question, what was Apple's greatest contribution to mankind, it

will be about health.

Apple's biggest contribution to the world is they invented the

touchscreen smartphone, which is completely upended everything in the

last 15 years.

But it's a great sales line.

You know, the best is still ahead.

Apple is on a bit of a health craze.

Something big is actually going on.

I believe we're at the very beginning of the indispensable role of

health tech. I think it enables a whole new network of companies, a slew

of startup companies, to be able to capitalize on this data and help

improve outcomes. So if there's any technology company today that's well

positioned to pull this off and build the trust of health care

institutions and consumers, it is Apple.

It's an area that has not been incredibly digitized in the past 20 or 30

years, like other sectors have been.

And there are some very good reasons for the company's move into health

care. Health care accounts for about 18 percent of U.S.

GDP. That is massive.

That is one of the last remaining markets that Apple could actually

grow. The App Store created about five hundred billion dollars, so half

a trillion dollars worth of economic activity.

Absolutely huge. And I think that Apple could create a market that is

similar in that size for health care.

But while investors are applauding Apple's health focus, physicians are a

bit more hesitant. You know, young people who are monitoring themselves

with these devices, driving themselves crazy, watching their heart rate,

getting these alerts, thinking there's something wrong with them, they

come into my office all the time and ninety nine point ninety nine

percent of the time what I offer them is just reassurance.

We wanted to explore why and how Apple is growing its health care

business, as well as the challenges the company faces.

Steve Jobs, a rebel, an icon, dead at 56...

Tim Cook has talked about in the past, you know, the Apple founder, Steve

Jobs, go through cancer and health care system and realizing that they

could make a contribution.

I think Steve Jobs imprint was all over the company, and the culture is

very derivative of Steve.

But I think Tim has always been very thoughtful about health.

And so I kind of think he views this almost in some ways as his legacy.

The Apple Watch is seen as one of Apple's most important introductions

into the health sector, but that wasn't its exclusive goal initially.

It was supposed to be notifications on your wrist.

It was supposed to be fashion.

There was a gold one. And over time, the watch has become much more of

the health and fitness device, and they've sort of ditched some of these

other things because they realized that that was actually the most

compelling use case for people.

But the Apple Watch isn't the company's only health initiative.

Our business has always been about enriching people's lives.

And as we've gotten into health care more and more through the watch and

through other things that we've created with ResearchKit and CareKit and

putting your medical records on the iPhone, this is a huge deal and it's

something that is very important for people.

We are democratizing.

When you look at Apple's spends billions of dollars every year in R&D.

Right now, I wouldn't say the health care department or health care team

at Apple is the biggest, but they can place a pretty big bet on it.

And you can tell they're taking it seriously because the CEO of Apple,

Jeff Williams, runs the health team.

We are going to keep pushing watch forward.

Apple has three areas of focus when it comes to health: hardware like the

Apple Watch, software like the Health App and ResearchKit, and services

like Fitness+, Apple's newest subscription service.

Some people might provide the software, some people might provide the

hardware, which is largely generic or medical device maker, but Apple

can combine them all and kind of have a better user interface, which I

think they see as their main edge.

All of these devices and services revolve around the iPhone ecosystem,

and while iPhone sales are still the majority of Apple's revenue,

wearables and services are picking up steam.

iPhone sales have increased an average of about four percent quarter

over quarter and about two percent year over year.

Since 2017, services have increased an average of about 4.5 percent

quarter over quarter and about 22 percent year over year since 2017.

And wearable sales have grown the most by far, increasing at an average

of almost nine percent quarter over quarter and nearly 35 percent year

over year since 2017.

The revenue for wearables is already more than 50 percent more than iPod

was at its peak. The danger to Apple is that next year a Samsung or a

Huawai or Oppo comes out with something that really captures the

consumer's imagination and they stop buying iPhones.

That's a danger and really investing in this health lessons that because

if these features, you know, really catch on and people need them, then

they stick with Apple. Let's discuss hardware first.

The Apple Watch is a standout among the companies health initiatives.

Not only does the most recent watch offer ECG recording and heart rate

monitoring, it also includes blood oxygen monitoring, which is very

medically-minded and not a huge selling point for the average consumer.

Apple does not report revenue made from the Apple Watch alone, but

wearables, a category that includes Apple Watch, along with products

like iPods, contributed about six point five dollars billion in revenue

in quarter three of 2020.

The estimates of watches that have been sold are, you know, 60 million

over the years, 70 million over the years, and if the average selling

price is around 300, 400 dollars, that's a lot of money.

That's substantial. That's, you know, that could be its own company.

The tagline is, The future of health is on your wrist.

And so I think they're being very intentional about saying that this

device is not just a wearable, it is really about health.

Some of the biggest names in medical equipment include Abbott, Johnson

and Johnson and GE Healthcare.

But Apple is not really competing with these companies right now.

It's way outside of their wheelhouse.

It's basically an entire new kind of business.

There's a lot of regulation there.

