Epic’s Revamped Digital Health App Marketplace

Sharks and remora fish share a symbiotic relationship: their intimate coexistence aids one another’s survival. In business, a similar relationship exists between digital marketplace platforms and 3rd party app developers.

In nature, the remora fish benefit from having a convenient food source, eating the scraps of the shark’s prey, while the sharks benefit from having parasites cleaned from their skin. Under optimal circumstances, this symbiosis will lead to mutual, long-term success for both organisms – in terms of sustenance, health and protection.

But this biological harmony doesn’t mean that there isn’t a gargantuan power imbalance. Sharks have been known to eat remora fish.

The same delicate relationship exists in digital marketplaces, where the platform – such as Apple, Amazon, Salesforce – is the shark and the producers on the platforms are the remora fish. If these entities cooperate, they can create tremendous value for each other and customers as well; if they cannot, both businesses will struggle to survive.

Epic As The Apex Predator In Healthcare IT

In healthcare, there is arguably no greater shark than electronic health records (EHRs), the critical IT infrastructure of every hospital and health system. And if EHRs are the apex predators within the healthcare environment, Epic Systems Corporation (Epic) is the great white.

As of 2022, Epic was reported to hold over a third (35.9%) of the US market and nearly half of all beds (46.7%), with much of this growth driven by its adoption by large health systems, which have been increasingly acquiring smaller hospital systems.

Recently, Epic announced the relaunch of its 3rd party app marketplace and vendor program. Epic’s revamped marketplace will include a tiered partnership structure, differentiating applications based on their quality, validation and clinical utility. The goal being to provide a fewer number of high value, 3rd party solutions to their customers.

The EHR giant released its inaugural app marketplace, the Epic App Orchard, in 2016, to provide third-party developers access to Epic’s customers. Several other EHR providers launched marketplaces around the same time, including Oracle Cerner, Allscripts and athenahealth.

Marketplaces In Healthcare

While doubtlessly inspired by the success of digital marketplaces in other industries – such as social networking, ecommerce and gaming – Epic, and fellow EHRs, will face unique challenges in scaling innovation marketplaces in healthcare.

Firstly, healthcare is different, and more complex, from operating environments that most other marketplaces occupy. Misaligned stakeholder priorities, conflicting incentives, siloed and unstructured data, and strict regulatory requirements are just a few issues that make it challenging to grow network-driven businesses in healthcare.

Secondly, Epic has traditionally been a pure software company, not a multi-sided platform company. As a software company, its focus was on developing its own products; as a marketplace, they must focus on facilitating the exchange of products, data and value between 3rd party developers and their hospital customers. Therefore, Epic’s marketplace business must produce value, not based on the quality of its own innovation, but rather its ability to enable other parties to interact and innovate together, in an efficient and trustworthy manner.

It would be understandable to question Epic’s, or any EHR’s, capability in this regard. Historically, Epic has been adverse to openness. In 2019, Epic’s CEO and founder lobbied its health system customers to oppose the Department of Health and Human Services’ (HHS) information blocking rules, which would (ironically) compel EHRs to make data more accessible to patients, providers and 3rd party developers – and thereby threaten to erode Epic’s walled garden – which surrounds over 300 million patient records. Past behavior like this would understandably make people wary of Epic’s ability to serve as a just arbiter of innovation in the healthcare system; yet, for better or worse, they are the gatekeeper to half the hospital beds in America.

Aptitude aside, it does make sense why Epic is relaunching its digital marketplace. For one, multi-sided platform business models considerably outperform their technology-only peers from a revenue, scalability and market value perspective. Take, for example, another company that transformed itself from a pure software business to a platform business: Salesforce. Although the company is known for its customer relationship management (CRM) software, by 2021 its largest and fastest growing source of revenue was its app marketplace.

Like Salesforce, Epic has a dominant market position and diverse user base from which to layer on a platform strategy.

This said, market position and network size alone are not enough to forge a successful platform business (see: MySpace’s initial advantage vs Facebook).

Building An Ecosystem: Five Ways The Great White Shark Can Cultivate Remora

To truly capitalize on the economic and market advantages of network effect-driven marketplaces, Epic’s leadership must navigate the transition from software to platform thinking, which will mean embracing a business strategy pillared by trust, neutrality and openness. Epic must go from widening moats and raising walls to lowering drawbridges – a strategy that could come into direct conflict with its core software business.

