Microsoft Bows Out of the Clinical Market

Today, GE and Microsoft announced a joint venture (JV) that will lead to the formation of a new company (NewCo) targeting the clinical healthcare market sector. The NewCo will be located near Microsoft HQ in Redmond, WA, start with roughly 700 employees and combine the remaining Microsoft clinical products, Amalga UIS and the former Sentillion products Vergence and expreSSO with GE’s eHealth and Qualibria suite. NewCo’s new CEO will be GE’s Michael Simpson, who has been heading up the combined Qualibria-eHealth group since earlier this year after a re-org at GE. Along with this announcement, Microsoft’s Health Solutions Group (HSG) leader, Peter Neupert stated that he’ll be retiring.

Combine the above announcement with Microsoft’s long anticipated sale of Amalga HIS, which went to Orion Health in October, and you are left with Microsoft completely pulling out of the clinical market. Sure, they’ll claim to be still in healthcare by directly selling their horizontal products (e.g., SharePoint, MS Office, various server products, etc.) into this sector and having a stake in this JV, but it is also exceedingly clear that Microsoft will no longer have any direct involvement in this market, that will be left to GE. That being said, Microsoft did state that they’ll hang onto HealthVault, but even here, that is more likely a by-product of no one wanting to take on HealthVault rather than Microsoft’s strong desire to continue to try and build a viable, revenue generating entity out of it. Do not be too surprised if, in a year’s time, HealthVault falls to the wayside much like Google Health did this year.

During our briefing call with Microsoft and GE we learned the following:

Core to NewCo’s objectives is to leverage the joint assets of Microsoft and GE to build out an entirely new platform that will focus on four key areas to begin with:

  • Clinical surveillance to identify such things as infection outbreaks within an acute care facility before they run rampent.
  • Population health management to facilitate care management processes, which is a productization of work GE has been doing with Geisinger as part of the Keystone Beacon program.
  • Reduce hospital readmissions by leveraging analytics to identify patients at risk and initiate appropriate interventions.
  • Facilitate transitions in care, which like reducing hospital readmissions, is something that is on the mind of every senior healthcare executive we talk to.

These four target areas are nothing new or inspirational as just about every vendor we talk to has some program in place or under development to address these four areas as well. The product roadmap does not have much hitting the market until 2014.

Financial terms were not disclosed but our guess is that Microsoft contributed IP and the development team behind these products. In return, they will receive some sort of royalty stake in future sales. GE will lead the new organization, contribute its Qualibria/eHealth IP and GE sales and marketing will take the product(s) to market. Thus, most sales and marketing folks and other support staff in Microsoft’s former Health Solutions Group are being shown the door, which is unfortunate as we head into the holidays.

A couple of things come across as a bit ironic. First, Microsoft executives time and again stated that they knew what they were getting into when they entered this vertical and that it would take patience to build a viable presence. So much for patience. Second, Microsoft sold off the Amalga HIS product as many a potential HIT partner was wary of partnering with Microsoft as long as Microsoft had under ownership an EHR. Now what does Microsoft do, it joins in partnership with a struggling HIT vendor in the acute care market. Will any of the other major or even second tier HIT vendors partner up with the GE/MSFT NewCo – don’t bet on it.

The announcement also raises more than a few questions such as:

What becomes of Microsoft’s existing HIE contracts, particularly the one they pulled all the stops out to win, the Chicago HIE which is now under development?

What becomes of Microsoft’s recently announced relationship with Orion Health? Will Orion now be partnering with NewCo, which is essentially GE?  GE, with its own HIE solutions targeting enterprise accounts, is a direct competitor to Orion.

What becomes of HealthVault Community Connect, which combined Amalga with HealthVault and SharePoint? Is this now a dead product or will NewCo simply use the Centricity patient portal?

As you can probably tell by the tenor of this piece, we’re not a big fan of this announcement and are disappointed that Microsoft has decided to fold-up its tent and retreat. Unlike the legacy HIT vendors in this market, Microsoft could lay the claim to some neutrality and potentially build-out an Amalga-based ecosystem platform. But business is often not kind to those that have an altruistic bent and in this case Microsoft simply made a clear-cut business decision to unleash an asset that was not meeting internal metrics despite what some believe may have been an investment in excess of $1B in the last 5 years to build-out HSG.

Once again, another company with grandiose plans to change healthcare has quietly walked away leaving this market to the incumbent HIT vendors. We also do not see strong prospects for the future build-out of a robust ecosystem of partners on the combined Amalga-Qualibria platform that NewCo proposes as there are too many competitive issues that just get in the way. We could be wrong on this one, but our guess is that NewCo is likely to struggle as much as Microsoft has in the past for relevance in this fractious HIT market.

Addendum:
Sean Nolan, chief architect for Microsoft HealthVault, provides his own view on this JV announcement. While his view differs from ours on the implications and future of this JV and HealthVault, one thing we do hope that Sean proves us wrong on, is the future success of HealthVault. We would love nothing more than to see it succeed but at this juncture, we remain pessimistic. 

Posted in ACO, Consumer Engagement, consumer health, Electronic Health Records, Health Information Exchange, HealthVault Tagged with: , , ,
16 comments on “Microsoft Bows Out of the Clinical Market
  1. John – Having worked there and started Microsoft’s platform business for healthcare (i.e., partnering with 3rd party ISVs), you nailed the likely biggest driver. Amalga hasn’t been a barn burner so it’s not worth the risk to the platform business that is highly successful/profitable. The number of people still focused on healthcare at Microsoft is big so it’s not like it’s a total exit. They have a ton at stake as the next big shift is happening on platforms.

