In the past two years, the Internet medical field has shown an extremely lively situation. Due to the epidemic, people's attention to health has shown a sharp and linear rise. Many companies have taken this opportunity to achieve listing. However, just when everyone believes that this industry is about to take off rapidly, Ali Health, which is in the first echelon, has given a report card that can cause people to frown. It finally achieved its first annual profit in fiscal year 2021, but not long after, in fiscal year 2022, it reversed and fell into a loss situation. According to the data provided in the financial report, as of March 31, 2022, the company's revenue was 20.58 billion yuan, an increase of 32.6% compared with the same period last year, but in the end it inevitably fell into a difficult situation of losses. This makes people want to ask, what happened to Internet medical care? Why is it so difficult to make money?
How long can the old path of burning money in exchange for market go on?
Looking at Alibaba Health's business structure, we can notice a very significant feature, that is, the self-operated pharmaceutical business is the absolute key support. In fiscal year 2022, the revenue of this business was 17.911 billion yuan, an increase of 35.5% compared with the previous year, accounting for 87.04% of the total revenue. To put it simply, Alibaba Health is still essentially an e-commerce platform that makes profits by selling medicines. The company itself also provided an answer for the loss. First, it is for brand building on the Tmall pharmaceutical platform and Alibaba Health Pharmacy. Second, it is to increase the market share of online B2C drug sales. Third, it is to strengthen the layout of the prescription drug business. As a result, market launches have increased significantly. The problem behind this is actually quite intuitive, that is, even if it relies on Taobao, Tmall, Alipay, AutoNavi, and DingTalk, which have massive traffic, Alibaba Health still has to invest heavily to acquire and retain users. Let’s start with the cost of a new customer, which is at least ten yuan. This item alone requires money, and user activity and repurchase rates also require continuous investment to promote improvement. Besides, this model of burning money in exchange for market is not new in the Internet industry. In this case alone, there is investment. But in the special field of medical and health, the cost is higher, the limit is more, and the return cycle is longer.
The three major pillars of medicine, medicine and nutrition have only broken the most difficult bone so far.
The current business model of Internet medical care has only three core pillars, namely medical treatment, medicine and nutrition. Among them, medicine is the one that companies with e-commerce background are most comfortable with. From buying things in e-commerce to buying medicines, it is really logical from a logical level. However, the problem lies in that drugs are special commodities and their control is extremely strict. For high-profit prescription drugs, supervision has been tightened, and you are not free to sell them if you want; while for over-the-counter drugs, which are relatively loosely controlled, their profit margins are limited. Such an embarrassing situation has occurred: a large part of Internet medical companies derive a major part of their income from selling drugs, but they are unable to achieve sustained high profits by selling drugs. Alibaba Health's situation is very typical. Its prescription drug business revenue increased by 105.2% year-on-year. The growth rate is very significant, but the overall profit has not remained stable. What does this show? This shows that although the scope of drug sales has expanded, gross profit margins and net profit margins cannot support sustained profits. As for the two aspects of medical services and health care, although there are related layouts, they are far from being able to contribute considerable profits. From a practical point of view, the vast majority of players are still in the relatively basic stage of selling drugs. However, selling drugs itself is a hard job with low profits and many restrictions. This is the situation.
User habits have not really spread across the market yet, and education costs remain high.
Some people may say, isn’t it already commonplace to buy medicine online now? Indeed, in cities at the forefront of development, a considerable number of young people have developed the habit of purchasing cold medicines and medicines for the treatment of chronic diseases through mobile phones. However, for a broader category of users, seeking medical consultation and purchasing medications online is not a priority. Once a minor problem occurs in the body, such as headache, brain fever, etc., the first thing people think of is still to go to a pharmacy or community hospital that is closer to them. It is this difference in user habits that causes the cost of marketing education for Internet medical platforms to always be at a high level. Even giants like Alibaba Health, which have massive initial traffic resources, face performance pressure from the capital market after going public and have no choice but to continue spending money on promotion, subsidies, and attracting new customers. More importantly, medical and health services naturally come with a trust threshold. Users will be willing to buy random clothes on Taobao, but when it comes to buying medicine or medical treatment, there will always be a few more questions in their minds. The establishment of this sense of trust cannot be solved by just a few promotional activities, but requires long-term accumulation and professional service capabilities to prove it. Therefore, you can find that the results of Internet medical companies’ investment in marketing are often not as quick as those in other consumer categories, and the conversion costs and retention costs are much higher.
Policy red lines and professional barriers make the profit model even more difficult
Excluding market and user-level problems, policy and supervision are also huge obstacles that cannot be avoided. Internet medical care has always been an industry that has developed under strong supervision. Management measures for online drug sales, regulations for prescription circulation, quality and safety requirements for online diagnosis and treatment, and every policy red line have restricted and stuck the profit margins of enterprises. For example, although prescription drugs can be purchased online, they must rely on a prescription and must be reviewed by a pharmacist. Strict requirements on the process increase operating costs. Another example is that online diagnosis and treatment services cannot carry out first consultations, and cannot prescribe narcotic drugs and other special controlled drugs. The scope of business is naturally limited. These professional barriers and policy restrictions prevent Internet medical companies from expanding and growing as quickly as ordinary e-commerce companies. Every step must be taken with caution, and the cost of compliance has always been high. Alibaba Health mentioned in its financial report that losses are related to increasing market launch and accelerating the deployment of prescription drugs. This actually implies the high price it has to pay in order to comply with regulations and seize a limited market share.
Generally speaking, there are difficulties in obtaining revenue from Internet medical care. It is not a problem faced by a single company alone, but is actually a pain that the entire industry must encounter in the exploration stage. Although selling medicines is the most practical source of income at the moment, the profits are slim and there are many restrictions. Although medical services and health care have broad scope, the business model has not yet been successfully developed. Alibaba Health's shift from profit to loss this time has sounded a warning to the market: it is difficult to rely solely on investment in exchange for users and sales of drugs to support revenue in the long run. Who can be the first to find a balance between medical care, medicine, and elderly care, and truly establish a closed link in services? That person can truly enjoy the benefits brought by Internet medical care. For ordinary users, the convenience of buying medicine online is real. However, it may be too early to expect that Internet medical care will completely change the current situation of difficult and expensive medical treatment in a short period of time.
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