Teladoc: How network effects are evolving in the world of telemedicine
Teladoc is currently the market leader in the new world of telemedicine, but competitors are on the horizon and growing fast. Teladoc will need to find a way to increase the network effects of its service if it plans on keeping its number one market position.
With an IPO in 2015, Teladoc is taking the telemedicine market by storm and is currently the largest competitor in the space with 11.5 million members; but does this momentum ensure long-term success for the company? With weak network effects at play in this industry, it’s hard to tell.
At a very basic level, Teladoc allows patients to find and connect with a medical provider over video conferencing from the comfort of their own home. It’s a simple idea that allows patients to be seen for minor medical issues without having to deal with all the time consuming elements of a traditional doctor’s visit (getting an appointment, waiting, driving to the doctor, more waiting, etc.).
The Good: First mover in an industry with indirect network effects
Given that Teladoc is a marketplace at its core, indirect network effects are clearly at work for this company. Connecting patients with doctors only works if there are enough of both to make it worthwhile for both populations to sign up on the site. The company has done a great job of building up the number and variety (general practitioners, pediatrics, psychologists, etc.) of physicians using the service. This in turn attracts more users to their site since the number of physicians is large enough that patients can be sure they will get fast, quality medical care. Which in turn brings more doctors (and so on and so forth). Once this population of physicians was large enough, Teladoc was able to market directly to employers, who now contract directly with Teladoc to allow their employees access to 24/7 telemedicine care. In addition, with an increase of both users and doctors, Teladoc is able to also leverage robust amount of user data to provide analytic reports on the quality of care and ROI to its clients.
Being the first mover in the space allowed Teladoc to leverage the indirect network effects and create a massive user base, but even as it continues to grow, this might not be enough to keep competitors from giving them a run for their money.
The Bad: Multi-homing and lack of differentiation
Even as Teladoc grows its client base of employers, it will continue to deal with strong competitive forces. The first major issue with their platform is that both users and doctors can multi-home with other telehealth companies. Physicians find value in using telehealth companies like Teladoc because it fills the time they would otherwise have idol at their office. However, these doctors have little incentives to sick with just one provider. By multi-homing they can quickly connect with a greater population of patients while getting paid the same amount. In addition, users can multi-home as well. It costs nothing to a user to have multiple telehealth accounts, since they are only charged once they use the service. Although employers are signing contracts with Teladoc and other telehealth companies, in a lot of cases users are still forced to use dollars from their HSA to pay for these services, which can be used on any site.
Overall, these telehealth companies have little differentiation. They all cover the same basic medical issues and a majority of competitors charge a common service price of $40. Due to this lack of differentiation, competitors like Doctor on Demand, who recently partnered with United Healthcare, are gaining doctors, employers and users fast. Without a way of making users, doctor and employers sticky, the telehealth industry risks going the way of EAP services (Employer Assistance Programs), who are increasingly becoming a commodity where employers often choose the lowest cost provider.
In order to combat these effects, Teladoc will need to find a way to keep users and doctors on their platform. This could be done by offering differentiated services or by creating a platform that doctors and employers have to integrate into their systems. On way of potentially doing this would be to partner with insurance companies instead of going direct to employers, create proprietary software (better video quality or technology) or even partner exclusively with a company like Apple and integrate with Apple’s Health platform. However, if the company doesn’t do something quick, competitors like Doctor on Demand will continue to take more and more market share.
Sources:
http://ir.teladoc.com/financial-info/sec-filings/default.aspx
http://www.wsj.com/articles/why-teladoc-needs-medical-attention-1443984154
Really interesting post!
I agree that Teladoc and telemedicine companies in general need to do something to differentiate themselves and not fall prey to multi-homing and interchangeability amongst users. One possibility is investing in developing stronger relationships with ancillary service providers such as Visiting Nurse Associations (VNAs) and Skilled Nursing Facilities (SNFs). If Teladoc is able to leverage a regional approach and work with the types of facilities that patients are often discharged to (such as SNFs, or when patients are discharged home with visiting nurse care), they can differentiate themselves and create more incentives for hospitals to focus on them as their primary telemedicine provider. For instance, leveraging a partnership with the dominant VNAs in a certain area can ensure that the VNAs help patients get set up with telemonitoring and teach them how to use remote monitoring, interact with doctors, and so on, which would greatly lessen the burden and cost on the hospital for setting up these services. Many patients (especially older ones that are less tech savvy) need more constant monitoring and could really benefit from telemedicine, but are wary of using technology on their own. Partnering with VNAs can make setting up and monitoring telemedicine services part of their routine visits to patients homes, which would certainly increase hospitals’ incentives to just focus on Teladoc.