The Biggest Company in the World

We think the biggest company in the world will be a consumer health tech company.

This may sound crazy to some, but why shouldn’t this be true? Four of the top five biggest companies in the world are consumer companies, and healthcare is one of the nation’s biggest industries.

In fact, those massive consumer companies—Google, Apple, Facebook, Amazon (GAFA, for short)—are all working to move into healthcare because they realize the size of the opportunity: a $4 trillion American industry that makes up 20% of US GDP (and growing). This is five times the size of the advertising industry globally, which makes up almost all of Google and Facebook’s revenue, and part of Apple and Amazon’s. But healthcare is complex and not GAFA’s center of gravity. They may make acquisitions on the margins, but we don’t expect any of them to win the race to own healthcare.

On the other hand, the world’s biggest healthcare company (the 8th biggest company in the world), UnitedHealth Group (UHG), is not a tech company and is also seriously lacking in the consumer engagement department. While they’re technically a consumer company, selling half of their products direct to consumer (DTC), their poor consumer engagement—reflected in their NPS of 4—will always cap their potential and prevent them from becoming the biggest company in the world.

Our bet is the future’s biggest company, the consumer health giant, won’t be one of today’s big tech or incumbent healthcare companies. It will be a consumer-obsessed, healthcare-native tech company that reimagines what care can look like.

Before getting into specific examples, it’s important to define consumer health. When many people think “consumer health company,” they think Hims or Ro, but a consumer health company doesn’t need to be DTC for distribution nor does the consumer have to be the one paying. Instead, what matters is that consumers know they’re interacting with the company and have the opportunity to feel loyalty toward it. For example, Visa is a consumer company—it isn’t DTC (it distributes through banks) and consumers don’t pay (merchants do)—but consumers still feel allegiance toward the brand. A consumer health company’s core competency should be their ability to engage and retain patients, in a way that most healthcare companies have failed to do historically.

A consumer health company will win by placing consumers first and ruthlessly building for them, while still taking into account the realities of payor and provider incentives.

How to get there

We see two paths to a consumer health startup becoming the biggest company in the world: (1) a vertically integrated path of building a “payvidor” (a combined payor and provider) that eventually owns most care, and (2) a horizontal path of building a consumer marketplace or infrastructure layer that enables all other care delivery companies.

Vertical: the payvidor

UnitedHealth Group x Apple

Start by imagining that UnitedHealth Group and Apple had a baby, and that baby had the business model of UHG (a vertically integrated insurer and deliverer of healthcare services) but the sleek consumer experience and brand loyalty of Apple. It’d be tough to argue that this wouldn’t be the biggest company in the world. (Even if it operated in just the United States!) Employees would demand that their employers offer this plan; seniors would choose this company’s Medicare Advantage plan without thinking twice. Other plans would get smoked on the individual exchanges.

There is a reason this company doesn’t exist yet, and it’s the same reason that consumer experience is terrible in healthcare: third-party payors. Because generally consumers aren’t the ones paying directly for healthcare, the system has been optimized for the real payors: health insurance companies and self-insured employers. In other words, traditional wisdom says there’s no need for a provider or health system to care much about consumer experience since consumers aren’t the ultimate buyers, insurance companies are. Insurance companies tell consumers where they can get care and how much they’ll pay for it, so free market dynamics don’t really exist.

And while this undoubtedly explains why consumer experience in healthcare has been lousy, we think there is an arbitrage opportunity for a player that sees the world differently. Poor engagement, which is caused by poor consumer experience, is one of the biggest problems in healthcare. One in five Americans hasn’t seen a doctor in 5 years or more, undoubtedly causing much disease to go undetected and to develop into expensive health conditions. Only 40 to 50% of patients who are prescribed medications for management of chronic conditions like diabetes and hypertension adhere to their medication, causing 100,000 annual deaths and $100 billion in preventable medical costs each year. Which is all to say, existing players are missing the financial opportunity that could come from building a better experience for consumers that would engage them in their care. Imagine if a payvidor like UHG even marginally improved experience and therefore engagement—they could improve their profitability by billions. Now imagine an upstart rebuilt a version of UHG that was radically focused on consumer experience and engagement—the magnitude of that opportunity is hard to fathom.

In the past decade, smart entrepreneurs have started to see the opportunity in building for consumers in healthcare, and many multi-billion dollar full-stack care delivery companies have emerged, including Ro, Noom, Headspace, Calm, Virta, Teladoc, and Lyra. Interestingly, these companies have mainly been cash pay or employer pay, and centered around wellness, diet and metabolic health, or mental health, likely because of subpar offerings in these categories from traditional payors.

However, none of the above examples are valued above $10 billion. To be the biggest company in the world, a company would need to be valued at over $2 trillion. Many things would have to be true for one of these companies (or more likely, a company we haven’t even heard of today) to climb to #1.

How to break out

First, the initial business must be a wedge into a bigger product surface area. These companies eventually need to cover most specialties and likely launch an insurance product as well, becoming a payvidor like UHG. Apple’s mastery in cross selling and maximizing lifetime value should also be an inspiration for any ambitious consumer health company: Apple sells a large percentage of consumers four expensive devices with very similar functionality (MacBook, iPhone, iPad, Apple Watch). Consumers buy in because of the devices’ sleek UX and interoperability, and Apple further monetizes through music, television, storage, and the app store.

