IQ News Analysis: Failing Health

General health care sites have lost ground to disease-specific sites as well those run by local hospitals. Can this category be revived?
0Online health wasn’t supposed to be brain surgery. For years entrepreneurs have touted the power of health care over the Internet and the potential riches to be reaped in linking consumers to health information and patients to their doctors.
For the health care industry, which is still almost 70 percent paper driven, the Web was to be the technological panacea every patient and doctor was dreaming of. It would make communication easier and would empower patients like never before. Even more important, taking just a sliver of the $1 trillion spent on health care annually or the billions spent on pharmaceutical advertising promised massive riches for entrepreneurs.
But what looked good on paper has proven much harder to implement in real life. The near implosion last month of, the celebrated site named after former Surgeon General C. Everett Koop, underscored the dire condition of many health sites as they struggle to find a winning strategy.
Eager entrepreneurs are quickly learning that their grand visions will be much harder to realize than they’d ever expected. Health care has been slow to move on the Web–at least in the ways entrepreneurs expected it to. And general health sites like and others have had to compete with a host of competitors ranging from deep-pocketed sites like Yahoo! Health to grassroots sites run by local hospitals. Most troubling of all for the startups, however, is that advertising dollars are proving much harder to come by than anticipated.
“The Web isn’t the doctor killer that many health care sites think it is,” says Michael Barrett, senior analyst at Forrester Research. “Internet sites have to assume co-empowerment; people thought it was a matter of bringing the doctor to the Web, but it’s really a matter of bringing the Web to the doctor.”

Fall of an icon
Despite drkoop’s powerhouse brand and its river of traffic, the company became a poster-child of online health gone wrong when its auditor, PricewaterhouseCoopers, questioned the long-term viability of the business. In a filing with the Securities and Exchange Commission, PricewaterhouseCoopers expressed “substantial” doubt about the company’s “ability to continue as a going entity,” pointing out that the Internet health company had “sustained losses and negative cash flow from operations since its inception.”
According to company filings, drkoop earned almost $7.7 million from advertising and about $1.7 million in subscription revenues in 1999, but it spent $9.3 million on production and a whopping $45.5 million on sales and marketing, leaving it with only $35 million cash in its coffers, according to the company’s 10K, filed in late March.
The speed of drkoop’s fall also underscored the high stakes of online health, and online business in general. With its prominent brand and high-profile partnerships with the likes of AOL, Netscape and, was touted as the decisive leader in online health as recently as February. It boasted more than one million registered users who logged onto its 15 interactive communities for information on everything from addiction to children’s health. And according to Media Metrix, drkoop and its associated content on AOL collectively had 6.7 million unique visits in February, making it the No. 2 health site behind the recently merged Healtheon and WebMD.
When word got out about PricewaterhouseCoopers’ filing earlier this month, investors promptly pounded drkoop’s stock price down to almost $2, and dragged down many other online health stocks with it (At its 52-week high, the stock was at 45.) But more important, the announcement sounded the death knell for independent health sites struggling to live on advertising dollars alone. Indeed, analysts say, content once was king, but content alone no longer makes a business.
“You saw the fall of drkoop because they did not aggressively diversify their business in time,” says Claudine Singer, senior health analyst at Jupiter Communications. “They just fell flat when you compare them to the competition.” Singer notes that management bungles over the past year–including an SEC insider trading inquiry and controversies that raised questions about editorial integrity at drkoop–also helped bring about the fall.
Still, the small pot of online health advertising dollars more than raised a red flag. Singer estimates that in 1999, pharmaceutical players–the biggest source of ad revenue in the health business–spent only $100 million online, compared to billions on broadcast, print and other media. Although that figure is expected rise to $700 million by 2004, the ad dollars are simply not enough to keep many of the sites in business.
“There were a lot of players that debuted as pure plays now rethinking those strategies,” says Singer. “You can’t make it on content alone because the ad dollars just aren’t there.”
And while general health care sites like, and others spend millions marketing themselves, they’re competing in a more crowded marketplace. Non-health-specific sites like newspapers and portals can more easily attract a mainstream health audience–“casual health seekers,” Forrester analyst Elizabeth Boehm calls them. Disease-specific sites for cancer, diabetes and other diseases and conditions are major pulls for chronic disease sufferers who require deeper, more sophisticated content than the broad-based sites can offer and will provide detailed personal medical data to get it. Meanwhile, a host of governmental and nonprofit sites are siphoning off another significant part of the audience, mainly doctors and newly diagnosed patients, who want less commercialized content that is trustworthy, deep and more clinical than general sites can offer. According to Media Metrix, the National Institutes of Health’s Web site alone garnered 1.7 million users in February, amounting to more than half the viewership of, with almost no advertising dollars whatsoever.

