By Lisa Suennen

Two weeks ago I had the good fortune to be invited back to the South by Southwest Conference (SXSW) to participate as a judge of a digital healthcare start-up competition. SXSW, which takes place in Austin, TX, is historically an indie music gathering that has evolved into a massive mainstream music conference as well as a monumentally huge film festival, like Sundance times twenty. There are literally hundreds of bands and films featured around town. There has now evolved alongside this a conference called Interactive that draws more than 25,000 people and focuses on technology, particular mobile, digital, and Internet.

In other words, SXSW has become one of the world’s largest gatherings of hoodie-sporting, gadget-toting nerd geniuses that are way too square to be hip but no one has bothered to tell them. Imagine you are sitting at a Starbucks in Palo Alto, CA among 25,000 people who cannot possibly imagine that the rest of the world still thinks the Internet is that newfangled thing used mainly for email and porn. SXSW is a cacophonous melting pot of brilliance, creativity, futuristic thinking, arrogance, self-importance, ironic retro rock and roll t-shirts and technology worship. One small example: very hard to get your hands on a charger for anything other than an iPhone 5 because, seriously, who would have anything else?

In the last two years healthcare has become a highly featured part of the SXSW Interactive conference, particularly as digital health has risen to the forefront of the healthcare conversation. Last year there were a few events focused on this topic but this year there were many of them, including two major start-up competitions, a plethora of presentations, and even a pretty healthy group of parties put on by the likes of old school healthcare entities looking to find their seat at that Palo Alto Starbucks look-alike contest. Aetna, Blue Cross Blue Shield plans and other carriers were well-represented. It is interesting to see our industry make an earnest attempt, at least in some quarters, to find their way into the 21st Century and beyond. It was also interesting to notice who was not yet there: the mainstream healthcare IT companies, particularly those that sell to hospitals and other provider organizations. Back to that in a minute.

I was happy to go to SXSW to see the healthcare companies and my colleagues in the field, but this year I was determined to get to the fun side of SXSW where the film and music festivals take place. Having completed my official duties I snuck off to catch the premiere of the movie Downloaded, which is a documentary about the rise and fall of Napster. For those of you who aren’t familiar with Napster, it was the very first music sharing company on the Internet. Founded by Shawn Fanning, who invented the technology with the help of early versions of crowd-sourcing and peer-to-peer networking (ideas that didn’t really exist in fully-thought out form at the time), Fanning came up with the idea of MP3 file sharing of music while bored at Northeastern University, where he ultimately dropped out to pursue Napster full time, with collaborator Sean Parker, more recently of Facebook fame (definition of “made it”: Justin Timberlake plays you in a movie). In 1999 the site was launched and chaos ensued. It became the most widely used Internet site with over 26 million users by 2001 when it was summarily murdered by the legal efforts of the music industry which felt that Napster threatened their very existence. They were right.

There were so many interesting lessons in this movie that apply more broadly to the interplay of industry and technology, and those were particularly pronounced when watching it in a venue where you were surrounded by the somewhat unintentional spawn of Napster, as well as the entire music industry. Napster’s original intent was mainly to allow college kids to share MP3 music files around the world, but really the company ended up catalyzing so much of what drives the Internet today: social networking, peer-to-peer computing, consumer engagement, free/freemium commerce, streaming, etc. I could go on and on. These young kids did not intend to upend the traditional music industry, much less the world of computing, but they did.

Napster ceased operations, at least in its original form, in 2001 after the Recording Industry Artists Association and many musicians, promoters and major music corporations rose up with an army of lawyers and crushed them with copyright law enforcement. Legitimate as those copyright claims were, the truth of the matter was that, once unleashed, the old guard was powerless to stop it once the new guard reached critical mass—they had won the battle but lost the war. This is a very prophetic lesson here for the “traditional” health IT companies.

There was a particularly poignant moment in Downloaded where the chief engineer at Napster was told to just shut it down–turn off all the servers and create a total service blackout–after the company could not comply with the court-ordered requirement to stop passing along music that was under copyright. But even when they unplugged all the servers, they found that hundreds of mirror servers existed out in the global community that were still fueling the Napster feed, and that the lights literally could not be turned off. It is a powerful moment, particularly as a metaphor for the concept of Clayton Christensen’s Innovator’s Dilemma. Even though Napster literally pulled the plug, their technology and its offshoots powered on and over the likes of record companies, music stores, music publishers and artists, all of whom were forced to adapt to the new world order despite many efforts to protect their old businesses models when they should have been embracing disruption in order to thrive in the future. In fact, the SXSW conference is now a virtual shrine to this experience, chock-a-block with the technology spawn that lives at the intersection of music, software and fan-engagement.

You healthcare people who aren’t big music fans might be saying, “so what?” but this could well be the story writ large for many participants in our industry too. And no where is this more true than in the world of traditional healthcare IT (HIT) , where we are poised right at the same precipice in many ways: a few massive players dominate the provider systems industry with closed systems. And in their wake are a million small entrepreneurs, armed with iPhones and massive creativity, and on a mission to undermine the traditional HIT oligarchy while they sleep and/or rest on their historical closed system laurels.

So much effort has gone into keeping patient and provider and insurance data proprietary that the medium to large institutions host data fortresses that would give Superman’s Fortress of Solitude a run for its money. Providers have been notoriously closed with their data, preferring to keep costs, patient histories and anything else they can out of the patients’ hands to preserve their aging business models. In some cases the more mysterious the better, as one can read in Stephen Brill’s stunning story in Time Magazine a few weeks back, where a mythical “chargemaster” rules the hospital pricing universe, shielded even from the eyes of many hospital executives. I am not going to belabor the point about how hard it is for consumers to get their own healthcare data (not to mention that they don’t even own it) or to access information about cost transparency, quality, etc. Everyone knows this. But what is happening is that the kind of people who attend SXSW are rising up and going straight to the consumer end-user to find ways to work around the system, get them their data, get them pricing information, connect them with quality and provider data and do all of the things that the traditional health IT infrastructure has been turning flip-flops to avoid.

