This blog first appeared as Steve Wunker's piece for Forbes
By Steve Wunker
Genetic testing represents one the most exciting, and frightening, frontiers in medicine. Testing a person's genome can reveal critical information about diseases to prevent and medications to take. It may also tell people about susceptibility to debilitating conditions that they can do very little to avoid. Because people can't alter their genome, the chinks in genes need to be guarded with zealous privacy, and they must be explained very carefully so that both physicians and patients fully understand their implications.
This context explains the challenge confronting the genetic testing industry today. There are more than 1,700 tests on the market, with over 400 being approved in just the past two years. Science is leaping forward, yet the use of this data in medical decision-making is lagging behind. Many patients fear revealing this incredibly personal data. Physicians may not know about new tests, or they may use them improperly. Technology has enabled the creation of a vast new market, but some of the typical impediments to rapid adoption are hindering testing's growth. There is little business infrastructure to educate physicians about tests and to assist them with their administration. Decision makers including physicians, patients, and health insurance companies need to align on the appropriateness of tests. The risk of a bad test experience -- such as a wrong medical decision being made due to imperfect understanding of test results -- impede less confident doctors from ordering them.
This is the sort of market gap that tends to attract intermediaries, and Generation Health is vying to be the lead company in this new space. The firm was founded in 2008 by former top executives from Medco, a giant company that manages pharmacy benefits for health insurers and employers. Much as that team recognized decades ago how drugs were growing in complexity and would be cheaper to buy if a company aggregated demand, they seem to see the same pattern with genetic testing. Generation Health simplifies the selection of genetic tests for physicians, it helps explain the test and its results to patients, it safeguards data, and it drives a hard bargain with testing centers through its ability to direct large volumes of tests their way.
Aside from being a good business idea, Generation Health is an excellent illustration of how new markets can open up room for new players, and how these organizations can turbo-charge market growth. Incumbent entities -- physicians, hospitals, and insurers -- are not well configured to deal with the complexity of genetic testing. They lack the specialists, up-to-the-minute knowledge about cutting-edge science, and the scale to become the low-cost player in the industry. New technologies often require new specialists to enable them.
We can learn a valuable lesson about this process from the struggles of another specialist: Better Place. This company, much ballyhooed in the media, has had the intriguing idea of creating a network of battery charging and swapping stations to facilitate the growth of electric vehicles. If your car has run through its battery range, you can pull into a Better Place station either to "fill up" or simply to change out your depleted battery for a charged one. Cool -- but it's not working. In Israel, the first country targeted by Better Place partly due to its limited driving distances, leasing agencies are a dominant force among car buyers, and they aren't jumping in. They fear that the resale value of these vehicles will plummet. Because Better Place hasn't integrated the whole proposition for users of its concept, its dependency on a lukewarm set of hard-nosed decision-makers represents a big hurdle to adoption.
Contrast Better Place's situation with that of Autolib', an electric vehicle company in France. Backed by the Bollare Group, a leading producer of battery components that has developed a new type of battery targeted for vehicles, Autolib' operates a network of stations throughout Paris from which people can rent a Bollare-made "Bluecar" by the hour. They can return it to another station and re-charge it there. Think about how this system fosters fast adoption of Bluecars. There is no dependency on a squabbling army of decision-makers; this is a transaction between Bollare and the driver. The experience acquaints people with the Bluecars and proves their usefulness. It is a very low-risk decision to rent one of these cars, so people will readily give the concept a try. While the business model is capital-intensive, requiring Bollare to own a fleet of cars, its tight targeting of a foothold market of Parisians limits the need for big investment while focusing on opinion leaders. The rental model and brightly-colored cars also make the new concept highly visible to wavering customers, further accelerating adoption.
New technologies often create room for new business models and new kinds of intermediaries. As these pioneers show, business model innovation can be just as important to the market's evolution as the science that generated the underlying invention in the first place.