🥤Are all digital health products the same?

Undifferentiated business models are actually the best use case for marketing, branding, and advertising

Via DALL-E

I once read a case study about a business that did no marketing, no sales, no advertising, and yet was constantly packed with customers, such that they had to turn away new business.

The business was a barbershop.

My barber for many years was Diego’s, off Dupont Circle in Washington D.C. Diego and his wife, both from Italy, ran the place together with about six other haircutters. When I entered, no matter what Diego was doing, he always turned to the door and greeted me, as he did with all his customers. All the cuts were always great. His wife flirted with me in her Italian accent whenever she cut my hair. I loved it. It was the kind of place that made you want to tip well, and I always did.

See? Now, if you’re ever in DC and need a haircut, you’re going to go to Diego’s.

The place needs no marketing—because it provides a service that everyone wants to recommend.

The opposite of the barbershop is the undifferentiated service or product. It’s just like all the others. A lot of people will mention gasoline as an example, but I prefer a product you don’t need at all as part of your daily life and which also happens to be quite bad for you: Coca-Cola.

According to Statista, Coca-Cola spends on average $4 billion per year on advertising. That’s right: Coca-Cola spends billions of dollars every year to tell you a story about why Coca-Cola is great.

So, this is the biggest, and most obvious use case for marketing: an undifferentiated product, with many other similar products on the market, and whose strengths (and weaknesses) are basically marginal.

There’s a good reason why Coca-Cola was Don Draper’s dream account on Mad Men: it was basically an open canvas for marketing, branding, and advertising. The trifecta.

Side note, the ending of Mad Men is brilliant. Draper goes to a yoga wellness retreat where everyone is anti-consumerist and probably anti-capitalist too, and while there he figures out how to harness the symbols of this subculture to sell more product, including to the yoga wellness hippies:

The marketing hype (*ahem,* story) behind Amwell and Teledoc

All of which brings me to Sergei Polevikov and his extensive takedown of the telehealth “model” that led Amwell and Teledoc to inflated valuations during the pandemic, followed by precipitous crashes in stock prices once the initial surge of interest wore off.

What does this have to do with Coca-Cola? Well, there are a lot of businesses in healthcare that are essentially undifferentiated business models, packaged and sold with a lot of marketing hype.

Polevikov describes Amwell and Teledoc are good examples:

Equating telehealth with innovation is like repackaging sliced bread as a culinary breakthrough. It’s ludicrous. The fact that a company like Teladoc throws up a flashy website and dubs it ‘the best phone in the world to call your doctor’ doesn’t make it groundbreaking. Let’s be clear: virtually any college kid majoring in computer science can whip up a secure call and messaging platform. We see this all the time in competitions like Kaggle.

Which is basically true—any kid majoring in computer science can whip up a secure call and messaging platform. The real value creation for Amwell and Teledoc was more in its relationships with payors than in its website or its technology.

I once used Teledoc during the pandemic—my insurance company at the time was very interested in letting me know that the option was available—and the platform crashed twice before finally connecting me to a doctor.

I had been bitten by tic (if you live in New England, who hasn’t?), and I had a big spot near the bite. It didn’t quite look like the characteristic bull’s eye ring of Lyme disease, but it kind of maybe did and I wanted a professional’s opinion. Except that when the doctor and I finally managed to connect, she promptly told me it was part of their protocol to refer me to an in-person specialist in cases of potential Lyme.

So, the whole thing was a bust. But at least Teledoc got paid.

Undifferentiated business models in healthcare

Of course, no one working at a digital health company would ever admit their product is undifferentiated.

But for Polevikov, a lot of digital healthcare companies are exactly that—basically, fancy marketing slapped onto open-source code, recycled ideas, or more recently, OpenAI. To him, the fact that Teledoc was a secure video and messaging platform that was somehow once valued at $28.5 billion (while hemorrhaging cash on $533 million in revenue) is ludicrous.

And it is equally ludicrous that a company that sells sugary carbonated caramel water is worth more than $250 billion.

But such is the power of brand, marketing, and advertising.

Mad Men is my favorite show on television not just for the brilliant writing, the performances, its antihero, and the 1960s and 70s world-building around it—it’s my favorite show because it pulls back the curtain on the creative process that goes into building a brand, from the brainstorming, to writing copy, to conceptualizing images and video, to the tactics of distribution.

In its way, marketing is a beautiful merger of art and craft in service of capitalism.

That’s what Mad Men shows you. And it’s most useful if your product or service is having some trouble differentiating itself (just look at the Pilot episode’s famous “it’s toasted” scene).

(Of course, if all else fails there’s always massive scale followed by regulatory capture. See Polevikov’s very good, free post on Epic Systems, complemented by a very entertaining Bill Gurley presentation on the same.)

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In other news…

Nearly 1 in 5 healthcare CEOs expect that AI will replace at least 5% of their workforce in 2024, Becker’s reports. Which is lower than the 25% of CEOs in general who think that.

Theresa Hush is CEO of Roji Health Intelligence writes that lack of financial incentives will hold back AI adoption in 2024:

Physicians and groups, hospital systems and other providers must have a business case for AI adoption. Only diagnostics, robotic surgery or similar specific services have compelling business cases that tie revenue streams with provider differentiation. We see AI advances in radiology, ophthalmology and plastics because there is a business case and capital to compel adoption, and groups with AI tools can ascend in the market and get returns on the investment

Meanwhile, Google scientists claim generative AI is more empathetic than real-life physicians:

…a healthcare-specific AI system trained to conduct medical interviews was able to match and in some cases, surpass, the performance of human doctors when conversing with simulated patients as well as when listing possible diagnoses on the basis of the patients’ medical history.

The study included 149 case scenarios from clinical providers in Canada, the U.K. and India. Per the paper, the AI chatbot system, named the Articulate Medical Intelligence Explorer (AMIE), demonstrated “greater diagnostic accuracy and superior performance on 28 of 32 axes according to specialist physicians.”

Imagine canceling all those communication training with clinicians because training clinicians in empathy has become obsolete. Becker’s also has the story.

Finally, about two-thirds of doctors—often early adopters of tech trends—say they see advantages to incorporating generative AI into their work, according to an AMA survey of 1,081 physicians.