Some of the industry’s leaders have already figured out, at least in small ways, that the times, they are a’changing. The landscape of health insurance carriers haven’t exactly embraced true open data, but some have flirted with it, offering mobile access to limited chunks of patient data or provider information to keep consumers loyal to their brands. While a start, this doesn’t exactly foster true interoperability or transparency since the data stays within and addresses only what is inside their own figurative four walls, but there are glimmers.

On the hospital side, Epic stands firm as the poster child for “Katie, bar the door.” They have steadfastly refused to embrace true interoperability or open data and, since they are the dominant purveyor of healthcare IT platforms to many of the nation’s most prestigious hospital organizations, they have had the upper hand. But the Epic armor may soon be subject to cracks, alongside other of their provider-focused health IT brethren. And those cracks will be driven into their armor by the upstart entrepreneurs who are figuring out how to connect consumers to the information they want anyway and to build patient profiles from free-floating data in the social networking and related technology superstructures that have become more prevalent in consumers’ lives than anyone could have predicted, particularly as mobile phones have become as common as kidneys. And by that I mean that, yes, many people have two phones.

I am sure many of you saw the recent CommonWell Health Alliance announcement from McKesson, Cerner, AllScripts, Athena Health, Greenway Health and Relay Health. In it these 6 groups announced they were banding together to form a non-profit industry association to “support universal, trusted access to health care data through seamless interoperability.” It’s a noble goal, but it may well be a bit like the last stand of Custer in the face of a million very mission-driven warriors. The trick lies, as former President Clinton might say, in what the definition of “is” is—or in this case what the definition of “open” is. There are true open systems and then there are open-ish systems and it will be some time before we really know whether these HIT companies are going to be the kind of pterodactyls that evolve into birds and take flight or the kind that become extinct as they fight for their ever-decreasing share of a shrinking closed systems pie.

When I saw the CommonWell announcement I had a huge case of déjà vu. In my last life I worked in the high technology (non-healthcare) industry and worked for a brief while at an organization called X/Open, which was formed in 1984 by the then international leaders in the computer hardware industry. The original list included Groupe Bull, ICL, Siemens, Olivetti and Nixdorf. They were later joined by Philips, Nokia, AT&T, DEC, Unisys, HP, IBM, NCR, Sun, Prime Computer, Apollo Computer, Fujitsu, Hitachi, and NEC. The focus of the organization was to “specify a Common Application Environment (CAE) intended to allow portability of applications across operating systems. The primary aim was compatibility between different vendors’ implementations of UNIX.”[citation from Wikipedia]. Interoperability, not true data openness or system integration, was the goal back in the 1980s. Sound familiar?

Fast forward many years later and, while X/Open morphed into The Open Group in 1992 and is still around, a majority of the companies on that list above wouldn’t land on most people’s list of the 3 most important and influential technology companies around today. Many of them are dead (or just resting), some are limping along; and a few are thriving but none of them have the cache of Apple in today’s blossoming healthcare IT environment. While X/Open and its cadre were ascending in the mid-1980’s, Apple was descending. Today most people would classify Apple as the most important IT company on the planet. Who’d have thought? And the reason Apple saw this resurgence was because the company had the forethought to blow itself up in order to become the very company that capitalized on what Napster had created by making it acceptable to the mainstream. Enter irony, stage left.

And this all makes me wonder…who will be there as the king of the hill 20 years from now in the healthcare IT marketplace? Mobile technologies and digital health companies and consumer engagement platforms are popping up like dandelions and no amount of Current-Market-Leader Brand weed-killer can get them all. Only the big companies that embrace new business models and voluntarily self-immolate their old-school strategies will be the names we see on the hardware stacks of the future—assuming hardware stacks still exist among the fluffy clouds that house the data rooms in the sky we are starting to embrace. In a recent article John Moore of Chilmark likened Epic’s closed system strategy to Wang Laboratories’ protectionist approach, and we all know what happened to Wang, or everyone would if they were old enough to have heard of it. When Wang croaked in the early 1990’s it was because the company was too late to recognize that personal computers would kill mainframes and that would kill the company. Bummer dude. But it is, as they say, a timeless tale. As a colleague who runs the innovation programs at AARP, Jody Holtzman, recently said to me, a perfect example of “Ye Olde Innovators Dilemma.”

So what does this mean for the HIT companies we have come to know and….know? It means that they must embrace the changing role of the consumer with respect to his/her data and the rapidly expanding imperative that they get real information to make purchasing and clinical decisions. It means that interoperability must start to be seen as the price of doing business in this sector, not the evil whose name must not be spoken. It means that mobile technologies must be integrated into the product roadmap, not tacked on like a billboard on the side of the road. Here’s the good news: it appears that the more open technology becomes, the more it breeds demand for more technology, so a true open systems approach may actually increase the size of the pie for everyone.

While it is a total geekfest, I would recommend that everyone watch Downloaded, which is set to be premiered soon on Vh1, not just because it’s interesting, but because it is a cautionary tale writ large for everyone who makes their living in the technology field, including those of us in healthcare.

Lisa Suennen is a founding partner of Psilos Group Managers. She blogs at Venture Valkyrie.