If you zoom out into the future and
you look back and you ask the question, what was Apple's greatest
contribution to mankind, it will be about health. Apple's biggest contribution to the
world is they invented the touchscreen smartphone, which is completely
upended everything in the last 15 years. But it's a great sales line. You know, the best is still ahead. Apple is on a bit of a health craze. Something big is actually going on. I believe we're at the very
beginning of the indispensable role of health tech. I think it enables a
whole new network of companies, a slew of startup companies, to be able to
capitalize on this data and help improve outcomes. So if there's any
technology company today that's well positioned to pull this off and
build the trust of health care institutions and consumers,
it is Apple. It's an area that has not been incredibly
digitized in the past 20 or 30 years, like other sectors have been. And there are some very good reasons
for the company's move into health care. Health care accounts for
about 18 percent of U.S. GDP. That is massive. That is one of the last
remaining markets that Apple could actually grow. The App Store created about
five hundred billion dollars, so half a trillion dollars worth
of economic activity. Absolutely huge. And I think that Apple
could create a market that is similar in that size
for health care. But while investors are applauding Apple's
health focus, physicians are a bit more hesitant. You know, young
people who are monitoring themselves with these devices, driving themselves
crazy, watching their heart rate, getting these alerts, thinking there's
something wrong with them, they come into my office all the time
and ninety nine point ninety nine percent of the time what I
offer them is just reassurance. We wanted to explore why and how
Apple is growing its health care business, as well as the
challenges the company faces. Steve Jobs, a rebel, an
icon, dead at 56... Tim Cook has talked about in the
past, you know, the Apple founder, Steve Jobs, go through cancer and health
care system and realizing that they could make a contribution. I think Steve Jobs imprint was all
over the company, and the culture is very derivative of Steve. But I think Tim has always
been very thoughtful about health. And so I kind of think he views
this almost in some ways as his legacy. The Apple Watch is seen as
one of Apple's most important introductions into the health sector, but that
wasn't its exclusive goal initially. It was supposed to be
notifications on your wrist. It was supposed to be fashion. There was a gold one. And over time,
the watch has become much more of the health and fitness device, and they've
sort of ditched some of these other things because they realized that
that was actually the most compelling use case for people. But the Apple Watch isn't
the company's only health initiative. Our business has always been
about enriching people's lives. And as we've gotten into health care
more and more through the watch and through other things that we've created
with ResearchKit and CareKit and putting your medical records on the iPhone,
this is a huge deal and it's something that is very
important for people. We are democratizing. When you look at Apple's spends billions
of dollars every year in R&D. Right now, I wouldn't say the health
care department or health care team at Apple is the biggest, but they can
place a pretty big bet on it. And you can tell they're taking it
seriously because the CEO of Apple, Jeff Williams, runs the health team. We are going to
keep pushing watch forward. Apple has three areas of focus when
it comes to health: hardware like the Apple Watch, software like the Health
App and ResearchKit, and services like Fitness+, Apple's
newest subscription service. Some people might provide the software,
some people might provide the hardware, which is largely generic or
medical device maker, but Apple can combine them all and kind of
have a better user interface, which I think they see as their main edge. All of these devices and services
revolve around the iPhone ecosystem, and while iPhone sales are still
the majority of Apple's revenue, wearables and services are
picking up steam. iPhone sales have increased an average
of about four percent quarter over quarter and about two
percent year over year. Since 2017, services have increased an
average of about 4.5 percent quarter over quarter and about 22
percent year over year since 2017. And wearable sales have grown the most
by far, increasing at an average of almost nine percent quarter over
quarter and nearly 35 percent year over year since 2017. The revenue for wearables is already more
than 50 percent more than iPod was at its peak. The danger to Apple
is that next year a Samsung or a Huawai or Oppo comes out with
something that really captures the consumer's imagination and they
stop buying iPhones. That's a danger and really investing
in this health lessons that because if these features, you know, really catch
on and people need them, then they stick with Apple.
