news Telecommunications and media giants Telstra and Seven West Media have revealed they will splurge a total of $10.4 million on HealthEngine, in a move which represents the second major investment in the seven-year-old Perth-based health appointment search startup in less than a year.
HealthEngine had its basis back in 2006 as an online directory of medical practitioners, but has pivoted to broker appointments between patients and clinicians. In mid-2012 it announced that it had raised $1 million in Australia locally through angel investment. At the time, the company’s medical director (now chief executive) Marcus Tan said it wanted to sign up 10 percent of Australia’s GP clinics in the next 12 months.
About 1,000 of Australia’s 7,000-odd GP clinics were considered to be in growth mode at any one time, Tan said, with HealthEngine pitching itself as being a good option for increasing patient flow. “There are 25,000 GPs overall in Australia, but there are also 24,000 specialists, 18,000 dentists and 80,000 allied and complementary health professionals,” Tan said at the time. “That equates to hundreds of thousands of appointments booked a day — and most of those bookings can be performed online.”
This morning the startup said its Open Appointments service had offered 600,000 health appointments with more than 2,000 practitioners at 400 health practices across Australia. Patients are able to make appointments 24/7 online or via the company’s mobile app. The company’s site currently receives more than 450,000 unique visitors each month.
In a joint statement, Telstra and Seven West Media said they had agreed to enter into a $10.4 million strategic partnership with the company, with each to invest $5.2 million through a combination of cash and “value in kind”, to secure a significant stake each in the business.
The pair’s statement said they believed HealthEngine was well-placed to capitalise on the growing demand for healthcare in Australia – a sector that generates annual revenue of more than $100 billion. This demand, the pair said, is highlighted in a recent Roy Morgan survey of Australians over the age of 14 years which found that 27 per cent (or more than five million Australians) had paid for a doctor’s visit in the last four weeks and 35 per cent (or more than six million Australians) considered the internet the most useful source for health-related information.
Telstra Media Group Managing Director Rick Ellis said the HealthEngine investment aligned with Telstra’s strategy of developing new growth businesses and providing and growing capability in mHeath and eHealth. “This investment fits with both our Sensis digital marketing services business and Telstra Health, our new health business unit. HealthEngine will be an important asset as we build capability in this area,” Ellis said. “This new partnership will help HealthEngine accelerate its growth and take a clear leadership position in the market at a time when consumers look to online and mobile booking solutions.”
Seven West Media Group Chief Operating Officer Rohan Lund said the investment aligned with its strategy of building “an audience company” and investing in adjacent verticals relevant to Seven West Media’s audiences. “We see a tremendous opportunity to partner with Telstra to build Australia’s biggest patient and practitioner marketplace. This is an exciting space and the combination with Telstra and Seven West Media presents a formidable alliance,” Mr Lund said.
HealthEngine’s Tan welcomed the investment by Telstra and Seven West Media and said it would enable the company to grow more quickly.
“Our current customer focus is GPs and dentists and we have plans to expand into the allied health and medical specialist sectors,” Tan said. “This strategic partnership with Telstra and Seven West Media will position us strongly for growth into the emerging electronic health records, online health transactions and telehealth markets as a leading eHealth business in Australia.”
It appears that one of HealthEngine’s main revenue models is its subscription advertising service for doctors. The site states that getting listed costs $179 a year for practices (with unlimited practitioners), with an additional $55 per year to add an additional location. If you take the company at its word that it has offered appointments through some 400 health practices per year, that means it would actually be making a relatively small amount of revenue from that subscription advertising business — just $71,600 a year at the minimum, although of course some of those practices would also have additional locations.
To be honest, this in itself wouldn’t be enough to justify the kind of investment which Telstra and Seven West Media have placed in HealthEngine (and remember, the company’s equity was already diluted by the $1 million angel investment last year).
Where the real value from HealthEngine appears to be is in the pay-per-booking feature on its site, where practices pay the company directly on a per-booking basis when bookings are placed. If HealthEngine does have some 450,000 Australians visiting its site each month, then many thousands of those visitors, probably tens of thousands, are placing bookings, meaning that HealthEngine would be likely to be making commissions on those bookings from health practices.
In this sense, what HealthEngine appears to be doing is more or less functioning like an affiliate marketing business — but with thousands of small clients, rather than a few large ones. Doctors, dentists and other health professionals pay to get on its site to start with, which helps drive traffic to it (through SEO, particularly), and then they pay when people make bookings through HealthEngine. Eventually, HealthEngine becomes a big enough site that it’s dominating Internet searches for these kinds of bookings, and so health practices essentially have to have a listing and booking arrangement with HealthEngine — a bit like the way the Yellow Pages used to be.
What Telstra and Seven West Media obviously want to do is tie the service in through their existing telecommunications and media services — don’t think this is an investment alone. The pair will act as a volume driver for HealthEngine as it expands into other verticals (physiotherapy, for example). I’m not quite sure what else Tan was talking about in the media release, but it also seems like HealthEngine has other expansion plans.
So what do I think of the business?
Well, it’s a decent one. There’s obviously a business model here, and on the face of it it works, or Telstra and Seven wouldn’t be investing in HealthEngine. Tan is a doctor himself and understands the space, and though it’s taken HealthEngine a while and a pivot or two, the company is obviously onto something of a winner now.
However, personally, I also have my doubts. It’s been my experience that health practices, especially general practices, are plenty busy already and probably don’t need to promote their services through HealthEngine — it’s a nice to have, but not essential. Plus, the frustrating part of a business like HealthEngine is that it would need to deal with hundreds of other small business clients. That’s never fun. I imagine HealthEngine gets into a lot of annoying discussions with doctors about whether a failed booking can be counted for accounting purposes and so on.
The other thing is that I don’t have a huge amount of confidence that either Telstra or Seven West Media is as good as accurately valuing these kinds of startups as professional venture capitalists are. If that pair is involved, you can bet they invested in HealthEngine at top dollar — that’s good news for HealthEngine and its investors, but I’d say Telstra and Seven West probably overpaid. These huge companies always do when they invest in small-scale startups.
Despite these doubts, this is still a great deal. And of course, as with other large recent deals, it does much to demonstrate the strength of the Australian startup ecosystem when it comes to decent-sized funding rounds.