► A series Chinese policies about 'Internet + healthcare' beacon the bright future for this industry and reflect the changing consumer market demand.

► Many players, such as Ali Health and WeDoctor, are forced to iterate their services and rethink their roles and business values in the industry chain.

Ali Health (0241:HK) is the first Chinese Internet-healthcare company to go public on the Hong Kong Stock Exchange. The business reorientation comes at a time of challenge and opportunity for online health in China.

Compared to the old version, the new App demonstrates a more precise and structured preface, focusing on healthcare services. It prioritizes online consulting and local healthcare services and even leaves a whole section for local services. This design is very different from the previous version, which highlighted all types of medicines.

Undoubtedly, Ali Health wants to take off the 'e-pharmacy' tag. Backed up by Alibaba, Ali Health started as an online pharmacy. As more new entrants mainly anchor businesses in other niche online healthcare services, the market has become more dynamic than ever.

This App upgrade indicates Ali Health's ambition in healthcare services – to lift and transform the space instead of remaining a ‘traditional’ e-pharmacy. This is even though the e-pharmacy business brought the Hong Kong-listed Internet healthcare CNY 4.92 billion revenue in 2019, accounting for 96.5% of the total.

The business restructure is not Ali Health's sudden move. This August 10, 2020, Ali Health transferred healthcare services, as one of its four pillar businesses, to its Koubei-Ele.me – a local-services rating & food delivery App. It is understandable that, for consumers looking for offline healthcare services, user experience and recommendation can impact the monetary conversion.

Also, this restructuring implies that Ali Health now focuses on healthcare services by building patient-doctor connections, leaving the mature e-pharmacy business to the rating & delivery department in order to try to create more synergies.

Favorable policies lead the boom

From a long-term perspective, the consumer market for Internet healthcare services is on an upward trend. The COVID-19 pandemic accelerated the development of the Internet healthcare industry. During the first five months in 2020, the number of in-construction Internet hospitals almost surpassed the number built in 2019.

This February, the National Health Commission (NHC) launched several policies to push Internet-based consulting services, which together underline the characteristics of high efficiency and low risk.

As the pandemic situation worsened in March, the NHC introduced a guideline on health insurance services, specifying that qualified 'Internet +' healthcare services expenses are included in the coverage of medical healthcare reimbursement. To go further on this path, NHC called on promoting the online services experiences learned during the pandemic, highlighting 'Internet + healthcare.'

Indeed, in a country like China, consumer demand flows like the ocean wave. When the gate of policy restriction releases, the blank area can be filled in a short time. As the current policy beckons to the future, a nationwide spread-out is a sooner-or-later thing.

Competitors never rest

But why change now?

Ali Health is one of the earliest players in the Internet+ healthcare arena and performed above-average in recent years. The current business model can still work, so why does it want to shift its business focus?

A direct answer comes from the increasingly-fierce competition due to COVID-19. A more rooted reason is that the core demand from the consumer market has changed. The consumer demand is changing all the time anyway, but more slowly – it sped up during the pandemic.

Millions of users tried out different healthcare apps during the COVID-19 crisis, pushing these platforms to iterate their products fast, add new functions, and think ahead of the consumers.

The trick to beating the game is to find a healthcare service area to penetrate first, then followed by completing over missing business segments. For example, Ping An Good Doctor highlighted the online consulting and family doctor and later launched its health insurance and e-pharmacy. So did WeDoctor. The company used to only focus on online registration for meeting doctors at offline hospitals. Now it has provided a more comprehensive healthcare service portfolio.

Players compete to be the first to provide innovative and comprehensive online services, to increase core indicators such as DAU (daily active users), MAU (monthly active users) and APPRU (average revenue per user), to enhance the retention rate and consumption conversion.

The e-pharmacy has become one basic service that almost every platform owns. As for online consulting, responding time, professional doctors and prescriptions can tell the difference. Some platforms like HaoDF.com, Chunyu Doctor and Ping An Good Doctor more highlight the importance of doctors and therapists, which really exerts the advantages of mobile apps and the Internet. Furthermore, Ping An Good Doctor and JD Health provide the family doctor service, trying to build a long-term relationship by offering customized dedicated healthcare services. Increasing the user's product usage life cycle is the starting strategy, which orients the traffic into other value-added services, such as health insurance and e-pharmacy.

Besides that, online registration for offline hospitals depends on the coverage of offline hospitals. As the Internet hospitals increase, the online healthcare services platform actually has lost some market share to licensed hospitals. WeDoctor started with Guahao (hospital registration) and later engaged in online consulting and e-pharmacy areas, based on strong cooperation with prestigious hospitals across China.

Last but not least, even though e-pharmacy has become an 'everyone-has-one' business, one can still tell the difference by the delivery quality and logistics capabilities. Meituan-Dianping and Ele.me two online-to-offline (O2O) giants in local service and are experienced in community-range delivery – a perfect fit for fast delivering medicines. Apart from them, Ding Dang Kuai Yao and Kuai Yao, rising stars in medicine delivery service providers, are only dedicated to delivering medicine and healthcare products.

In a word, product iteration is accelerated as the consumer market changes. So far, the healthcare reimbursement (or the payment solution), customized healthcare plan, chronic disease care and senior people's care, etc. – these topics have not been either sound resolved or touched upon. Above all, more iterations are expected to happen more frequently and China has a tremendous market to try them out.