Why China's health care apps are failing - Jeffrey Towson

Jeffrey Towson

Thousands of mobile apps have tried to tap into the poorly organized health care system in China. They failed, despite massive funding, says Beida business professor Jeffrey Towson at his weblog, because the developers knew more about mobile phones than about health care. Health care is modernizing, he writes, but government supervision hampers speed.

Jeffrey Towson:

More than a thousand Chinese healthcare apps have been launched in the past five years. These startups, targeting the seemingly super-hot intersection of booming smartphone usage and modernizing healthcare, were supposed to be the next big thing. And many have been backed by top venture capitalists and leading Chinese companies such as Alibaba Group Holding, Tencent Holdings  and Ping An Insurance Group. 

But as of yet, there have been few real successes in Chinese mobile health. In fact, most health apps have failed to generate significant numbers of active users, let alone produce much revenue. And forget about profits. 

Now as investor sentiment in the idea cools, many of these startups are cash poor and heading towards a painful shake out. Chinese healthcare appears to have defeated China’s smartest entrepreneurs. 

There are lots of reasons for this. But at the simplest level, investors just knew a lot more about China’s smartphone market than its healthcare system.... 

In my opinion, absent big, immediate changes in the core structure of SOE hospitals and government insurance, the best target for Chinese health apps is consumers and consumer-facing businesses. They should essentially bypass the core hospital system and go direct to consumers. Focus on ancillary services such as dentistry, medical tourism, optometry, beauty and aesthetics, and health and wellness. Do e-commerce for OTC products – and for prescription products when that becomes allowed. Basically, sell directly to Chinese consumers who have money and smartphones and want better healthcare now. 

Looking at the big picture, it is clear that Chinese healthcare is in fact modernizing. And the changes that have been happening have been quite dramatic. But this is modernization under government direction and with a mix of business, political and social objectives. So the speed of China’s healthcare modernization is slow and step-by-step. And this has created a mismatch with the rapid pace expected by mobile health app startups and their venture capital investors. This difference in pace is the fundamental problem for these apps. And it will probably not end well for most of these startups.

More at Jeffrey Towson's weblog.

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