Two-Sided Networks in Healthcare - a Founder's Playbook

TL;DR

Two-sided healthcare networks connect distinct stakeholders so that serving one group creates value for another and makes both go-to-market motions more effective. Episode three of Andreessen Horowitz’s digital health series explains how networks can link the industry’s five major constituents, pharma companies, pharmacies, providers, payers, and patients, and examines Flatiron Health’s provider-pharma model. Read on for the founder playbook and the metrics investors assess.

Transcript

hi everyone i'm vinita and i'm jay we're both part of the health and bio investing team here at andreessen horowitz and welcome back to chapter three of our series on evolving go to market motions in the very exciting world of digital health in the two earlier videos in the series jay and julie explored a strategy that we called b to c to b and the... Read More

Key Insights

• 😶‍🌫️ Healthcare data availability, cloud storage, and improved data processing capabilities are fueling the rise of two-sided networks in healthcare.
• 👤 Trust and single user utility are essential for building the initial side of the network and attracting early adopters.
• 👤 Pricing complexity should be minimized to drive adoption and reduce barriers for users.
• 😒 Identifying channels and opportunities to help customers use the product can facilitate network growth.
• 😀 Constant iteration and product expansion are necessary to keep both sides of the network engaged and happy.
• 😒 Qualitative examples of customer use cases that are only possible because of the network's connectivity are indicators of success.
• ☠️ Defensibility is crucial, both in terms of avoiding disintermediation and addressing margin or take rate compression.
• 👨‍💼 Investors evaluate two-sided network businesses based on adoption, engagement, retention, and efficiency metrics, as well as the theory of defensibility and monetization model.

Questions & Answers

Q: What is a two-sided network in healthcare?

A two-sided network connects distinct groups of healthcare stakeholders through products, transactions, or data. Unlike a company with two separate business units, serving one customer group enables the company to create value for another, making the two go-to-market motions mutually reinforcing.

Q: Which stakeholders can a two-sided healthcare network connect?

The healthcare industry’s five major constituents are pharma or life sciences companies, pharmacies, providers, payers, and patients. Two-sided networks build channels between groups that often struggle to connect or transact seamlessly.

Q: Why are two-sided networks useful in healthcare?

Healthcare is fragmented, with data often trapped in silos and unable to flow freely between industry participants. Two-sided networks address that problem by creating connections between major players, often reinforced by data.

Q: How is a two-sided network different from two separate business units?

Both models may require a distinct go-to-market motion for each customer group. In a two-sided network, however, delivering value to one group enables the company to serve another group, so each go-to-market motion becomes easier because the other exists.

Q: What makes a two-sided healthcare network work?

The company must create value for its initial users while building trust and giving each individual user a reason to adopt the product. It must then connect that utility to a second customer group so the two sides reinforce each other.

Q: Should founders start with the demand side or the supply side?

Founders can begin with either demand or supply, depending on which side is more constrained or offers the greatest potential impact. They should focus on pressing user needs and establish trust before expanding the network.

Q: How did Flatiron Health build a two-sided healthcare network?

Flatiron Health connected oncology care providers with pharmaceutical companies to organize cancer data. Providers generate information about symptoms, drug responses, and tumor genomic profiles, while pharmaceutical companies want to use that data to improve oncology drug discovery, development, and distribution.

Q: How do investors evaluate two-sided healthcare network businesses?

Investors examine adoption, engagement, retention, and efficiency, along with the company’s monetization model and theory of defensibility. They also consider evidence that customers can accomplish things specifically because of the network’s connectivity and whether the business can resist disintermediation or margin compression.

Summary

In this video, the hosts discuss the concept of a two-sided network in the healthcare industry. They explain what a two-sided network is, how it works, and why it is becoming a popular go-to-market strategy in digital health. The hosts also interview founders of companies that have successfully built two-sided networks in healthcare, sharing their insights and experiences.