Let's discuss hardware first. The Apple Watch is a standout
among the companies health initiatives. Not only does the most recent watch
offer ECG recording and heart rate monitoring, it also includes blood
oxygen monitoring, which is very medically-minded and not a huge selling
point for the average consumer. Apple does not report revenue made
from the Apple Watch alone, but wearables, a category that includes
Apple Watch, along with products like iPods, contributed about six point
five dollars billion in revenue in quarter three of 2020. The estimates of watches that have been
sold are, you know, 60 million over the years, 70 million over the
years, and if the average selling price is around 300, 400 dollars,
that's a lot of money. That's substantial. That's, you know, that
could be its own company. The tagline is, The future of
health is on your wrist. And so I think they're being
very intentional about saying that this device is not just a wearable,
it is really about health. Some of the biggest names in
medical equipment include Abbott, Johnson and Johnson and GE Healthcare. But Apple is not really competing
with these companies right now. It's way outside
of their wheelhouse. It's basically an entire
new kind of business. There's a lot of regulation there. Innovation is much slower for obvious
reasons, because we have to ensure safety at each step of the way. And so I think that Apple is
very, very unlikely to be making a pacemaker anytime soon. Apple also provides software solutions
like HealthKit, which was announced back in 2014, and
ResearchKit, which helps health care professionals use data from Apple
devices for medical research. Their devices are used widely
in hospitals, for example, nurses frequently use iPhones or iPads
to track medication administration. I use my iPhone on rounds
to look up patient data. When it comes to medical records,
right now that market is completely dominated by Epic, one company
based out of Wisconsin. There's a lack
of inter compatibility. It's very difficult and
expensive to switch systems. And so because of that, there
really just hasn't been much competition and innovation. That's where
Apple comes in. Apple has a reputation of innovating a
stale market, and the company has already struck deals with some of
the biggest health care institutions to get health records
on the Health app. Well, I think the hardware ecosystem
that they've created with the iPhone, with the watch, and I think
ultimately with AirPods as well, are the tools that will allow them to
kind of collect health data for patients and then build those tools
for developers to create unique applications that help treat
patients in new ways. And that's what's really exciting to
us, is the combination of all three. Most recently, Apple announced
Fitness+, a subscription workout service that will join Apple's lineup
of other plus services like Apple TV+ and News+. Fitness+ is taking on competitors in
the health and wellness category like Peloton and other at-home fitness
programs, and with the pandemic keeping so many people at home, it
was an ideal time to strike. But Peloton does have a
leg up on Apple. Peloton has created devices
that Apple hasn't created. They've got the connected treadmill, they've
got the bike, and so there are some limitations, I think, in terms
of how much Apple can really provide in terms of the level
of experience that Peloton has created. There are some unique challenges
in the health care space. For example, Apple has regularly complied with
the FCC for all of its wireless products, but devices that deal
with your health have to answer to another federal entity. Looming over the horizon is
the Food and Drug Administration. And if you do certain things like
test glucose for diabetes testing, you will be regulated as a medical
device and for good reason. If you get the glucose meter
wrong, you can kill people. Apple has many electrical engineers that
can explain why this is completely compliant with FCC rules,
whereas the medical people, you know, they have to hire,
they're building that team. It's a totally different ballgame. The
company has flown under the radar of major regulations, thanks in part
to its classification as a fitness and wellness device manufacturer, not
a medical device manufacturer. In fact, the Apple Watch has a
De Novo classification under the FDA, meaning it is a medical device
for which general controls alone, or general and special controls provide
reasonable assurance of safety and effectiveness for the intended use, but
for which there is no legally marketed predicate device. Apple really wants to say,
"this is your health buddy. It's basically a medical device. You know, you need this to track
your vital signs." But legally, they got to be like,
"this is about wellness. This is about, you know, fitness. This is about health
as opposed to medicine." So Apple's relationship with the FDA is
growing more complex as it adds more medically focused sensors, but
some physicians are not convinced that all their patients need the
information coming from these sensors. There are definitely situations where, as
a doctor, I appreciate and value the data coming in
