Yesterday’s post by Sean Nolan, Microsoft’s Distinguished Engineer who runs R&D for the Health Solutions Group, seems to affirm the conjecture that HealthVault will provide a means for Microsoft to retain key technical talent as it forms a joint venture with GE Healthcare:
At the end of the day — I want to assure you that Microsoft — and I — remain 100% committed to the HealthVault business. I believe that together we’re creating a health system for the 21st century, and I’m proud to be sharing that journey with you. Our new venture with GE will simply add to our ability to deliver.
It’s no surprise that Sean is in the lifeboat. Microsoft generally doesn’t send DEs packing.
What I find surprising is the assertion that HealthVault is a business. Technology? Yes. Product? Okay. Ecosystem? Check.
Businesses generally have a business model, one that generates revenue, and hopefully profit. Microsoft has tried a number of different business models with HealthVault:
- An ad-funded model. Couldn’t attract enough eyeballs to make this work. (Update and correction: Thanks to Sean for reminding me in his comment below that this model was for MedStory, a separate health search business that was folded into Bing after HSG originally acquired it. HealthVault does not and has never attempted to monetize its users via advertising.)
- Selling the HealthVault platform to telecom companies to develop healthcare apps for their own subscribers. Didn’t scale beyond a couple of customers in Canada and Europe.
- Selling HealthVault connectivity to Amalga customers through HealthVault Community Connect. The economics of Amalga’s long install process killed this one.
None of these attempts at a business model produced much revenue or any profit.
The problem is that Microsoft is not very good at business model innovation. The company generally tries to follow a sustaining innovation approach of extending existing business models with incremental features and new product releases. When it builds new businesses, it is most successful when it can copy the business model of a competitor. Neither of these options apply to HealthVault. The product has struggled largely because the company was unable to craft a unique business model tailored to its value proposition, preferring instead to follow an existing model from either inside or outside the company.
The most ironic thing about Sean’s note to HealthVault partners is his invocation of Clay Christensen’s work. If Microsoft understood anything at all about disruptive innovation, it would understand that great technology in a legacy business model is sustaining, not disruptive innovation.
Zach Mortensen 
Zach, first — great to see you! Seems like a long time.
Second — what I think you’re missing in the analysis is that there are multiple hills for HealthVault to climb on the way to profitability. The primary issue we have right now is not how do we extract the dollars (which we have experimented with in a number of venues), but how do we establish the critical mass of connectivity required to base a business upon.
Our first principles were and remain — without (a) automated connections to clinical data and (b) an ecosystem of value-creating apps — we can’t succeed. We’ve made enormous strides on both of these, but it’s a big and extraordinarily disruptive job. One that we’re committed to finishing.
Anyways, a lot more to discuss here than I can do in this little textbox. But suffice to say — I’m glad your thoughts are part of the discussion — but IMNSHO you’ve jumped the gun on the conclusion.
—S
PS. Your first “model” was wrong — we’ve never used ads as a way to monetize HV, ever. We did create a separate health search capability which has since been folded into Bing, but that was a very separate venture.
Sean, great to hear from you. Thanks for reading and taking the time to comment. I enjoyed working with you and am still rooting for HealthVault even though I’ve moved on.
It seems that we disagree as to the best answer to a rather fundamental question: Which comes first, scale or profit?
My premise is that success is more likely when entrepreneurs prioritize the creation of a profitable business model. I think you’ll find this approach strongly aligned with what Christensen wrote in The Innovator’s Solution.
I will grant that there are some notable exceptions outside the company (Google, Facebook) that lost money for years while scaling out and eventually found a monetization strategy that worked. My sense is that this approach is constrained primarily by the patience of the investors.
Zach, Sean:
I would think a product like HealthVault is a god send and should be adopted quickly, but that’s not the case.
From the Consumer’s point of view – what in your opinion is the issue with adoption ? Looks like that is the “big hill” to climb.
Vivek, thanks for reading. You pose a worthwhile question, and I think there are at least two factors that explain the pace of HealthVault adoption:
1. HV was conceived in a pre-Meaningful-Use world as a way to enter the health-IT “whitespace” between ambulatory and acute-care providers and begin to “defrag” the ecosystem by becoming the de facto platform for interoperability across these care settings. Fast-forward seven or eight years, and Epic has done a very good job of riding the previously unforeseen wave of Meaningful Use money to make that defragmentation happen, to say nothing of acute-care providers buying up ambulatory practices and consolidating IT systems, thereby rendering HV’s “drop-off/pick-up” model for portability and interoperability largely irrelevant.
2. HV had a direct-to-consumer appeal as well, i.e. consumers could put data into HV and then share it with providers (who would all be in the HV game due to the aforementioned portability/interoperability value proposition). The idea is that the cost of getting data into HV is near zero, and once the data is there it pays dividends to the consumer forever because it is available to all his healthcare providers at zero marginal cost. But it costs the consumer more than zero time and effort to get the data into the system, the payoffs to the consumer are mostly in the future, and consumers’ internal discount rates on future rewards are troublingly high (see also: smoking, junk food consumption, sedentary lifestyle, et cetera). So at the mean, few consumers find HV a worthwhile trade.
I frame these opinions in the past tense because they’re based on my experience from a couple of years ago. I’ll defer to Sean if he wants to weigh in with more-recent thinking :)
Z