There are a lot of opportunities to be had creating mobile health apps for consumers. But there are still plenty of questions to be answered about how to build sustainable businesses. Who will pay for mhealth products? How will they be priced? At the recent Digital Health Investor Summit, co-hosted by Fenwick & West and Rock Health, the speakers addressed several key issues around revenue generation in this emerging sector.
Anne DeGheest of Healthtech Capital pointed out “apps are easy to launch, but have a high attrition rate.” Seasoned technology investor Sundeep Peechu of Felicis echoed Anne’s concerns and conveyed several mobile product axiom:
- Apps have won
- Winning apps are “mobile first”
- Consumers are willing to pay, but not enough
The merits of platform agnostic web-based design continue to be debated, but the current reality is that apps have won. According to a 2012 Arbitron Mobile study, “native apps captured nearly seven times more aggregate engagement from users than mobile web browsers and mobile browser-based services.” The study also makes clear that, “app use far surpasses web browsers in terms of total minutes of use.”
In his presentation, Sundeep Peechu provided the example of a company trying to reach $50 million in revenue. He encouraged the audience to think about an app priced at $1. You would need 500 million users to become interested in the product with a 10% conversion rate to reach that goal. That’s a very high mark. It’s not a sustainable business model and yet a disproportionate number of start-up companies developing apps are all chasing that price point.
Peechu argued there is more profitability to be found in apps targeting a higher Average Revenue Per User (ARPU) for example apps in the mid-range, around $25. Apps with mid-range revenue targets are also where you see more promising communities of engaged users. Making a larger upfront or ongoing monetary commitment to using the app seems to help keep users engaged.
Companies wanting to enter the consumer digital health market would do well to focus on applications that have the highest value to the consumer patient such as aging at home and chronic disease management. Also important is considering a mid-range ARPU that will give users an economic incentive to keep coming back.