.org/industry-research/the-global-wellness-economy-looking-beyond-covid/; represents $1,310.8 in 2020 Health & Wellness spending for North America, weighted by 93% contribution of United States to total North America GDP (US + Canada)
Medical device FDA fees: https://www.fda.gov/industry/fda-user-fee-programs/medical-device-user-fee-amendments-mdufa
Pharmaceutical product FDA fees: https://www.fda.gov/industry/fda-user-fee-programs/prescription-drug-user-fee-amendments