Innovation is much slower for obvious reasons, because we have to ensure

safety at each step of the way.

And so I think that Apple is very, very unlikely to be making a

pacemaker anytime soon.

Apple also provides software solutions like HealthKit, which was

announced back in 2014, and ResearchKit, which helps health care

professionals use data from Apple devices for medical research.

Their devices are used widely in hospitals, for example, nurses

frequently use iPhones or iPads to track medication administration.

I use my iPhone on rounds to look up patient data.

When it comes to medical records, right now that market is completely

dominated by Epic, one company based out of Wisconsin.

There's a lack of inter compatibility.

It's very difficult and expensive to switch systems.

And so because of that, there really just hasn't been much competition

and innovation. That's where Apple comes in.

Apple has a reputation of innovating a stale market, and the company has

already struck deals with some of the biggest health care institutions

to get health records on the Health app.

Well, I think the hardware ecosystem that they've created with the

iPhone, with the watch, and I think ultimately with AirPods as well, are

the tools that will allow them to kind of collect health data for

patients and then build those tools for developers to create unique

applications that help treat patients in new ways.

And that's what's really exciting to us, is the combination of all

three. Most recently, Apple announced Fitness+, a subscription workout

service that will join Apple's lineup of other plus services like Apple

TV+ and News+.

Fitness+ is taking on competitors in the health and wellness category

like Peloton and other at-home fitness programs, and with the pandemic

keeping so many people at home, it was an ideal time to strike.

But Peloton does have a leg up on Apple.

Peloton has created devices that Apple hasn't created.

They've got the connected treadmill, they've got the bike, and so there

are some limitations, I think, in terms of how much Apple can really

provide in terms of the level of experience that Peloton has created.

There are some unique challenges in the health care space.

For example, Apple has regularly complied with the FCC for all of its

wireless products, but devices that deal with your health have to answer

to another federal entity.

Looming over the horizon is the Food and Drug Administration.

And if you do certain things like test glucose for diabetes testing, you

will be regulated as a medical device and for good reason.

If you get the glucose meter wrong, you can kill people.

Apple has many electrical engineers that can explain why this is

completely compliant with FCC rules, whereas the medical people, you

know, they have to hire, they're building that team.

It's a totally different ballgame. The company has flown under the radar

of major regulations, thanks in part to its classification as a fitness

and wellness device manufacturer, not a medical device manufacturer.

In fact, the Apple Watch has a De Novo classification under the FDA,

meaning it is a medical device for which general controls alone, or

general and special controls provide reasonable assurance of safety and

effectiveness for the intended use, but for which there is no legally

marketed predicate device.

Apple really wants to say, "this is your health buddy.

It's basically a medical device.

You know, you need this to track your vital signs." But legally, they

got to be like, "this is about wellness.

This is about, you know, fitness.

This is about health as opposed to medicine."

So Apple's relationship with the FDA is growing more complex as it adds

more medically focused sensors, but some physicians are not convinced

that all their patients need the information coming from these sensors.

There are definitely situations where, as a doctor, I appreciate and

value the data coming in from an Apple Watch.

It's when the watch is driving the disease rather than the other way

around that things get into trouble.

If you look at the the distribution of ages that own an Apple Watch and

the distribution of ages that have atrial fibrillation, they are

inverse. So, the people who have Apple Watches are the ones who are

least in need of continuous monitoring for atrial fibrillation and vice

versa. Privacy is also a concern as health data is incredibly sensitive.

Luckily, Apple has a good track record when it comes to privacy.

Because the business model involves selling hardware, they can make the

argument more coherently that it's not actually in their interest to

sell your health information to a third party.

Because if that were uncovered that they were doing that, then it would

be a massive blow to that primary source of income, which is the

hardware side. I don't think anybody's going to trust Facebook medical

records anytime soon.

The future of Apple's health initiatives look positive.

Having control of that end to end experience lets them do things that

other device makers can't do.

And I think that's why they are so well positioned in digital health, is

they can collect that data, they can create seamless experiences for the

consumer, and they can also let that data be leveraged by those third

party app developers that ultimately, I think power kind of the next

wave of digital health with Apple.

The company has already tackled heart rate, electrocartiography, blood

oxygen levels, but there is so much more that can be developed.

Blood glucose monitoring is something Apple has discussed, which is also

been on the radar of some other companies.

This would be a huge breakthrough for people with chronic conditions like

diabetes. It would be an immense story kind of overnight.

I don't necessarily believe that it's possible because these are such

challenging things to do from just a technical and scientific

standpoint. This stuff is half.

This stuff is really hard, you know, taking sensors that really exist,

you know, and miniaturizing them and making 10 million of them all work.

Whether there's any actual benefit for non-diabetic people monitoring

their sugar continuously is totally unknown.

Unfortunately, that's not going to stop devices from being introduced to

the consumer market to do precisely that.

And already there are several in the pipeline.

Products like iPods might find usefulness in Apple's health and wellness