Is Health the New Frontier for Large Tech?

3…2…1…lift off!

The rocket slowly lifted off the ground, and then quickly rose past the troposphere, stratosphere and into the mesosphere.

The rocket would climb 93 kilometres into the air, just shy of the seven kilometres that’s technically considered outer space.

The unmanned craft separated from booster rockets, reversing its trajectory.

With the help of parachutes, the craft floated softly to the ground.

Standing beside the launch station with a big smile was Jeff. He had just conquered the clouds…again.

Conquering multiple industries at once

You wouldn’t think an online bookstore could launch rockets. But that’s exactly what, Inc. [NASDAQ:AMZN] did in 2015.

Amazon founder, Jeff Bezos would tell CNBC after the launch:

I’ve been wanting to do that since I was five years old…When I talk to astronauts, they tell me that being in space changes you. You see the Earth in a different way, you see yourself in a different way, they describe the experience as being very meaningful.

So I want to see the Earth and see its thin atmosphere, I want to look out into space, I want to feel weightlessness and float around and do somersaults, all those things. But I think it’s probably more the way the astronauts describe how it changes you that makes me so excited about the experience.

That same year, Jeff was busy thinking about another set of clouds — the cloud.

Maybe you’ve heard the term before. The cloud represents a massive pool of storage, which you, I or anyone else, can store data on.

Rather than the white fluffy clouds Jeff’s rocket broke through, the cloud is actually hundreds of large mainframes sitting in a warehouse, like the one below:

MoneyMorning 13-08-18

Source: Data Centre Knowledge
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Just a year after Jeff launched his first rocket, Amazon’s cloud business was growing at 57%, and had captured more than 30% of the global market.

Had you told a company 50 years ago they’d need to conquer retail, data storage and build a rocket from scratch, they’d tell you you’re crazy.

Even a company today would find such a feat close to impossible.

Clearly Amazon is in a league of its own. And with so many more industries to disrupt, it’s not hard to see why investors think the stock is worth 170-times earnings.

But it’s not just Amazon pulling off amazing juggling acts. 

To a lesser extent, Alphabet Inc. [NASDAQ:GOOG] and China’s Tencent Holdings Ltd [HKG:0700] are tech conglomerates, with the world as their oyster.

While a vast majority of sales comes from digital ads, Google has its fingers is multiple pies.

The search giant invests heavily in artificial intelligence. And not just for search, but also to develop driverless cars and robots.

Then there’s wind turbines, internet balloons, 3D mapping and they even had an interest in space exploration like Jeff.

Tencent is of a similar ilk.

Starting as an instant messaging company, they soon hit it big in games. From there, Tencent jumped into search, ecommerce, driverless cars, music and payments.

Let’s just say they have a LOT going on.

But maybe even more amazing is how much it costs to run an Amazon, Google or Tencent.

All three spend billions to keep the lights on (capex). But their businesses generate cash far exceeding these costs. The figures below are from each firm’s most recent annual reports:

MoneyMorning 13-08-18

Source: Bloomberg
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It’s not that hard to see why most of the largest companies in the world are tech. These businesses generate billions in cash, they don’t cost too much to run and they’re reinvesting that cash to dominate existing and new industries.

But what’s next?

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The next frontier for big tech?

With the world getting older and diseases still to cure, how could health not be the great challenge to big tech?

Take a look at how world demographics have changed over time:

MoneyMorning 13-08-18

Source: Annlogue
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In 1950, we had far more people below 35 than above. By 2010, we still had a relatively young population, but those above 35 began to climb.

By 2050, we could have a massive older population and by 2100 we could have as many 50-year olds as we have 20-year olds.

What does this all mean? With a far older population, demand for treatments of disease and illness could skyrocket.

Amazon, Google and Tencent are already trying to jump on this trend.

Amazon has already taken a 40% stake in online pharma

Then there’s Google’s venture arm, GV who’s backed 60 health related companies since 2009.

And in China, Tencent has Doctorwork, which tries to create an office sharing model for clinics. Tencent also has an app to make booking appointments and payment a whole lot easier.

From technode:

Here’s what used to happen when you get sick in China:

You go to a public hospital to make an appointment, known as guahao. If the hospital is busy, which it usually is, you could be waiting in line for half a day. After guahao, you need to pay the consultation fee in another line. Only then can you see a doctor. After diagnosis, you get your prescription and line up again to pay for it. Then you wait in hopefully the last line to pick up your medication… if you’re still standing or have someone helping you.

But this might all just be the beginning. Large tech has only dipped their toe into the heath care sector. I wouldn’t be surprised if billions more poured into this ailing industry.

Your friend,

Harje Ronngard,
Editor, Money Morning

Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

Money Morning Australia is published by Fat Tail Investment Research, an independent financial publisher based in Melbourne, Australia. As an Australian financial services license holder we are subject to the regulations and laws of Corporations Act and Financial Services Act.

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