Death of Health 2.0? Let's Start With A Business Model

There have been a number of blog posts over the last few weeks about the demise of Health 2.0, many of which use the death /merger of Revolution Health signaling the end, as well as a few blog posts supporting the future of the movement. There was some intense debate between esteemed members of the H2.0 community through said blog posts, comments on blog posts and more blog posts - all of which I decided not to comment on because those that were commenting and creating the posts know more about the space than I do.

However, I saw two posts today that I thought summed up the economic situation as it relates to Web 2.0 and the health of Health 2.0.

The first of which was written by Dmitriy Kruglyak, from Trusted MD, a healthcare blogging network that FD I have been a member of since July of 2007.

It includes the famous Sequoia Capital presentation to their portfolio companies, quotes from TechCrunch signaling the "ignoble end of Web 2.0", and Dmitriy's own analysis on how this effects Health 2.0:

"I am not going to beat this dead (dying?) horse. If you paid attention to this blog over last two years you would not be surprised at this turn of event. I will just say that an "average" Health 2.0 company that gets mentioned in the news is typically orders of magnitude lower in terms of traffic, engagement and monetization than their Web 2.0 cousins......As I said time and again, Web 2.0 is becoming just as toxic as dotcom (or subprime mortgages and credit default swaps). Conventional wisdom takes a while to form but this process is picking up pace. You can take a guess what will happen with derivative (copycat) ideas, like Health 2.0."

Doesn't sound very promising. Yet it is true. How can a movement and companies sustain momentum in a down-turned economy if there isn't a sound business model? VCs have been throwing money at companies that are cool, but do not have a sound plan or any intention of making money. I look to Twitter, which is valued around $25M (maybe more now), but does not have a business model, and doesn't plan to make any money in the next couple of years. They just received another round of financing this summer. Granted Twitter is very cool and I use it, but there must be something more going on that I am missing here. The value of the community is how Twitter is valued and what they might be able to make from that. Sounds like Facebook, which was valued at $15B at one point from $150M in earnings.

Same with Health 2.0 companies. Lots of them are very cool, but rely on ad revenue or a freemium package. I signed up for a 60 day trial of a PHR to check it out, but when it came time to "buy" a year subscription, I said "no thanks". There wasn't enough offered for the paid service that I could not get from a free service.

This brings me a post from Ben Heywood, Co-Founder and President of Patients Like Me from last week on the PLM "Value of Openness" blog: "I believe we, as the eHealth community, need to focus on two major goals: 1) solve patients’ problems, and 2) create business models that allow us to do #1....I don’t want to prognosticate about what types of business models will work for all Health 2.0 companies as the industry evolves (because, ultimately, this is an evolution). It’s up to each company to figure that out. I do believe that there’s no wrong path when you keep both those goals in your sights."

And this sums up what needs to happen to keep the Health 2.0 movement alive.

PLM's business model is very straightforward: "We build online communities where patients share structured information about their disease to help themselves and others. In turn, we make money by selling that data." PLM is very transparent, and tell their members this upfront, and members encourage the selling of data, as this will help the pharma companies and device manufactuers improve their offerings to patients. PLM also received $5M in VC financing, so that gives them a bit of a cushion until they turn a profit.

Some Health 2.0 companies have gone under, others (like ZocDoc) are still receiving VC funding. It is an interesting time to be in the infancy of the Health 2.0 movement. I have faith that it will continue as long as the innovators create a needed product and can monetize without charging the consumer in a time when patients are having difficulty paying for their healthcare at the Health 1.0 level.