Now that ByteDance owns hospitals, China’s healthcare sector is still on big tech’s watch

August 12, 2022 0 Comments

ByteDance, the owner of TikTok, took a risky step by acquiring a hospital in China at a time when almost all internet titans are cutting investment to weather economic headwinds.

The social media upstart has been trying to leverage the massive traffic it controls to become a disruptor in various fields. Although the majority of them are not fulfilled owing to external or internal factors—for example, China’s crackdown on after-school tutoring smashed its online education business—it continues to give a shot in other industries.

Amcare Healthcare, which mostly offers upscale obstetric services, is now entirely under the control of Xiaohe Health, the ByteDance-affiliated healthcare company. 

An Amcare Hospital in Shenzhen

Founded in 2006, Amcare operates 7 women’s and children’s hospitals, 2 general outpatient centers, and 5 confinement centers, primarily in China’s first- and second-tier cities, including Beijing, Shanghai, and Shenzhen.

Wang Lei, vice president of Amcare Healthcare, said in an interview with Caixin on August 7 that, following the acquisition, ByteDance would concentrate on hospital-related investment activities and refrain from excessive involvement in hospital operations. Reportedly, the deal cost the company 10 billion Chinese yuan.

Healthcare, the blue ocean for Chinese tech giants

The acquisition is ByteDance’s most recent significant step after establishing its healthcare business department in 2020. It is also an indication that the upstart is determined to expand farther into the area where other tech giants such as Alibaba and JD.com have taken root.

Alibaba Health Information Technology Limited was officially established in 2014 following the acquisition of a controlling stake in CITIC 21CN, a company specializing in identification, authentication, and tracking services for pharmaceuticals.

JD Health, JD.com’s healthcare division, was founded in 2019 and listed in Hong Kong in December 2020. It was the third Internet-enabled medical and health startup after Ping An’s Good Doctor and Alibaba Health to go public.

Both offer online healthcare services to Chinese customers, including online health consultations with doctors and an online pharmacy serving both wholesale and retail clients.

Access to the entire Alibaba ecosystem is the source of Alibaba Health’s strength; the e-commerce giant has accumulated a large number of users and can easily channel them to the healthcare business. For example, users can book doctor’s appointments on Alipay, Alibaba’s digital wallet with 640 million monthly active users (MAUs), or purchase medical check-ups on Taobao, Alibaba’s marketplace with 483.4 million MAUs.

After entering Alibaba Health via Alipay, users can make appointments for medical treatment, purchase dental cleaning services, etc

JD.com, the second biggest Chinese e-commerce platform, is inferior to Alibaba in terms of user base and user engagement, but by partnering with Tencent’s WeChat, it has narrowed the gap between its healthcare business and that of its formidable competitor. JD Health’s partnership with WeChat, the instant messaging app with 1.2 billion monthly active users, enables JD Health to reach and service its users through a mini-program within its platform. Notably, WeChat itself does pose a threat to JD Health, as it also expands through its own telemedicine platform, WeDoctor.

As of the close on August 10, the market value of Alibaba Health was HK$60.84 billion, and the market value of JD Health was HK$191.4 billion. Compared with JD Health, Alibaba Health is taking a more proactive approach to investing in traditional healthcare providers that operate physical locations.

China’s healthcare market is projected to increase from 6 trillion yuan in 2019 to 16 trillion yuan in 2030, Ping An Group Co-CEO Jessica Tan said on McKinsey’s Future of Asia podcast.

Not only are Chinese tech giants focused on healthcare, but it may represent a trend in the global tech industry as corporations seek new ways to service their clients.

Amazon announced the acquisition of One Medical for approximately $3.9 billion in July. Apple continues to advance in this sector by enhancing its health data-tracking technologies and gadgets.

When compared to rivals, ByteDance takes a unique approach

ByteDance, while entering the healthcare industry after Alibaba and JD.com, has been investing aggressively to catch up.

ByteDance will officially enter the healthcare sector in May of 2020 following the acquisition of Baike Yidian, an online medical encyclopedia platform, for 500 million yuan. After being rebranded as “Xiaohe Yidian,” the site operated as a portal to ByteDance’s online medical and popular science database.

The company in December 2020 acquired an Internet hospital and placed it under Xiaohe Health to offer online medical consultations. Around the same time, Pinecone Medical, a startup that provides outpatient services, was bought by ByteDance. In the same month, the company also invested 200 million yuan in “Good Mood”, an Internet medical platform focusing on the central nervous system and mental health.

ByteDance’s investment footprint suggests that it favors healthcare providers who specialize in niche categories.

Just like Alipay helps Alibaba Health or WeChat supports JD Health, ByteDance, as the owner of the hit short video app Douyin, has also built its own empire, enabling it to channel traffic to its medical service platforms or even the brick-and-mortar hospital Amcare. As of December 2021, Douyin had 620 million monthly active users.

Internet companies have the ability to transform a wide range of industries, but healthcare is a highly specialized field that is unlikely to be substantially altered.

Even while the COVID-19 outbreak in China has increased the adoption of Alibaba Health and JD Health, they are still heavily reliant on medicine sales and have yet to make significant progress in higher value-added areas such as online consultations, disease management services, etc. Currently, each of the companies continues to incur a loss.

By acquiring the hospital, ByteDance appears to be attempting to achieve more online and offline synergy than its competitors in order to avoid their dilemma. Nonetheless, it will inevitably be a long-term investment requiring more patience.

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