You may have seen the ads for Simplisafe on TV: it’s a do-it-yourself home security system that you can buy for a couple hundred bucks and install in an hour. Instead of having a home security company come to your house and wire your windows and doors to a central monitoring box, Simplisafe is a wireless system that connects to the cellular network. You buy various sensors that connect wirelessly to the base station and for under 20 bucks a month you can connect to central monitoring services. They don’t require a monitoring contract – you pay month-to-month. And, you can take the system with you when you move.
Why is this venture-capital backed (Sequoia invested $57 million in the company) Cambridge MA based company interesting to those of us in healthcare?
First, the story isn’t really the company or their gadget. (It seems to be a pretty ordinary alarm system). Instead, I’d make the argument that Simplisafe has been successful because their business model is firmly in touch with how modern consumers want to buy services and understand pricing. I think there are real lessons for anyone in a service business these days. It’s an interesting story about transparency and consumer empowerment.
In the old days, if you wanted an alarm system, you would call ADT who would would charge you $99 to install a rudimentary system that required you to commit to spending $25-50 bucks a month under a three year contract.
Simplisafe charges you upfront $300 for the equipment and lets you choose to pay for optional month-to-month monitoring at $15. There are no contracts (although in practice the alarm isn’t that helpful without central monitoring). What’s different in terms of business model:
- There is no shell game where the company moves money around to subsidize capital cost via service contacts.
- Done away with contracts because they aren’t needed when equipment is pre-purchased
- It has cut out the middleman (installer) and the markups along the way and has capitalized on the falling cost of electronics to the point that a robust system can be bought for a few hundred bucks versus the $1500 typical of a full-featured installation a few years ago
- Empowers the consumer to design their own system (adding as few or many sensors as they want)
The death of the recurring service model as a means for subsidizing (previously high) fixed capital costs is not unique to the alarm industry. You actually see the same trend with cell phones. As Fortune magazine noted in a recent article, cell phone contracts are dead. Where you used to get a free cell phone and a two-year subscription to allow the carrier to recoup the equipment cost, we are now seeing contract-free service arrangement and higher upfront payments vs. equipment payment plans.
What are the larger consumer (? Millenial) trends that makes Simplisafe’s message important to us in healthcare? I’d argue that it simply comes down to three trends related to respect for the empowered consumer.
- The Importance of Price Transparency
People want to understand what they’re paying for. Heavy handed contracts with low upfront prices costs don’t seem to fly with modern consumers. Here are some consumer reviews of ADT: It couldn’t be hard for Simplisafe to disrupt the incumbent. SimpliSafe themselves call out the “anti-consumer practices typical of the home security industry” in their advertising.
What are healthcare’s “anti-consumer” practices? How about the price opacity that plagues US healthcare? The recent Pioneer Institute attempts to find out the price of a knee MRI in Massachusetts are telling. After calling 22 practices they concluded:
With few exceptions, hospitals seem to have no systems or procedures in place to direct consumers who are looking for price information. Operators seem flummoxed when asked for price information and do their best to guess the department to which such calls should be transferred. We were transferred anywhere from three to as many as six or seven times before finding the one person in an organization who could give us a price for an MRI.
Fatigue with the Fine Print and Manhandling
Modern consumers are tired of long-term contracts, and they want the flexibility to be able to understand pricing upfront and walk away from a business relationship when they choose. They are particularly tired of being manhandled by things like automatic service renewals and cancellations that require you to call an 800 number customer service center rather than click a button online. They’re over promotional tricks and less than honest marketing. Blake Morgan in Forbes recently wrote about this:
For many years as marketers we’ve made things shinier, bigger and brighter than they actually are. And this is terrible for the customer experience. The reason is you are starting a relationship with your customer by letting them down.
Healthcare is a more complicated business than alarms. But I have to wonder if there is something to be learned from Simplisafe’s new model. In their world, price transparency coupled with falling tech costs and a little innovation are the ingredients that have propelled Simplisafe to 3,076% growth in three years.