Second, this future consumer health giant will likely eventually need both cash pay and reimbursed revenue streams, though it could start with one, just as the iPhone launched with Cingular (now AT&T), but eventually expanded to be compatible with all carriers. The payors in healthcare are diverse—consumers, insurance companies, employers, and government agencies—so to maximize revenue, ambitious companies will want to be compatible with all payors.

Third, the winner could start DTC, but will eventually need to have distribution through major healthcare channels. Peloton’s distribution through UHG and Headspace/Ginger’s partnership with Kaiser are key examples here. This is one reason we think the biggest company in the world will be a payvidor—a company that is truly full stack across care delivery and reimbursement—because this enables them to use their insurance product as a distribution channel for their care delivery products.

Finally, the winner will have to actually demonstrate value. This will be critical to securing the aforementioned distribution channels and ensuring long-term profitability as the industry slowly but surely turns toward value-based care.

Fast forward fifty years, what could this full stack care delivery behemoth look like? It could be a company delivering 90% of healthcare, all through smartphones. This company would allow you to access the world’s best doctors through your phone, integrating human- and software-driven diagnostics, therapeutics, and medication delivery. Hospitals would still exist for surgery and certain diagnostics and treatment, and home health workers would deliver some physical care. But for most healthcare, you’d hop on your phone, just like we do today for 90% of personal finance or commerce (a new norm which itself may have seemed like science fiction twenty years ago).

Horizontal: the consumer marketplace or infrastructure layer

The healthcare Amazon or Visa

Next, let’s consider how a consumer marketplace or infrastructure layer could become the biggest company in the world through serving all other healthcare companies. We see two major opportunities to become the biggest company through a horizontal healthcare play: one to become the Amazon of healthcare, the other to become the Visa of healthcare.

If you want to buy just about anything, there’s a good chance you head to Amazon to search for the product, consider options from around the globe by comparing prices and trusted reviews, and then complete the purchase. This magical experience does not exist in healthcare. If a person needs to find a doctor or book a medical procedure, they have many subpar options, ranging from Google searching “allergist near me” to facing their insurance company’s overwhelming provider directory. They have little to no insight into cost or quality. The experience of finding the cheapest option for your medication or the best health insurance is no better. That is why we need an Amazon of healthcare—the universal place people go to shop for healthcare services, insurance, and drugs—with trusted reviews, quality metrics, and price transparency. A typical take rate for a marketplace is 20%, but even a company that only took 5% of U.S. healthcare dollars would easily surpass the biggest companies of today.

In addition, we see an opportunity to radically improve consumer payments, becoming the Visa of healthcare. Most Americans have received a cryptic medical bill in the mail, requiring a phone call or webportal that looks like it’s out of the 1990s to make a payment. Health system consumer collection rates—which hover around 55%—reflect this dismal experience. We believe there is an opportunity to radically improve consumer payments in healthcare through simplifying bill paying, providing transparency into costs, and offering interest-free financing for consumers. This consumer experience could be a wedge into streamlining all non-consumer payments in healthcare as well, bringing an industry that conducts payments through fax, mailed debit cards, and manual clearing houses into the 21st century.

Entrepreneurs have started to see the above opportunities. Today, marketplace companies like Solv, Zocdoc, Sesame, and Mishe are making it easier to shop for healthcare services and drugs, and fintech companies like Cedar are making it easy for consumers to pay medical bills.

How to break out

Many factors will determine whether these companies—or a future behemoth—break out.

First, these companies must have the ability to plug into the massive, complex healthcare industry and work equally well if the consumer, employer health plan, commercial plan, or government is covering the bill. Visa is the go-to choice because all merchants accept it; consumers choose Amazon because they sell just about everything.

Second, these companies need to be pre-wired into high-yield acquisition channels. Just as Visa uses consumer banks to acquire patients, the Visa of healthcare will need providers and health systems to act as a channel partner for their product. A successful consumer marketplace company likely also needs to be pre-wired into high-yield acquisition channels, in addition to being an acquisition channel itself. For example, Zocdoc is currently the latter: an acquisition channel for other providers, offering easy appointment booking on behalf of participating providers. But imagine if the former were also true and the traditional healthcare system served as an acquisition channel for Zocdoc. Instead of insurance companies directing customers to directories, Zocdoc would be the source of truth for booking all healthcare services, across all payors and for all nationwide providers. That’s a much bigger company.

Finally, to actually be the biggest company in the world, a horizontal healthcare play will need to be integrated into high-volume transaction flows to actually capture some of the value they provide. Amazon and Visa take a percentage of every transaction on their platforms; the same will need to occur for the healthcare versions of each to reach their scale.

Conclusion

The most exciting thing about consumer healthcare is the amount of whitespace. We’d go so far as to say there is infinite room to improve consumer experience in healthcare—and build massive companies as a result. We’ve outlined two paths to building a consumer healthcare giant—one that’s vertically integrated, and one that’s a horizontal play. That said, numerous massive healthcare companies will be built in both models. The biggest companies in the world are consumer companies that have been built in relatively small industries. As mentioned, the American healthcare industry is five times the size of the global advertising industry, which makes up most of GAFA’s revenue. Healthcare’s scale could support many more than four GAFAs. These companies will be built, and we can’t wait to work with them.

***

The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. In addition, this content may include third-party advertisements; a16z has not reviewed such advertisements and does not endorse any advertising content contained therein.

This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments for which the issuer has not provided permission for a16z to disclose publicly as well as unannounced investments in publicly traded digital assets) is available at https://a16z.com/investments/.

Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see https://a16z.com/disclosures for additional important information.

Biology is eating the world

Sign up for our bio newsletter to get the a16z take on the future of biology and engineering.