    Microsoft hugely benefited (and drove) the shift from host computing to client-server computing. They need to step up their game on the platform shift from client-server to cloud and mobile computing. For most startup ventures in healthcare, the default is Amazon for the cloud and iOS for mobile. Back in the day, healthcare was shifting towards Unix-based client-server and they successfully steered that towards Windows dominating. Unix had been the default and they were able to change that. It will be interesting to see if they can get Azure and Windows Mobile OS to be defaults — they aren’t now.

    I wrote a piece for TechCrunch that should publish today that goes into more detail on their history of entry and then exit from vertical businesses. I highlighted 5 previous examples. This announcement should come as no surprise to those who’ve studied what Microsoft does best.

  2. Excellent analysis John!
    I am left wondering how much runway the NewCo will have before the JV folds up or sells the parts…

  3. paul henchey says:

    Thanks for the timely analysis.
    I shared the link with my connections on LinkedIn.
    It is amazing how many technology companies have come and gone in the healthcare market over the years.

  4. John, Great analysis, thanks. Unfortunately agree with your inferences. Understandable yet regrettable that another multinational hits the wall of the US healthcare non-system.

    Hard to see why MSFT would want to keep HealthVault as a standalone — perhaps a seasonal metaphor is that HealthVault has become like fruitcake.

  5. Will Falk says:

    John, your analysis is excellent. Clearly Newco provides MS with a liability shield against the exisitng installs and insulates it from an impact on the core MS business. Also agree that it is a real shame to see Neupert and team leaving the space. HSG was a force for good in the health industry.

    Wondering whether this is also a liability shield for GE. They can give the newco a real try but if it fails it is no longer branded GE. Separate it and then up or out.

    wf

  6. Matthew Holt says:

    Actually it’s worse than that, he’s dead Jim (apologies for allusion to 80s British comedy record)

    Not only has MSFT thrown in the towel despite having apparently a lot invested in healthcare (which Google didnt) but GE has tossed into the JV pot its supposed clinical system of the future being developed at Intermountain. If they;re creating an orphan, it’s also signalling GE’s virtual retreat from the big hospital market (ceded to Epic a while back)

    The only positive spin is that the Centricity Advance including new iPad application remains in core GE land,,,,,that could yet be a real barburner is they put the support behind it and try to replace the old Medicalogic priduct with it (big IF I know)

    And Peter Neupert has called a spade a spade and helped move this sector along in recent years. Hopefully he can stay around in some capacity.

    • John says:

      Matthew, we also hope Peter sticks around in the healthcare IT market. He was a breath of fresh air and as you said was very honest in his comments on the industry. And we like your quote – quite appropriate,

  7. Microsoft and Google see how fast the world is shifting to a Cloud and Mobile model and are doing their best to keep up or lead this transition. I expect they will be back into clinical systems soon enough and stronger than ever.

  8. Sean Nolan of MSFT dropped me a note regarding his latest blog post.

    http://blogs.msdn.com/b/familyhealthguy/archive/2011/12/08/here-for-the-long-haul.aspx

    In it he writes that “Microsoft and I remain 100% committed to the HealthVault business.”

  9. Dan Munro says:

    Great insight – but I think Healthvault does generate revenue – just not here in the U.S.

    Might be a good time to revisit the deals that MSFT/Healthvault did with Siemens in Germany – and then the Telus roll-out in Canada? I know you wrote about both when they were announced last year – any updates there that you can share? Today’s announcement can’t be good for those commits.

  10. The piece on TechCrunch I ref’ed above finally published. http://techcrunch.com/2011/12/10/microsoft-ends-dalliance-healthcare/

    Having had a close connection to 5 of Microsoft’s 6 vertical market exits, I thought I’d share my two cents on why Microsoft is exiting another vertical market.

    Dan – I haven’t been close to MS’ health efforts in a long time but even if they have some revenues, there’s a large payroll nut to cover from what I hear. Unfortunately, with Peter/Amalga gone there’s not a natural home (or executive champion) at MSFT that I can think of. The lack of executive champion is extremely important. In the one exit that Ballmer regretted, the executive champion for that business (John Nielson) unfortunately got sick and then passed away. Had he been around, they may not have sold it so quickly.

    I wish the HealthVault team all the best. They’ve done some pioneering work. It’s been 8 years since I’ve been at MS and longer since I was doing healthcare stuff so there may be some dynamics I’m not aware of. At the same time, there’s a track record.

    • Dan Munro says:

      Dave – totally agree that being an orphaned product at MSFT is very high risk – but revenue isn’t the only arbiter if it’s strategic enough. They’ve been losing about $1B/yr in the Online Services Group – for almost 10 consecutive years. http://zd.net/sWxkJ1

      To your point in the TechCrunch piece – what may seem like a “wayward foray” outside of the core business can wind up being pretty strategic (ie: Sidewalk – which we now know as local search).

      Per John’s (and your) assessment, all of this clearly signals an end to their direct involvement with the clinical side – and lot’s of questions around prior commits (including Healthvault). I can’t help but wonder though if we’re not seeing the end to PHR as a product category – if, in fact, it ever really was one.

  11. Jay Alicea says:

    Deep pockets doesnt make entry to this market easy. Great analysis!

  12. I wonder if most of the jobs will be based out of Salt Lake. It sure would be convenient for Microsoft given their situation in Utah.

  13. John Wilson says:

    Just with getting Sentillion products under the GE umbrella is a huge win for GE.

    Harris corp. had to pay 155 million for Carefx which is only SSO, CCOW and some portals.

    Make sense?

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  2. [...] The NewCo will be located near Microsoft HQ in Redmond, WA, start with roughly 700 employees and combine the remaining Microsoft clinical products, Amalga UIS and the former Sentillion products Vergence and expreSSO with GE’s eHealth and Qualibria suite. Microsoft Bows Out of the Clinical Market « Chilmark Research [...]

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