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iWatch: The Cornerstone of Apple's Digital Revolution

Apple (NASDAQ: AAPL  ) recently declared its intentions to unite fitness bands, medical devices, and personal fitness apps with its new iOS 8 app, Health. While most people are now wondering whether or not an iWatch is now also in the works, there's one big piece of Apple's health care strategy that shouldn't be ignored -- its partnership with electronic health records (EHR) giant Epic Systems.

Source: Apple

Can Apple succeed where Microsoft and Google have failed?
Epic, one of the largest EHR companies in the world, covers 51% of all patients in the U.S. Integrating Epic's EHR system into the Health app and its HealthKit system for developers could help Apple succeed in personal health records (PHRs) -- a market where Microsoft (NASDAQ: MSFT  ) and Google (NASDAQ: GOOG  ) have failed in the past.

Microsoft's HealthVault, a PHR system launched in 2007, tried to do on PCs what Apple's Health is now attempting on iOS devices -- to pull health data from various sources into a single online location for easy access. Microsoft tried to boost HealthVault's presence through partnerships with EHR companies like Greenway, with Mayo Clinic, and telehealth initiatives with the Kinect, but the platform has yet to achieve mainstream success.

Google followed suit in 2008 with Google Health, which imported data from EHR services, prescription records, and medical devices to a cloud-based PHR. But a lack of public knowledge about PHRs and EHRs, the more common use of physician, practice, and health plan portals, and a lack of third-party data sources caused Google to discontinue the service in 2011.

Why Apple's strategy will succeed
To understand the game-changing potential of Apple's partnership with Epic, we need to understand how important iOS devices are to medical practices.

In the past, EHR software was restricted to PCs. But iPhones and iPads started to gain popularity in hospitals for two major reasons. First, iOS devices are identical in hardware and software across the same generation (unlike the fragmented world of Android devices), making it easier to develop apps and medical peripherals for them. Second, hospitals relaxed their BYOD (bring your own device) policies to take advantage of the rise of medical apps for iOS devices.

A study from Black Book Rankings last year found that among physicians who use medical apps on smartphones, 68% used iPhones while 31% used Android devices. Also, 59% of physicians accessed medical apps from a tablet, and of those users, most preferred the iPad.

EHR companies quickly took note of Apple's rising popularity among medical professionals. Companies like Epic, Cerner, and Allscripts released new "native" iPad EHR apps that were tethered to the cloud, rather than desktop systems. Epic, for example, released two iOS apps -- Haiku for iPhones and Canto for iPads.

Epic's Haiku. Source: iTunes

Therefore, HealthKit integration could connect those popular iOS medical apps and devices with Epic's widely used EHR service, pulling the data together into a single system on both iOS 8 devices and the cloud.

Why an iWatch could put HealthKit over the top
While Apple's strategy sounds like a great way to strengthen its position in clinics and hospitals, it doesn't address how the company will spread awareness among everyday consumers -- which Microsoft and Google failed to do.

Apple's Health app already offers integration with popular wearable devices like Fitbit Flex, the most popular fitness band in the world. But Apple's own iWatch could actually be so popular that it crushes fitness bands like Fitbit Flex and smart watches like Samsung's Galaxy Gear in one fell swoop. UBS analyst Steven Milunovich believes that if the iWatch launches for $300 this October, it could sell 21 million units in 2015 and 36 million units in 2016.

If the iWatch achieves that level of mainstream adoption, consumers will actually voluntarily upload their health data from their wrists straight into iOS 8 and Epic's EHR system -- an incredible feat that neither Microsoft nor Google was able to accomplish.

The Foolish takeaway
Apple's approach to uniting the health care industry's fragmented universe of medical apps, peripheral devices, and EHRs is a highly ambitious one that is likely to be embraced by medical practices and average consumers.

U.S. hospitals and medical practices are currently trying to meet the requirements of the HITECH Act, which grants them government subsidies for achieving "meaningful use" standards in EHR adoption. On the consumer end, shipments of smart bands are expected to rise from 8 million this year to 45 million by 2017, according to Canalys.

Through its partnership with Epic, Apple could connect these two growing markets together and dominate them, unlocking future growth far beyond iPhones and iPads.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 14, 2014, at 11:19 AM, EquityBull wrote:

    iWatch could be a dud for all we know. It could also be a small success like Apple TV. If this happens people will declare the Steve Jobs days of blockbusters are now over. The stock will get smashed if people believe all that is left is iphone and ipad and no future product categories that will move the needle.

    iWatch has issues in terms of market adoption.

    1) Many people don't or won't wear watches. I'm one of them. I own a Rolex and wore it once. Hate wearing anything. Don't wear jewelry.

    2) Killer app. What is the killer app? Fitness? We all know that over half of america is obese and not into fitness right? The market for smartphones is everyone. Fitness centric devices MUCH smaller. Most people don't work out in any way, shape or form.

    3) A connection to your smartphone? IS it really that hard to pull your phone out. Do I want to pay 300, 400 or 500 bucks for a watch which will NEVER have a subsidy by a carrier?

    4) Fashion. People who wear watches want very individual looking pieces. Will everyone want the same iWatch on their body as the next guy?

    5) Take all the fitness bands and digital watches sold to date since inception and combine them all even at a higher price than everyone sold for say $400 and you still don't have enough in sales to move the needle for Apple's revenue and profits. Remember Apple TV is a big seller for any "normal" company. Apple is not normal. It is a 600B market cap company. You need iPhone size sales to pull this off and iPhone size prices (think over $600 per phone to apple). It won't happen.

    I predict iWatch will not be another blockbuster like iPhone or iPad but more like Apple TV at best. If so the chants that innovation is dead at apple won't be far behind. Take that with declining iPad sales and one last large upgrade cycle with iPhone 6 and investors will be asking "what's next?"

  • Report this Comment On June 16, 2014, at 1:46 PM, Lifegrapher wrote:

    I predict iWatch will not be a blockbuster. The user interface deficiency in the health application remains and Apple doesn't seem to be on the track to eliminate it. I consider the deficiency to be a user's health data-driven avatar. This means the primary graphical display of your pan-health and activity 100-YR continuum (fetal through postmortem) is your 'living' digital double wo/clothes! Apple has to implement an long-lasting addictive UI/UX to release a blockbuster product in the health h/w & s/w space. I contend that addiction is possible with users willing to generate whole-body 3D body surface scans include vertex true-color for the pre/post processed watertight mesh of 20+ million points. More importantly, the UX will be defined by nontraditional interactivity while analyzing health archives, viewing Near Realtime biotelemetry from perspectives impossible with mirrors or reviewing your healthcare (e.g., workout objectives) for the next week. Unfortunately, 3D body surface scanners are not affordable and the same for total body skin (hair and nail) imaging to texture your point cloud representing your body in a posture that innovative software will embed a high-defintion skeleton and animate based on user preferences.

    The typical 2D UI allowing interactive analytics with scalar and other vector pan-health data of self is necessary for assessing the cumulative effects of any lifestyle including packaging it for revenue generation via peer-to-peer micro transactions (i.e., files and streams to drive pay-sites of your self).

    I agree with the five points in the comment above.

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