Leveraging Software Monetization Strategies in the Medical Device Industry
19/01/2018 Terry Gaul
Modern day medicine is increasingly dependent upon sophisticated technology that is rapidly changing the landscape of healthcare delivery and demonstrating that its use can make a dramatic improvement in patient outcomes. However, the new generation of medical instrumentation is expensive and a major contributing factor to the upward spiraling cost of healthcare. The Hastings Center, a not-for-profit organization geared towards addressing fundamental ethics issues in healthcare, life sciences, and other areas, estimates that “new or increased use of medical technology contributes 40 – 50% to annual cost increases.”
Medical technology is advancing rapidly as manufacturers develop new and improved software based models with more features and functionality. As a result, product life cycles are much shorter, meaning that equipment purchased 3 or 4 years ago can be outdated in a hurry. To keep abreast of the rapidly evolving technologies, providers need to replace equipment much more frequently than in the past. With such a rapid turnover of equipment, providers are hard pressed to gain an adequate return on their purchase investment and justify the expense. The problem is even more acute for smaller hospitals and medical centers who simply can’t afford the high-priced capital expenditures for new equipment with short life cycles.
With the global spotlight on the high cost of healthcare, pressure is mounting for healthcare organizations to keep capital expenditures low while maintaining and continuing their mission to deliver high quality patient care. This of course is the conundrum: how can healthcare providers utilize and pass on the benefits of advanced medical technology to their patients while maintaining an acute eye towards cost containment?
Software monetization is a key area of focus for medical device manufacturers. Much can be learned from the new software licensing models being successfully deployed in many other markets. The days of the conventional perpetual license, with the large upfront cost, are gone and being replaced by more creative monetization models, such as subscription licensing, that make it more affordable and accessible to larger target groups.
For medical device manufacturers, software is key because many of the rapid advances in equipment features and functionality occur because software is relatively easy to develop (vs. hardware modifications), deploy, and update in the field. Software not only controls the equipment, acquires data, and monitors events, but it can be programmed to simply turn features and functionality on an off as requested or as needed.
Medical device manufacturers can leverage software licensing to not only reduce the upfront costs for healthcare providers, but also to unlock unique business models that generate new revenue streams and open up markets that were previously unreachable. Let’s take a closer look at modern licensing models that can be adapted to medical devices:
Subscription Licensing: The software is licensed for a limited time (Expiration Time), a limited period (Usage Period) or on an annual basis (Subscription). To minimize the upfront capital cost for providers, the equipment can be leased and software licensed only for the specified time requested. For manufacturers, this provides a predictable, recurring revenue stream.
Pay-Per-Use Licensing: Use of the product is metered and providers are charged only when they use the equipment. In this case, users are charged on the basis of the real consumption of licenses per period. This model is similar to “Pay-per-view TV” or online journals who charge on a per use basis. Pay Per Use presents significant cost-saving benefits and allows manufacturers to penetrate untapped markets with an affordable offering.
Feature on demand: The medical device is delivered with the most important basic functionalities at an entry level cost. The system can be upgraded by additional licenses that are used to activate specific product features and models and charged accordingly. Features can be turned on and off as needed, giving customers greater control over their expenditure and allowing them to more readily address the unique needs of individual patients.
Trial: The user can access and try additional features of the software for a limited time, so that customers can test additional features while using the device in real-world conditions. This removes financial risk for the customers and allows them great flexibility.
Agfa HealthCare Agfa HealthCare is a leading provider of diagnostic imaging and healthcare IT solutions for hospitals and care centers around the world. In the digital healthcare market, computed radiography is an important driver in making medical imaging more accessible, especially for smaller healthcare facilities in emerging countries. However, the upfront capital investment in equipment and software remains an important hurdle for healthcare providers with a relatively modest need for medical imaging.
To address this issue, Agfa HealthCare developed a computed radiography solution that offered a complete digital imaging package, including equipment and software, without upfront investment. They implemented a solution for time-based licensing that allows the healthcare providers to use the computed radiography package in a pay-per-use scenario. Their customers pay as they go, with a fixed down-payment followed by equal and regular installments, thus keeping upfront capital investment low and cost management easy. In turn, the flexible business model made new markets accessible to the company.
Fritz Stephan Fritz Stephan is a developer of highly specialized technical solutions in ventilation, anesthesiology and oxygen supply. Fritz Stephan’s EVE ventilation systems were developed for a very sensitive group of patients that require gentle and non-invasive ventilation therapy. The ventilation family consists of three models: EVETR is mainly used in emergencies and during transport; EVEIN is a fully-fledged intensive care respirator for patients in the hospital environment; and EVENEO is an intensive care ventilator for the neonatal unit.
The company was looking for a modular licensing solution that would allow them to implement feature-based licensing and enable easy online updates. A scalable licensing model would also allow them to upsell new licenses to their global customer base and conveniently modify the set of features of their devices over the Internet.
To address their need, they structured a scalable licensing model where they can remotely activate features on-demand. This allows them to create new post-sales revenues and deliver responsive pricing models for their customers. Essentially, the device that was initially purchased by the customer stays the same, but it can be upgraded in the field, no matter where it was sold. With EVENEO, the adult features can be easily enabled at a later stage, or the neonatal mode can be activated for EVEIN at any time.
If you plan to attend MD&M West on Feb. 6-8 in Anaheim, stop by Wibu-Systems booth #976 and we can continue the discussion on medical software monetization strategies.