Outsource It

This is the followup post to my first post on AthenaHealth. This post will exemplify Marc Andreesen's statement "software is eating the world", looking specifically at AthenaHealth and Square in their respective markets.

To recap, AthenaHealth offers a free practice management, EHR, analytics, and connectivity solution for outpatient clinics. Athena runs a single, multi-tenant database in the cloud that all its customers access via a web browser. Athena takes ~6% of its providers revenues in exchange for its software and services.

Athena is the biggest, best healthcare biller in the country, bar none. Their economies of scale and complete access to the raw information enable them to be the best biller possible. No one else can perform medical billing as well as Athena because no one has the scale or access that Athena has.

The key to Athena's success is that it deals with all of the shit that doctors don't want to deal with. Every year, the government implements new regulations, adds new forms, mandates new reports, etc. And of course, they continue to cut Medicare reimbursements while increasing the cost of doing business. Athena does a phenomenal job of abstracting away all of that complexity so that doctors can focus on care. As new administrative requirements spring up, Athena takes care of them. They also provide all of the tools and analytics so that doctors can run the best possible business. Athena is the ultimate outsourcer for medical clinics. They provide end-to-end  administrative services for doctors.

Square is aiming to be the go-to vendor for merchants across the country. They are the disruptor per Clayton Christensen's traditional disruption theory: disruption from below. Square doesn't provide any functionality that major retailers don't already have in their point of sales (POS) and analytics systems. But Square is delivering the first hardware and software ecosystem for merchants running on a modern, easily update-able, multi-tenant cloud hosted database and software stack (like Athena) at scale. And they're doing it at a fraction of the cost that the legacy point of sale vendors are doing it. Soon, Square will offer small merchants the kind of analytics that today are only available to large retailing organizations.

Both Square and Athena recognize that they have enormous customer bases and extremely valuable data. And that as much as they want to provide every feature and function to every merchant, they can't. That's why Athena built AthenaNet, a platform where 3rd party developers can plug into Athena's network of doctors to provide additional functions and services. Square is a much younger company, so they haven't had the opportunity to build out the development ecosystem, but they will do the same thing. They own an enormous amount of valuable data - payments - so it's only natural that they will create a development platform around themselves to 1) push innovation on the Square platform faster 2) create network effects and barriers to entry.

Expect both companies to continue to dominate their respective industries for the foreseeable future. They provide end-to-end solutions for their customers (thus increasing customer reliance on them) and have phenomenal business models with very powerful network effects. They are the ultimate outsourcers.