Microsoft Ends Another Vertical Market Dalliance—This Time In Healthcare

Editor’s note: This guest post was written by Dave Chase, the CEO of, a patient relationship management company that was a TechCrunch Disrupt finalist. Previously he was a management consultant for Accenture’s healthcare practice and was the founder of Microsoft’s Health platform business. You can follow him on Twitter @chasedave.

While Microsoft has been the most successful platform company in history, it periodically has flirted with vertical market-specific businesses with only mixed success. In virtually all cases, it ends up exiting the vertical business. At times, this has been with great financial success, like Expedia, for example. In other cases, not so much. The latest exit is in healthcare. Microsoft is folding its Health Solutions Group into a JV with GE (see release here).

The overriding decision in each case was to ensure the core platform business wasn’t threatened. Given the dynamics in healthcare, the threat to Microsoft’s platform business in healthcare is greater than ever. The last major platform shift in healthcare was from host-based computing to client-server. When Microsoft entered healthcare, the market was clearly shifting to Unix-based client-server systems but it was able to redirect the shift towards Windows back-end systems. That platform dominance persists 15 years later.

Today, there’s a similar story. This time, however, the shift is from client-server to the cloud and mobile OS’ such as iOS and Android. With Amazon and iOS being the default platforms at the moment, Microsoft needs to put all its focus towards redirecting that shift. By removing any real or perceived threat to their 3rd party ISV partners, Microsoft is in a better position to win platform decisions.

At the same time as the platform shift is happening, there’s tremendous disruption within the healthcare ecosystem itself as I wrote about in the earlier series on disruption in healthcare (see links below). While there’s lots of consolidation taking place with traditional healthcare providers, there’s a huge cohort of disruptive innovators popping up all over (e.g., MedLion and One Medical Group have been profiled here earlier). Not a week goes by where I don’t hear from some executive at an insurance company or healthcare provider who is going to launch his or her own startup.

Typically they are either becoming a new kind of provider or they are developing services to support new providers. For example, this week I heard from the regional President of a major insurance company frustrated with the pace of internal innovation. These individuals see tectonic shifts and healthcare incumbents making the same mistakes newspaper companies made 10+ years ago that they are paying for now. With Microsoft’s investment in the Health Solutions Group, they’ve paid little attention to the disruptive innovators which is another major opportunity that they are freed to pursue now.

Microsoft has had parallel forays in healthcare. One has been Microsoft’s most successful vertical market platform business – i.e., being the underlying platform for the vast majority of HealthIT systems. The other healthcare business is doing vertical-market specific software in healthcare with their Microsoft Amalga and HealthVault projects.

Amalga has had limited success and they already acknowledged that with their earlier sale of a component of Amalga. As John Moore of Chilmark Research pointed out in his analysis:

While Microsoft tried to quell EHR vendor fears in the US that this HIS solution suite, later rebranded as Amalga HIS, would only be sold overseas and not it the US, most EHR partners chose to put some distance between themselves and Microsoft. Needless to say, this created far more challenges for Microsoft and its still budding healthcare sector initiatives and the company decided to discontinue further investment in Amalga HIS in July 2010, effectively putting it on the market.

Third party ISV or customer fears have often been a driver for Microsoft exiting a vertical market product area. For example, one of the key reasons Rich Barton was able to successfully position Bill and Steve for Expedia to spin out of Microsoft was that Expedia was pissing off important travel customers. At the same time they were selling millions of dollars of software to the likes of American and United Airlines, Expedia was disrupting their business model. This caused those sales teams a great deal of angst, so it was cleaner to let Expedia spin out.

Here’s a recap of some of Microsoft’s past vertical market exits:

  • Expedia: Started as a business unit inside of Microsoft. It was spun out and sold to IAC and became a stand-alone public company.
  • HomeAdvisor Technologies Inc. This was to be the next business to spin out of Microsoft after Expedia but missed the window before the dotcom bust. It not only had Microsoft’s backing but JP Morgan Chase and GMAC-RFC had put in $100 million. It had a few divisions. One consumer-facing that was a similar to Zillow and and two B2B divisions. The consumer facing part became MSN’s Real Estate channel while the CRM business folded into Microsoft’s CRM business while the mortgage platform business was sold off to Freddie Mac.
  • Sidewalk was Microsoft’s local play that was sold to CitySearch. Ballmer was quoted years later regretting that move. As the International Herald Tribune reported, It seemed a wayward foray outside Microsoft’s software business at the time. “But Sidewalk was really aimed at what we now call local search,” Mr. Ballmer says. “Sidewalk is one we should not have gotten out of.”
  • Softimage: This was software for the movie industry that powered films such as Jurassic Park and Titanic. It was sold wholesale after a handful of years
  • Transpoint was a bill presentment and payment solution that was a JV with First Data and Citibank that was merged into CheckFree in a deal valued at $1B.

I’m confident that the Health team focused on supporting 3rd party ISV at Microsoft is very happy about this announcement as it removes one of their toughest objections from developers. The remaining vertical-specific product is the Personal Health Record, HealthVault, which remains with Microsoft.

This poses little concern for most Microsoft’s ISV partners so I suspect it will remain at Microsoft but go into stasis. For Microsoft shareholders, the exit from doing vertical-specific products in healthcare is further evidence that Microsoft is focusing on its biggest opportunities.