GE software, my take
August 10, 2016
by Philip F. Jacobus, CEO
A number of people called me about the decision on the part of GE Healthcare to enforce the licenses on certain optional software programs.
If you are not familiar with this issue let me explain.
When GE sells a CT or MR it comes equipped with basic operating software. Customers can also purchase optional software that allows the scanner to do more.
This optional software license has always been issued only to the original purchaser but, In the past, GE has not enforced the restriction to limit the use of this optional software to the original owner.
The optional software traveled with the system when the system was sold or traded in.
GE has made the decision that going forward, they are going to enforce the license restriction and no longer allow optional software to be used by subsequent owners/operators of the system unless the next user pays for the license.
A lot of people are upset about this.
I did my own back of the napkin analysis to see who the winners and losers would be.
Current owners
On the surface, it will seem as though the current owners of imaging systems will suffer because it is a little bit harder to resell the systems that are not packaged with all of the software options.
I suspect that if the owner/operator takes the time to sell their system in the open market, they probably will generate a few dollars less without the optional software but in the big picture, the difference will be nominal. It is more important to the operators to get the new machine and continue to scan patients and provide health care than to make any extra money on their systems.
Also, I suspect that the impact on trade-in values, when buying a new system, will be negligible because it is my belief that the biggest chunk of a trade-in value comes not from the value of the unit being traded but from the margin on the new system being purchased.
Therefore, it is my prediction that health care providers will only be modestly impacted.
Leasing companies
Leasing companies will probably be more impacted because if a leasing company has leased an item on the fair market value lease, the system will have less value at the end of the lease.
Leasing companies will probably suffer but I believe there are fewer FMV leases than in the past.
General Electric
GE will probably benefit because GE is in a better position now to offer a trade in and it makes the GE Gold Seal Product more valuable. It also makes GE more competitive.
Independent parts companies
I see independent parts companies as the biggest winner. A diagnostic imaging system without the optional software bundled will now sell for less which means parts companies can buy systems for less money and harvest more parts. So, the parts companies will be able to buy parts for less.
I suspect this will drive the price of parts down because the barrier for entry for an independent parts company will be lowered. If equipment sells for less because optional software is not included, then it will make it easier for small players to buy systems and stock parts.
Independent service companies
I do not think independent service companies will be hurt. In fact, I think they will benefit.
If a health care provider is not in a position to buy a new piece of equipment with the latest software because they are strapped for cash, if they have to buy a used item and then pay extra for the software, they are now going to be even more strapped for cash and their need for a contract with an independent service company will be even greater.
So, as I see it, independent service companies will benefit from this decision.
Used equipment brokers
The real losers here will be the used equipment brokers. It is true they can buy equipment for less money but it is also true they are not going to be able to compete because of the costs of the optional software.
I have often said that if you are a used equipment broker, you better do something different because unless you add value to the transaction, the Internet and all other market forces are going to squeeze you out of the transaction.
Obviously, there is only so much ground I can cover in this short blog entry but from 30,000 feet in the air, that is my analysis of our winners and losers.
What is your opinion?
If you are not familiar with this issue let me explain.
When GE sells a CT or MR it comes equipped with basic operating software. Customers can also purchase optional software that allows the scanner to do more.
This optional software license has always been issued only to the original purchaser but, In the past, GE has not enforced the restriction to limit the use of this optional software to the original owner.
The optional software traveled with the system when the system was sold or traded in.
GE has made the decision that going forward, they are going to enforce the license restriction and no longer allow optional software to be used by subsequent owners/operators of the system unless the next user pays for the license.
A lot of people are upset about this.
I did my own back of the napkin analysis to see who the winners and losers would be.
Current owners
On the surface, it will seem as though the current owners of imaging systems will suffer because it is a little bit harder to resell the systems that are not packaged with all of the software options.
I suspect that if the owner/operator takes the time to sell their system in the open market, they probably will generate a few dollars less without the optional software but in the big picture, the difference will be nominal. It is more important to the operators to get the new machine and continue to scan patients and provide health care than to make any extra money on their systems.
Also, I suspect that the impact on trade-in values, when buying a new system, will be negligible because it is my belief that the biggest chunk of a trade-in value comes not from the value of the unit being traded but from the margin on the new system being purchased.
Therefore, it is my prediction that health care providers will only be modestly impacted.
Leasing companies
Leasing companies will probably be more impacted because if a leasing company has leased an item on the fair market value lease, the system will have less value at the end of the lease.
Leasing companies will probably suffer but I believe there are fewer FMV leases than in the past.
General Electric
GE will probably benefit because GE is in a better position now to offer a trade in and it makes the GE Gold Seal Product more valuable. It also makes GE more competitive.
Independent parts companies
I see independent parts companies as the biggest winner. A diagnostic imaging system without the optional software bundled will now sell for less which means parts companies can buy systems for less money and harvest more parts. So, the parts companies will be able to buy parts for less.
I suspect this will drive the price of parts down because the barrier for entry for an independent parts company will be lowered. If equipment sells for less because optional software is not included, then it will make it easier for small players to buy systems and stock parts.
Independent service companies
I do not think independent service companies will be hurt. In fact, I think they will benefit.
If a health care provider is not in a position to buy a new piece of equipment with the latest software because they are strapped for cash, if they have to buy a used item and then pay extra for the software, they are now going to be even more strapped for cash and their need for a contract with an independent service company will be even greater.
So, as I see it, independent service companies will benefit from this decision.
Used equipment brokers
The real losers here will be the used equipment brokers. It is true they can buy equipment for less money but it is also true they are not going to be able to compete because of the costs of the optional software.
I have often said that if you are a used equipment broker, you better do something different because unless you add value to the transaction, the Internet and all other market forces are going to squeeze you out of the transaction.
Obviously, there is only so much ground I can cover in this short blog entry but from 30,000 feet in the air, that is my analysis of our winners and losers.
What is your opinion?