from an Apple Watch. It's when the watch is driving the
disease rather than the other way around that things get into trouble. If you look at the the distribution of
ages that own an Apple Watch and the distribution of ages that
have atrial fibrillation, they are inverse. So, the people who have Apple
Watches are the ones who are least in need of continuous monitoring
for atrial fibrillation and vice versa. Privacy is also a concern
as health data is incredibly sensitive. Luckily, Apple has a good track
record when it comes to privacy. Because the business model involves selling
hardware, they can make the argument more coherently that it's not
actually in their interest to sell your health information
to a third party. Because if that were uncovered that they
were doing that, then it would be a massive blow to that primary
source of income, which is the hardware side. I don't think anybody's
going to trust Facebook medical records anytime soon. The future of Apple's
health initiatives look positive. Having control of that end to end
experience lets them do things that other device makers can't do. And I think that's why they are
so well positioned in digital health, is they can collect that data, they
can create seamless experiences for the consumer, and they can also let that
data be leveraged by those third party app developers that ultimately, I
think power kind of the next wave of digital health with Apple. The company has already tackled
heart rate, electrocartiography, blood oxygen levels, but there is so
much more that can be developed. Blood glucose monitoring is something Apple
has discussed, which is also been on the radar
of some other companies. This would be a huge breakthrough
for people with chronic conditions like diabetes. It would be an
immense story kind of overnight. I don't necessarily believe that it's
possible because these are such challenging things to do from
just a technical and scientific standpoint. This stuff is half. This stuff is really hard, you
know, taking sensors that really exist, you know, and miniaturizing them and making
10 million of them all work. Whether there's any actual benefit
for non-diabetic people monitoring their sugar continuously
is totally unknown. Unfortunately, that's not going to stop
devices from being introduced to the consumer market to
do precisely that. And already there are
several in the pipeline. Products like iPods might find usefulness
in Apple's health and wellness line-up, too. I think over the
long term, what Apple's device actually becomes is a medical device that
sort of delivers treatment to patients, which is, I think, really the coolest
thing that they could do with their ecosystem. And so an example
might be somebody that might have depression or chronic pain, they could wear
an earpiece – it could even be an AirPod – that delivers a
very small stimulation to the brain and it actually helps treat
the underlying disease. Now, Apple is not alone in its
pursuit of those health care dollars. Google began organizing its health
initiatives under the name Google Health in 2018, and now
it boasts over 500 employees. Amazon bought PillPack, a prescription
medication delivery service in 2018 among other health initiatives. This is three and a half trillion
dollar market just in the U.S. A third of that is wasted spend
and it's that wasted spend that technology companies are
going after. And it won't just be one
technology company that disrupts, it will likely be many. But Apple is trying hard to
become a global leader in health. The company recently partnered with its
first country to prove that point. Singapore is now willing to
reward people for achieving certain healthy behaviors and meeting their
goals by giving them money. Apple announced it would partner with
the Singaporean government to give resident Apple Watch users up to
380 Singapore dollars after two years of better health practices like
meditating, exercising and maybe even taking a Covid-19 vaccine
when it becomes available. There is clearly a lot that can
be achieved in the health care sector. It's a really big area. Yep, we're just getting
started I think. People want to maintain good health,
and the people who have the interest, time and money to get devices
or tools to monitor their health are going to continue
wanting to do so. The question is just whether those
devices actually add anything useful for the person versus just giving
them more information to worry about. Apple has entered a new
battleground with its health initiatives. Peloton, Abbott medical devices, Epic
medical records software, these are all competitors Apple is just
now stepping into the ring with. And it's still unclear who in 10,
20 years will be the winner. I think that the advantage Apple has
is obviously that they already have a really great and powerful brand in
the minds of consumers, and they've got a billion people around the world
who are using an iPhone, that platform that they always
build on top of. It fits in with Apple's conception of
itself as a company that is trying to do good, you know, leave the
world better than they found it. Financially, it could be huge,
massive, bigger than the iPhone.
