The headlines say the medical device market will hit $1.1 trillion by 2034. Great news, right? Not if you dig into what’s happening beneath those 3-6% growth projections. Three major shifts are rewriting the rules while most companies continue playing by the old playbook.
The New Rules of the Medical Device Game
The power dynamic in medical device purchasing has flipped. Hospital systems now weigh financial costs against clinical benefits with the same rigor they apply to any major capital purchase. Those deep surgeon relationships you’ve cultivated? Still valuable, but no longer sufficient to close deals when finance teams are demanding ROI calculations.
Consumer empowerment is accelerating faster than anyone predicted. The wearables market—which started with fitness tracking—is projected to hit nearly $170 billion by 2030. We’re talking cardiovascular monitoring, neurological condition management, and respiratory tracking, not just step counting. Patients are becoming informed consumers with real purchasing power.
And the AI shift isn’t coming. It’s here. In 2018, KPMG warned that medical device companies risk becoming “mere commodity producers” without integrated intelligent services. Fast forward to today where the FDA approved a record number AI-enabled devices in 2023, and venture capital investors are paying an 83% premium for AI-powered MedTech startups over traditional device companies.
Why “Just Add Services” Is a Trap
If you’re thinking “we’ll just add a service business,” you’re not alone. That’s exactly what most medical device executives decided to do. Design some service offerings, layer them on top of the product business, problem solved.
Except it’s not. Most companies that went down this path quietly abandoned their efforts when they discovered that designing a service business is entirely different from actually launching and scaling one. Even the companies that focused on the seemingly simpler goal of monetizing patient data hit walls of technical and regulatory complexity they hadn’t anticipated.
What You Can Learn From Successful Transformation
- Understand and appeal to everyone in the ecosystem, not just clinicians
One global catheter lab equipment manufacturer was facing serious commoditization pressure. Their response? They stopped focusing exclusively on interventional cardiologists and started systematically understanding everyone involved in purchasing decisions: surgeons, nurses, hospital executives, payers (both private and government), and patients themselves. And because they’re global, they did this across developed, emerged, and emerging markets.
Nearly 100 interviews across 10 countries later, they identified 12 “strategic opportunity areas” where they had high confidence in building profitable, scalable service businesses. Five of those opportunities each represented at least $150 million in net new revenue.
Within six months, they’d funded two new service businesses and aligned leadership around a three-year growth strategy. Using the research data, they also developed 12 additional concepts ready to pilot when resources became available.
- Prepare your CFO for the different economics of services and products
Few service initiatives survive their first review with Finance.
Medical device executives expect, and are incentivized to deliver, 60-80% gross margins. But services businesses at best deliver gross margins of 40-60% and are often further constrained by high labor costs
The metrics used to measure success are also wildly different between products and services. Product businesses track units sold, average selling price, and R&D as a percent of revenue, while service businesses rely on “softer” metrics like customer lifetime value, recurring revenue, and churn rates.
The catheter lab company mentioned above successfully piloted services but struggled to scale because executives couldn’t reconcile these financial differences. Another medical device company succeeded by treating the operational and financial implications as a transformation project from day one, ultimately repositioning themselves as a provider of intelligent devices with value-added services.
- Monetize the services you’re already providing for free
Most device companies are already delivering services because they support improved patient outcomes. One device company realized they were already offering extensive human-to-human services at when patients started using their devices and every three months for the first year.
However, by flipping their services business to focus more on the patient journey than device usage, they uncovered a multi-hundred-million opportunity. They developed services and new products specifically moments when patients were likely to become non-compliant: leaving for college, dating, receiving a new diagnosis.
The cultural commitment to customer support was already there, which made navigating the operational and financial differences possible.
What This Means for You
The path to profit is no longer only about product superiority and clinician relationships. Medical Device companies now need to move quickly to develop, launch, and scale product-service hybrids that leverage AI and intelligent data alongside human caring if they want to continue commanding premium prices and high margins.
It’s not going to be quick or easy. The financial models are genuinely different. The organizational changes are real.
But there’s proof that it’s possible if you treat this as a transformation (not an add-on), understand and work with the full ecosystem (not just clinicians), and build from existing capabilities (not from scratch).
About the Author
Robyn Bolton is the Founder & Chief Navigator at MileZero, a consultancy helping medical device and healthcare companies navigate business model transformation. She was previously a Partner at Innosight (founded by Clayton Christensen) and on the team that launched Swiffer at Procter & Gamble. Her book, Unlocking Innovation: A Leader’s Guide to Turning Bold Ideas Into Tangible Results, is available now.
