Some Takeaways from GHXC

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1 Canada

2 Some Takeaways from GHXC Network externalities play a key role in GHXC selling their services to buyers and suppliers E-markets derive value from the number of members Value increases quadratically (~N 2 ) [Metcalf s Law]. Each additional member provides more value than the previous member who joined. The greater the value of the market, the more likely additional members will join. The Rich get Richer! Source: Adamic and Huberman (1999) - The Nature of Markets in the WWW. Analysis of 120,000 sites.

3 Some Takeaways from GHXC Network externalities (con t) The value generated by network externalities can be seen in mature e-markets such as Ebay and Prosper, where fees have increased significantly in line with the number of participants That s why it s important for GHXC to do all they can to attract more participants (buyers and sellers). What s in it for Prosper? How Prosper makes money: % of loan amount taken from the borrower AA: 1% 0.5%; A - B: 2% 3% 3.95%; C - HR: 3% 4.5% 4.95% Servicing fee taken from lender, 1% of outstanding principal balance per year A few compensatory fees (e.g. non sufficient funds ) These fees have increased substantially since I joined in late 2006

4 Some Takeaways from GHXC Network externalities (con t) Of course, the initial challenge is attracting buyers without sellers, and sellers without buyers p. 12 of the case: chicken and egg reference: buyers did not want to come on board until there were enough suppliers, and suppliers weren t motivated to join [unless there were enough buyers] As a result, GHXC should reconsider their current fee structure: Given the still nascent participation by Suppliers and Hospitals, the current value of the GHXC market may not justify the charging of any member subscription fees at the point in time of the case. See Airbnb; Uber; et al.

5 Selling GHXC to the Buyers & Suppliers In addition to network externalities, GHXC needs to be focused on their adoption hurdles and value propositions Adoption hurdles B2B solutions involve process and organizational changes, not just technology changes Most of the barriers to hospital adoption of GHX were organizational Resistance to change, long-established relationships, etc.

6 Value Propositions Like any other investment, there must be a clear value proposition for all parties GHXC must address their customer s points of pain such as rogue buying, invoice errors, life or death stockouts, etc. If you can solve a painful problem for a customer, they will pay you and pay you gladly Points of Pain once at bottom of every page of GHX website

7 Value Propositions (Continued) Like any other investment, there must be a clear value proposition for all parties Value Prop #1: Leverage e-business to reduce transaction costs for buyers/sellers (x-tion costs were 15% for ON hosp s-see p.9 of case) Search costs: buyers finding suppliers and vice versa Bargaining costs: create an auction for certain products Enforcement costs: GHXC can help reduce A/P cycle time through electronic invoicing and payment Coordination/handling costs: reduced errors, opening envelopes Communication costs, time, inventory, and many more Value Prop #2: Consider the role of being not just an e-market but also an infomediary between buyers/sellers

8 GHXC as Infomediary Norman Sung considered GHX to be a technology company (p. 2 of case) having built a customized technology platform for the health care industry. Service instead of Technology: GHXC could change their thinking about their business model by thinking of themselves more as an infomediary (and e-market), rather than as a tech company

9 GHXC as Infomediary (con t) As an infomediary/e-market, GHX becomes a resource for business intelligence Recall how E-business can deliver 2 nd order effects These 2 nd order effects can be the basis of new or improved business models (as we ve been discussing) Example: GHXC could offer vastly new services such as demand forecasting; benchmarking; market trends Example: GHXC could make money from advertising, strategic consulting, or creating markets for excess materials for hospital to hospital selling (matching buyers with buyers!) In other words, GHXC must sell themselves on more than 1 st order efficiency & effectiveness arguments of improving the purchasing process

10 GHXC as Infomediary (con t) Examples: GHXC could make money from advertising, strategic consulting, or creating markets for excess materials for hospital to hospital selling (matching buyers with buyers!) Eric Johnson, Dean, Owen School of Management, Vanderbilt (healthcare app about 3 minutes in)

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12 Some caveats to keep in mind E-business can be used as a way of consolidating supplier (or buyer) power But this is also a threat to participants Extraction of excess value many times goes to the member of the supply chain that owns the e-market When a supplier connects to Walmart/Amazon/etc, guess who s saving? The real value is in information Information=control=power Ex: GHX s huge amounts of data ready for repackaging and resale This is playing out across multiple industries Information is the true value Google (and others) is going after and one reason why they freely give away so many things ( , apps, etc.)

13 One of the first e-markets

14 Healthcare: still ripe for digital Everything from electricity and phone bills to tax returns and parking tickets migrated to electronic payments years ago, but America's $2.9 trillion health-care economy remains stubbornly stuck in the 1990s. The number of medical bills paid by paper check through the U.S. mail has even increased while payments for all other services have decreased dramatically. Medical payments are the only category to register an increase in paperwork since the start of the 21st century