How the Internet Shifts the Market

In 2006, total DVD sales were $20.4 billion. In 2011, total DVD sales dropped to $6.8 billion. Why? Because the content distribution model and media is changing to delivery via the Internet. We can all safely assume those DVD sales will continue to drop.

Same for airline tickets, same for music and same for books (seen a boarded up Books-A-Million?). Products that can actually be digitized are going through the most violent disruption. A book can be digitized and sent to you electronically. A shoe cannot. But a shoe is still being bought online so the disruption is just less violent. Music has seen a violent remake of the industry because it can be converted to electronic format. The purchase can happen electronically and the actual product can be instantly delivered. No more Camelot Music store in the mall.

This all makes sense and we are all participating in these disruptions as consumers. Huge new businesses are being built. Huge old businesses are being destroyed.

So what about healthcare and benefits? We know our business, Benefitfocus, is growing and there is huge potential. But what parallels can we see?

First, many of these products can be digitized. An insurance policy can be purchased electronically and delivered electronically. Ongoing payment can also be done electronically. This may seem simple and obvious, but when you compare it to other Internet commerce you see how this industry is poised for very disruptive and massive transformation. Similar to music, movies and books. When you consider how much bigger healthcare is than any other industry, you see the gigantic opportunity. Total healthcare spend in the U.S. is a staggering $2.6 trillion - the biggest sector of our $15.17 trillion economy.

What other characteristics can we see, and what conclusions may we then draw as to how our industry will remake itself given the Internet forces? Here are some thoughts:

  • Healthcare is huge. Therefore it will probably take longer.
  • Much of the financing side of healthcare (insurance, health savings accounts, etc.) can be digitized and purchased electronically. This means that once the tip has begun, it will be a violent and disruptive period of shifting to the new way.
  • There is an intermediary - either the employer or government. We don't ask our employer before we download a book. We just buy it. Since the employer is the intermediary, we can assume that they will need to adapt first before the end consumer is allowed to purchase via the Internet. This means it will take longer for the massive shift to take place. However, once they begin to move it will be enormous. The platform with the most employers will dominate.

I didn't start out to write a long post, but there you go. If you step back and look at the massive industry we serve and draw some parallels to other disruptions happening because of the Internet, you can really see how big this thing is going to be. You also see how the leading delivery platform will shape future product innovation and market economics.

It is indeed a very exciting time to be part of the design, innovation and engineering taking place at Benefitfocus. We are in the process of redefining how that $2.6 trillion is bought and sold. Our future is bright and I get to share it with the best cats in the world.