A new game plan
The next few months will see a complete reassessment of the online health marketplace and the strategies of health sites, analysts agree. Forrester’s Boehm expects general health sites to transform into “full-service” sites offering a combination of rich content, pervasive partnerships and disease-management services all under one site. In short, what were once three strategies–content, connectivity between doctor and patient, and electronic medical file access–will become one.
“They’re going to evolve into networks of health sites,” says Boehm, “and those will include networking with the e-commerce space.”
No two players exemplify this trend better than Healtheon/WebMD and Medscape. Both have incorporated a broad mixture of content, commerce and health care connectivity, cobbling together a mix of strategies to ride out the turmoil in the market. In the process, both are emerging as market leaders ready for the next generation.
Healtheon/WebMD, originally Healtheon, is the brainchild of Silicon Valley pioneer Jim Clark, who sought to connect insurance companies, doctors and patients over the Net to streamline costs and cut paperwork. In May 1999, Healtheon acquired health content provider WebMD, adding a deep database of content to its service offering. Since then, the company has made a series of acquisitions, all to build a system of software and services to automate tasks like HMO enrollment, referrals, data retrieval and claims processing. The result is a so-called “end-to-end” health business that can touch every bit of the health market.
“Knowing that the online world is extremely fragmented, we’ve been big believers in the convergence of [business] models,” says Reggie Bradford, Healtheon/WebMD’s chief marketing officer. These days, Healtheon/WebMD facilitates communication between physician and consumer, distributes products and content, and produces its own content. The planned acquisition of Medical Manager announced in February will place Healtheon/WebMD in control of two-thirds of the 3 billion annual claims done electronically, says Bradford.
Once that acquisition is complete, Bradford says, Healtheon/WebMD will have a business model similar to that of AOL. It will have a recurring revenue business that handles transactions, a distribution business and a content business to attract traffic.
If Healtheon/WebMD is an end-to-end solution, Medscape, sees itself as the piece that’s at the beginning of it all. The company began as a physician’s reference site, but has since grown to offer everything from rich content for about 1.7 million physicians and healthcare workers to consumer content through CBS Healthwatch, which distributes Medscape’s content. In late February, Medscape entered a triple merger with online medical records provider MedicaLogic and Total eMed, a provider of remote transcription services over the Internet. The $1.3 billion deal will leverage Medscape’s strong ties to doctors to support the medical records business and the transcription business.
“We have three companies merging, each with a separate revenue stream, each of which will contribute to the core strategy,” says Medscape president and CEO Paul Shiels. “The merger offers substantial synergy for all of us.” The combined company will target doctor-patient communication, allowing people to access their medical records and make doctor’s appointments online. It will also provide physicians new tools to connect to their offices.
While Healtheon/WebMD and Medscape seem to have promising business models, both companies still have a lot of work to do. Doctors have proven to be a slow-moving bunch when it comes to going online. In a recent report, “Why Doctors Hate the Net,” Forrester’s Barrett points out that doctors will only selectively adopt features and services that make their lives easier and faster. “It’s not that the doctor isn’t technologically inclined,” Barrett notes. “They use the Web to check their finances and plan their vacations. But they won’t go to it for the heavy clinical stuff.”
So does all this mean that health content on the Web is dead? Definitely not, analysts say. “I’m not one to count out the pure content models. I have great faith in them,” Shiels says, “but as they say, it’s going to be an interesting time [for them].”
Indeed some analysts still have faith in drkoop’s revival, based on its strong brand and massive audience. “Drkoop has a lot of traffic and a good brand,” says Boehm, “I wouldn’t write them off just yet.” n

Hassan Fattah is a freelance journalist based in New York.
He can be reached at

Unique Visitors to Health Sites, February 2000
SITE unique Users Impressions Top Five Advertised Locations
All Domains 70,359 18,000,000 4,858 54,000 Yahoo, AOL, Excite, IWON, Disney
AOL – Health Channel 3,793 — 2,900 52,000 AOL, Yahoo, Go, Beseen, 2,426 62,000 Yahoo, Lycos, Netscape, CBS SportsLine, 1,792 — 818 5,400 Lycos,, AOL, LookSmart, TalkCity 612 31 Spinner, MSN, BabyCenter 559 14,000 AOL, MSN,, AltaVista, Excite 277 —