6 reasons orthopedic software products will prevail.
Years ago I predicted that software would create new business models in orthopedics and eventually “eat” orthopedics. This change would yield new growth and opportunities for the device manufacturers.
Today it is happening slowly. A few clever startups are innovating in the new software space. [Read the List of Software Startups]. However, most orthopedic companies continue to focus on hardware products – implants, instruments and disposables. Therefore, are clinging to the “hardware” mindset that they know.
For the hardware product “holdouts”, I want to provide a six compelling reasons why software will win-the-day in the long run.
1 – Orthopedic software products can easily scale as your business grows
Business leverage comes from products with no marginal cost of replication. Software has no marginal. Implants have significant marginal cost. The cost of doubling your orthopedic implant inventory can be millions or tens of millions of dollars.
Most orthopedic companies do not have the cash flow to grow their inventory or product offerings exponentially. They have to make hard choices. Should we add a new sales person, invest in a new R&D project, or build more inventory?
The cost of making a thousand software copies is much lower than making a thousand more device widgets. Digital products easily scale as you double your customer base.
2 – Orthopedic software innovation is not burdened by consensus history
Let’s look at innovation in hardware first. Implant hardware is based on legacy systems. Look at most joint replacements and spinal fusion systems. They all look alike. The old patents have run out. Dated clinical evidence shows up as established designs basic. Employees bounce from company to company with the same training and same product concepts ideas. This cross-pollination leads to group think around design. Most ortho companies have hit a wall with true innovation.
Now let’s look at innovation in software. There are few legacy software systems. We are at the very very very beginning. The industry is starting from scratch with software. A blank sheet of paper, or better yet, a blank Python screen without the first line of code. Here lies the big innovation opportunity, free of legacy thinking.
3 – Orthopedic software products are easily distributed
We all know that the Big Orthos maintain their stronghold on the market because of their distribution model, which drives their access to hospital and ASC customers. They have spent decades developing their robust distribution models that include logistics, supply chain, contracts and local on-site sales support. They have mountains of inventory that is in the field available for sale.
Software can be distributed over the internet just like your cell phone or Telsa upgrade, in the middle of the night. What if the distribution of your product was invisible and instantaneous?
4 – Orthopedic software products are perfectly suited for A/B testing
I believe that innovation is driven by the speed which companies can conduct trial-and-error experiments. The faster your company can prototype and test, the faster your company can innovate.
The key to trial-and-error innovation is A/B testing. A/B testing (or split testing) is a a simple controlled experiment or a randomized experiment with two variants, A and B.
A/B testing with hardware is cumbersome, but A/B testing with software is fluid.
The life cycle for implant (hardware) variations is years. The feedback cycle is just too darn slow to make improvements. Today, we are FINALLY figuring out which implant systems from the 1990s and 2000s had the best outcomes. After a 20-year clinical feedback cycle, we know the specific implant systems that are the winners but these implant systems are not commercially available any longer. What’s the use?
By contrast, the life cycle for software variations is days. Orthopedic companies can change software every day and test it and measure the results.
Every day your software developers can ask…
Do these data sets improve or weaken the machine learning capabilities?
Is this algorithm more predictive?
Do these inputs yield better results?
Does this or that imaging sensitivity improve the results?
5 – The Orthopedic software products can be coupled with hardware products
For a device companies with a legacy product, the mind shift into software products can be monumental. Therefore, these companies should start small and incrementally.
In the short-term, I would suggest that combination products should be the onramp for legacy orthopedic By “combination products”, I mean hardware + software. This is where the first magic occurs. Examples:
The robot (hardware) needs smart real-time imaging (software) in the operating room to guide the surgeon.
The 3D printed implant (hardware) needs the CT scanning (hardware) and AI best fit design (software) to create the best-fit implant for the patient.
The total knee implant (hardware) needs the real-time navigation (software) for the best alignment and ligament balancing.
In the early years, software will make the hardware perform better. In the later years, software will become stand alone software products are stand alone products.
6 – Orthopedic software products can be sold with new business models
At the same time as hardware moves more towards a commodity in orthopedics, software becomes the real differentiator in orthopedics. In the future, software will become the product that is the majority revenue generator for device companies. Software will be sold as SAS products, or a rental model with different feature levels.
I have previously written that the implants will be sold for cost in the future. Governments like to tie reimbursement to a tangible delivery of an implant or procedure. They will have to upgrade reimbursements to help pay for the new intangible SAS products.
In summary, I see a future in orthopedics when:
Software will find the best patient candidates for specific procedures.
Software will use genomics to choose the best implant system for the patient.
Software will provide the best diagnosis (regardless of financial incentives in the healthcare system).
Software will improve all surgical procedures.
Software will flag post-op complications very quickly.
Software will improve clinical outcomes with better PT.
Tel me how your company is experimenting with software products in orthopedics.