Apple, Success Traps and Health IT Innovation

March 26, 2019
Apple has repeatedly demonstrated that early success can lead to traps that stifle innovation, and that pivoting to coopetition produces enduring success

CNBC commentator Jim Cramer sparked much discussion when he recommended that Apple Inc. should buy a large electronic health record (EHR) company, Epic Systems. Setting aside the merits of this suggestion, there are important lessons about innovation in how Apple has regularly responded to success by reinventing itself.

Apple often introduced new products as a complete, standalone system. When creating a new category of technology, this turnkey approach can be a very effective. Consider the Macintosh and iPhone as examples. In 1984, you could buy a Mac 128K, plug it in and start using a first-generation graphical user interface, complete with word-processing and drawing applications, all made by Apple. Similarly, the first-generation iPhone came with only Apple’s applications. In both cases, there was an elegance and simplicity to the closed approach that led to widespread and enthusiastic adoption.

But there are important limits to this approach. First, as users become familiar with new technology, demand for better performance and new features grows dramatically, eventually exceeding the ability of any one company to deliver. Second, it can be difficult to grow or maintain revenue when there are fewer first-time customers. Revenue from maintenance and new features can be much less than from initial sales. Under these circumstances, companies can find themselves caught in a combined revenue and innovation “success trap.”

Apple has repeatedly encountered this success trap and responded in ways that changed the company, industry, and the world. To escape the trap, Apple opened formerly closed systems and pivoted from total control to coopetition, a blend of cooperation and competition. Today, both the Macintosh and the iPhone are wildly successful platforms for innovation and enduring economic success.

The role of coopetition is crucial. Apple allows others, including direct competitors, to leverage their platform to create new applications and hardware. Don’t like the Apple email or calendar application? Download a different one from Apple’s App Store. Apple recognized that, over time, competition would spur their own innovation, lead to increased revenue and better serve customers. Apple’s App Store revenue grew 30 percent year-over-year in 2017 generating over $26.5 billion in revenue for developer partners and approximately $11.5 billion for Apple. Studies like Firms of Endearment provide further confirmation that lasting success is often accomplished through open approaches and a blend of competition and cooperation.

The parallels between Apple’s history and the current state of health IT are striking and contain important, timely lessons.

Health IT 1.0 digitized clinical care. Clinicians put down pens and started using EHRs and other digital technology. EHR companies were essentially faced with introducing a new category. Some recognized that a closed approach was more likely to achieve early success, and today a small number of companies dominate the EHR landscape.

Now, EHR companies (and others) who succeeded in Health IT 1.0 face the success trap and, as demonstrated by Apple, opportunities to “escape” to even greater success. They need to grow revenue when there are fewer first-time customers. The demand for innovation from established customers is insatiable and growing exponentially, propelled by changing reimbursement models, the inevitable evolution of clinical practice, and a wide variety of complex strategic priorities. We are past the point where any one company can meet all these needs in a timely and effective manner. Sound familiar?

There are important temptations to avoid during the pivot to Health IT 2.0: excessive efforts to monetize data, and stifling competition. Monetizing health data is problematic for many reasons. Much of the data belongs to the patient. Freely flowing (properly secured) data is the lifeblood of modern IT and we impede its circulation at a high cost. Likewise, integration solutions or App Store models intended to create “walled gardens” that keep competitors out, extract excessive revenue, or don’t respect contributor’s intellectual property lead to paltry offerings, meager revenue streams, and a much slower pace of innovation. It’s no coincidence that the recent rules proposed by the ONC and CMS are intended to promote competition and limit this sort of behavior.

Health IT holds great promise for improving health outcomes, cost, and satisfaction. Health 1.0, basic digitalization, is largely complete. We are at the “end of the beginning” and ready to build on this success. But the closed approaches that got us here will not get us to Health IT 2.0. As Apple has repeatedly demonstrated, early success can lead to traps. It also creates the opportunity to leverage coopetition with its promise of greater innovation and enduring success.

Dr. Dave Levin has been a physician executive and entrepreneur for more than 30 years. He is a former Chief Medical Information Officer for the Cleveland Clinic and serves in a variety of leadership and advisory roles for health IT companies, health systems and investors. You can follow him @DaveLevinMD or email [email protected].