Broader economic challenges and increased advertising costs are creating challenges for digital health companies starving for growth and profitability.
Experts say as economic conditions worsen, companies appealing directly to customers will need to get creative in how they offer value.
"The complexity with consumer-focused models is that they are front line—they maybe see that [economic] reaction first,” said Bill Geary, co-founder and partner at Flare Capital, a venture capital firm investing in early-stage and emerging healthcare and technology companies. “The focus on customer acquisition cost, the long-term value of customer—those are super hard metrics to get right.”
Geary said balancing profitability with growth can be difficult—especially for early-stage companies. Many are reducing advertising spend as a result.
While Headspace Health isn’t a startup, it is reducing advertising spend on the path to profitability, said Russell Glass, CEO of Headspace Health, a digital mental health subscription company.
“Going into this year, we reduced marketing spending by probably about 60% or so,” Glass said. “The goal of that wasn't necessarily because we didn't think there was ROI or a reason to advertise. But we did feel like we wanted to have a profitable consumer business, we felt like we wanted to make sure that business was scaling smartly because it was getting crazy in terms of the competitive nature of those ads.”
On its second quarter earnings call, Teladoc CEO Jason Gorevic said that increased advertising costs would slow their total spending in the fourth quarter of this year. Teladoc has both direct-to-consumer and enterprise service lines.
“We’re not shutting off advertising completely,” Gorevic said. “But it is a reduction because of greater expense per advertising impression. Therefore, we want to make sure we’re making good economic decisions.”