Questions & Answers

Q: What is a two-sided network in healthcare?

A two-sided network is a business that connects two distinct groups of customers and creates value for both sides. In the healthcare industry, it typically involves connecting major players like pharma companies, providers, payers, patients, and pharmacies.

Q: Why is the healthcare industry seen as fragmented and siloed?

The healthcare industry is seen as fragmented and siloed because data and information often do not flow seamlessly between different parts of the industry. This leads to challenges in communication and collaboration between different players in healthcare.

Q: How do two-sided network businesses in healthcare tackle the fragmentation problem?

Two-sided network businesses in healthcare build channels and connections between different players in the industry to enable better data flow and collaboration. By integrating data from various sources, they create a more connected and seamless healthcare ecosystem.

Q: How does a two-sided network differ from a company with two distinct business units?

While both a two-sided network and a company with two distinct business units execute separate go-to-market motions for each customer set, a two-sided network goes a step further. The delivery of a product or service to one set of customers enables them to do something for the other set of customers, creating a powerful network effect.

Q: Can you provide examples of successful two-sided networks?

Google is a well-known example of a two-sided network that indirectly connects consumers with advertisers. In the healthcare industry, Flatiron Health built a two-sided network connecting healthcare providers with pharmaceutical companies to improve oncology drug discovery and development.

Q: What are the three tailwinds driving the rise of two-sided network strategies in healthcare?

The three tailwinds driving the rise of two-sided network strategies in healthcare are the availability of more healthcare data in a digital format, the increased use of cloud storage for healthcare data, and the advancement of tools and capabilities for processing and analyzing healthcare data.

Q: Why do founders choose to build two-sided network businesses in healthcare?

Founders choose to build two-sided network businesses in healthcare to address situations such as broken data flows between different constituents, severe fragmentation in the market, and highly elastic demand where direct monetization may not be feasible.

Q: What are some considerations for founders when deciding which side of the business to start with first?

Founders should focus on the most constrained aspect of the market to jumpstart the network. They may choose to start with the supply side or the demand side, or even both in parallel. Regardless, building trust with the initial users is crucial.

Q: How do founders engage their initial users in a two-sided network?

Founders prioritize identifying single user utility and addressing the core problem for their initial users. They focus on building trust, providing value, and creating a seamless user experience. Engagement metrics, feedback, and customer success stories are key indicators of success.

Q: What metrics do founders look at to gauge if they are on the right track for both sides of the network?

Founders look at various metrics, both qualitative and quantitative, depending on the nature of their business. Some founders focus on moments of truth, customer feedback, revenue retention, user acquisition, engagement, and overall business growth.

Q: How can founders effectively build the second side of their network once the first side is established?

Founders can leverage the data stream and engagement from the first side to drive growth on the second side. They can also proactively seek partnerships and collaborations with stakeholders from the second side. Keeping the product discovery and iteration process aligned with the second side is crucial.

Takeaways

Building a two-sided network business in healthcare requires careful consideration of the initial side to start with – whether it's the supply side, demand side, or both in parallel. Founders should focus on the most constrained aspect of the market and prioritize building trust with their initial users. It's important to identify single user utility, engage users, and iterate the product to achieve product-market fit. Metrics should be chosen wisely to gauge success and drive business value. As the second side of the network is built, complexity should be minimized, and the north star metric should be aligned with the overall mission of the network. Continuous product expansion, nurturing demand, and maintaining a clear alignment with both sides of the network are keys to sustaining and growing the business.

Summary & Key Takeaways

• Two-sided networks in healthcare connect different entities, such as patients, providers, payers, pharma companies, and pharmacies, to address the fragmented nature of the industry.

• Three tailwinds driving the rise of this strategy are the abundance of healthcare data, the availability of cloud storage, and improved tools for data processing and analysis.

• Founders can start with either the demand side or the supply side of the network, but regardless of the approach, trust and single user utility are crucial for success.