What follows are five tactics that will be critical to the success of Epic’s (or any EHR’s) app marketplace, and the growth of its overall business. These tactics are informed by founders and investors who have first-hand experience building and scaling network effects in healthcare.

1. Build trust with innovators and developers: While Epic’s market share will lure some, developers ultimately must trust the marketplace will conduct itself in an equitable and ethical manner. Compromising practices can range from favoritism (using the platform to unreasonably highlight preferred, often pay-to-play, vendors) or data exploitation (using privileged insights as the platform operator) to identify and cannibalize the most promising apps in the ecosystem.

Epic can look to AmWell as a healthcare platform trying to build trust with all constituents. Roy Schoenberg notes that “the dream of Amwell is really that brokerage system. [Our customers or developers] can create their own products and services. We simply provide the pipes and infrastructure.” For Amwell, the power of the platform is in creating the connection and then stepping back, allowing the members of the network to freely create and consume innovation.

2. Align stakeholder interests, while being clear about the North Star: As Epic tries to transition from a software provider to a platform provider (too), its mindset must shift from delivering value to one group of users to serving the needs of two groups: healthcare systems and innovators. For Oliver Kharraz, CEO and founder

of ZocDoc, a patient-provider matchmaking platform, serving both sides of the network is important, but remembering your North Star side is imperative. “When we started, we realized that there are certainly instances where doctors and patients have divergent preferences,” Kharraz said. “For instance, doctors didn’t like the idea of patient reviews of doctors… But patients really, really liked the reviews. So we wanted to nudge the doctors to accept them. Today, doctors actually look at ZocDoc as a tool for reputation management. And so we resolved this misalignment because patients are our North Star, but we thought about how to do it responsibly and looked for the win-win.” Being clear about what Epic’s North Star is, and communicating that openly, will help attract those with aligned interests while being fair to others.

3. Fostering quality interactions to drive value for all: Over time as the marketplace grows, more and more customer value should come from third party solutions. But a marketplace’s very success could result in a flood of speculative or unvalidated solutions, which could result in frustration by customers who are overwhelmed with options (of varying, and unknown, quality). Nate Maslak of Ribbon Health, a provider data platform, notes the importance of managing data quality has been key to realizing success. “The value of the network effects that our product derives, and thereby our customers receive value from, must happen naturally and organically through the usage of our product… Ultimately, it is our responsibility,” Maslak explains.

4. Start small, be deliberate, and support the ecosystem: The promise of platform businesses with network effects is of a virtuous loop: as users adopt it attracts others, and can grow very big, very fast. Yet those with experience caution against a “move fast and break things” approach in healthcare. Scott Barclay is Managing Director at Insight Partners, a venture capital firm, and has executive leadership experience at the most successful platform business in healthcare, Surescripts. “Even when we created e-Prescribing—which is the same everywhere—we proved it in very specific zip codes in Rhode Island first,” says Barclay. Now as an investor, he advocates for first-principles thinking for founders looking to leverage network effects, and notes that Insight works closely with their portfolio companies to develop network effects-specific metrics unique to each business to track the progress they expect.

5. Be patient, and look to Salesforce.com: Salesforce is a $31 billion B2B behemoth, and its AppExchange is the company’s biggest, fastest growing (and almost certainly most profitable) business segment. But it didn’t start out that way, and it took a long time to get there. Started in 2005, the AppExchange grew to host 2,000 apps by 2013 and only in 2021 became the largest business segment. The company started the AppExchange in 2005, Julie Yoo, General Partner at Andreessen Horowitz, advised that platform companies be patient in their approach and how they cultivate network effects explaining, “We think that most successful companies in healthcare have multiple acts. It’s very rare that you find one company that just has one core business, and that’s what takes them to the moon. It’s typically more like you have products one, two, and three…it’s not until step three that there would be an obvious network effect.”

Better Together (So Long As The Great White Remembers This)

With platform business models gaining traction in healthcare, the opportunity for EHRs, health systems, innovators and patients is great. But so are the risks if Epic, and its EHR peers, mismanage the power of the platform. To be successful, it must effectively transition from a singular software strategy to one that embraces elements of platform business strategy.

Ultimately, Epic’s marketplace success is contingent upon it shifting from acting as a solitary apex predatory to one willing to swim peacefully alongside (and not eat) the remoras.