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What the Canadian Healthcare System Could Learn from the Two-Sided Business Model

Every time I work with entrepreneurs I have the opportunity to see new and innovative business models. However, one that I see more frequently than ever is the two-sided model where there are: users who access basic technology/platform functionality for free/as a “freemium”, and other interested parties who pay a fee to access and/or monetize this user base.

The two-sided business model frequently crops up with technology enterprises and platforms.

Examples of this type of business model in action can be seen with online platforms such as Twitter or LinkedIn. While these platforms don’t monetize users at the basic level (LinkedIn does give users a chance to pay a fee to receive added/premium service and platform functionality), the free user is a critical part of the business model. That is, without these non-paying users, the platform can’t attract a paying “user”, often in the form of advertisers. Basically, the larger the freemium user base, the more attractive the platform is to the advertisers who, for a fee, have the opportunity to get their message in front to a high number of people.

While there are other ways that these platforms can monetize their user base/the freemium model, making money from marketing potential and sales opportunities is by far the approach I see used most often.

The fact that this business model relies on two very important groups of participants is what makes it “two-sided” – and interesting.

 

An important question with the two-sided business model is: Who exactly is the customer? Is it the freemium user (who isn’t generating direct revenue for the enterprise) or the payer (the entity/company that’s paying money to have access to the user base)?

Your initial response might be “the user with the money” of course! But is it? I ask because, without a big user base, the platform just isn’t as attractive to those people and organizations who might be interested in paying to have access to them.

There may not be a right or wrong answer in this one but whatever your answer is, it will drive your behavior towards the different parties in the model. Let’s explore this a little more.

The desire to monetize a platform and base of users can lead some technology enterprises to think twice about who their primary customer is. For example, in November 2014, Instagram introduced advertising to the previously ad free platform Canadian users enjoyed. With that move, you might have wondered whether Instagram had shifted away from focusing on their users to thinking of advertisers as their true customer. Since I don’t have any inside knowledge, I can’t say for sure. The only thing we do know is that Facebook (who had purchased Instagram in 2012) was looking to start monetizing its investment with this move.

Another important question to ask is – does there really have to be only one “customer” in the two-sided business model? In other words, could we keep all participant groups equally in mind in the design and functioning of the model and platform?

In my experience, trying to go this route can be very problematic because different customer groups often have conflicting wants and needs. It can be virtually impossible to satisfy all equally well unless you can identify significant common ground between your various customer groups and then leverage the commonness in the services you provide.

However, this can be difficult to do effectively.

Based on my observations, most businesses leveraging the two-sided model successfully lean towards thinking about the free user as the primary customer. While they do make it relatively easy for paying entities to access the free user base, the rules of engagement these platform providers put in place are generally there to preserve the functionality and experience that the freemium user enjoys.

For example, when Instagram introduced paid advertising to its platform it made sure that the ads fit with the existing look and feel of Instagram – in other words, ads had to work within the users’ current experience on the platform. In addition, Instagram gave their users control over what ads they continue to see in their feed, giving them the ability to turn off an ad campaign and avoid seeing future ads in that campaign. Through these actions, Instagram has effectively deemed the free user to be their primary customer.

Thinking of the freemium user as the primary customer, while helping a paying “user” to access them according to established rules that are focused on optimizing the customers’ experience, may seem a little counter-intuitive but it actually does benefit the paying user in the end. Why? Because the more people that can be retained in, and added to, the freemium user base, the greater the potential for realizing the results the paying user desires.

The bottom line? In the most successful two-sided business models, the free user is considered to be the primary customer and critical business decisions are made with the primary customer/free user in mind. That being said, the payer is also top of mind and every effort is made to ensure that they get the opportunity to benefit through these customer-focused business decisions. By keeping the non-paying users’ interests in their sights AND playing by specific rules that effectively deliver value for both parties, the system in the two-sided business model is orchestrated to deliver a win-win result for users AND payers.

 

In fact, it turns out that this is the golden rule underlying all successful two-sided business models.

 

So, what does all this have to do with Canadian healthcare organizations and how might the lessons apply to our healthcare system itself?  If you look at it closely, I think you might agree that our healthcare system mimics the two-sided business model in many ways.

The “free users” are all citizens who participate in the system. And while we as citizens are also payers into the system, it’s a bit arm’s length. What happens in practice is the provincial and federal governments act in the role of the administrator/payer in the system on our collective behalf.

So, as any high-functioning two-sided business model would, a good place to start with our healthcare system would be to agree on who the primary customer of the system truly is.

Since there’s a growing focus on being more patient/person centric in our healthcare system, we might conclude that it’s the patient. However, there’s a great deal of tension amongst the players in the system. Sometimes words, policy, and actions conflict, giving mixed messages at best. As a result, the answer to this question is still unclear.

A good place to start with our healthcare system would be to agree on whether or not the patient truly is the primary customer.

With the primary customer question settled, what if our healthcare system adopted some of the success strategies from the two-sided business model and put a real focus on optimizing the functionality and experience the patient (assuming they ARE the primary customer) gets from the system?

What if THIS imperative was at the center of every decision and action the system, as a collective, made?

And what if, like in every successful two-sided model, we also tried very hard to ensure that the other parties in the system achieved commensurate benefits along with BUT not at the expense of the primary customer?

Impossible you might say but I think that it’s time to give it a try.

The two-sided business model approach may just hold the key to optimizing patient care and the patient experience while ALSO effectively managing system costs and delivering other important benefits the various key participants in the healthcare system are seeking.

In other words, if we are open and innovative we may be better positioned to find the win-win scenario our healthcare system needs for long-term success and sustainability.

It won’t be easy – in fact, it will require some really open (and likely difficult) discussions and new ways of thinking.

However, by looking at the other successful business models that exist out there, such as the two-sided business model, AND committing to taking a business model-based approach to re-engineering and improving our healthcare system, I think that we might just be able to get the Canadian healthcare system back on the road to recovery in a way that delivers the health outcomes, quality of care, efficiency, and value for the money benefits we’re all looking for.

What do you think?

 

2 Comments

  1. Lewis Hooper
    Mar 19, 2015

    Interestingly fresh perspective.
    Would you consider that for hospitals its really a 3 sided deal? 1) the patients of the hospital, 2)The independent practitioner who brings about 60% of the patients to the hospital and 3) the payor.
    for Ontario Nursing homes its also three, but instead of DR’s its the CCAC?

    • Sandy Richardson
      Mar 19, 2015

      Yes Lewis – I think that the two-sided model offers a different way of looking at things but it’s not completely transferable. There are several key players in the healthcare system and sub-system. The components that I think we must try to transfer are: (1) the patient (and their family) is number 1; and (2) the drive for a win-win for all key players without sacrificing the results and experience for the #1 customer. If we could really focus on these two elements in our healthcare system then we’d be way ahead I think. And it’s a big enough challenge that that’s probably enough to focus on for now!