Monday, October 02, 2006

The Web Returns to Health

The Web Returns to Health
'The Last Frontier' on Internet Draws Big Names and Their Money

By Annys Shin
Washington Post Staff Writer
Tuesday, August 8, 2006; D01

Ninety-five million Americans -- about 80 percent of online adults -- have searched the Web for health information in the past year, and the overwhelming majority have been disappointed.

More than 70 percent of those searchers either did not find what they were looking for or had a hard time knowing what to believe, according to market research studies by Jupiter Research and Yankelovich Inc.

That frustration has attracted some famous deep pockets, including America Online co-founder Steve Case, his former employer Time Warner Inc., the Carlyle Group and Allen & Co. Together, they have put more than $100 million into building virtual destinations that offer consumers something beyond disease encyclopedias.

Some want to make it as easy to choose a doctor as a restaurant. Others eventually hope to offer "virtual assisted living" by monitoring medicines or pacemakers remotely, so the elderly can stay in their homes longer.

"The health category is the last frontier where the Internet has not yet transformed that industry, the way it has done for travel, finance, and commerce," Wayne T. Gattinella, chief executive of WebMD Health Corp., said.

Harnessing the Web to make health care more user-friendly has been a holy grail for entrepreneurs since the earliest days of the dot-com boom. But like many online content businesses, they failed because they could not figure out how to make money.

"The mistake that's been made by a lot of entrepreneurs who have pushed those approaches was an 'if we build it they will come' philosophy," said Jay Savan, a benefits consultant in the St. Louis office of Towers Perrin.

Some sites, such as relied too heavily on advertising revenue. Named for the former U.S. surgeon general C. Everett Koop, it was worth more than $1 billion at one point, but went out of business in 2001 not long after going public. Its assets -- mainly Internet domain names -- were later sold for $186,000 in bankruptcy court. It is now owned by the HealthCentral Network, an Arlington-based company that is part of the second wave of health information Web businesses.

The dominant player in the field, 10-year-old WebMD, survived by merging with Healtheon, founded in 1996 by Netscape co-founder Jim Clark. He saw the Internet as the best way to bring doctors and patients together and "get all the other [jerks] out of the way." The combined company, which also delved into insurance claims processing, physician practice management software and plastics, did not post a profit until 2003.

The nearly $2 trillion health-care industry remains as fragmented and frustrating as ever. But the market for online health information and services has changed enough to make it a viable business, investors, entrepreneurs and analysts said.

A May 2005 Pew Internet & American Life Project study -- which reported that about 95 million people have searched the Web for health information -- found more people were turning to the Web for information about diet, exercise and over-the-counter drugs. They also do more "health homework" online, such as comparing physicians and hospitals.

"The consumer is starting to expect the same information with respect to a health provider as they expect with an airline or investment vehicle," Gattinella said. "Those are the big forces that will accelerate changes in our industry in the next five years."

It will still be a while yet before finding a heart surgeon is as easy as booking an airline ticket on Orbitz or Travelocity.

"I don't see we're at an inflection point because there is still major limitation on quality information available . . . [and] still limitations on cost information. Those limitations on data are not about to disappear," said Paul Ginsberg, president of Health System Change, a non-partisan research organization in Washington.

But with out-of-pocket medical expenses rising faster than family income, and a small but rapidly growing number of the insured turning to health-savings accounts and high-deductible health plans, consumers have begun shopping around, if not for the best hospital for coronary bypass graft surgery, then at the very least for prescription drugs.

Just as important as changing consumer habits, advertisers are also spending more money on Web ads.

WebMD spun off last year in a successful initial public offering and has seen its ad revenue grow. Last week, it reported a narrower second-quarter loss of $1.16 million, down from $1.5 million a year earlier. Advertising contributed to a 38 percent revenue increase.

As a result, big-name investors are once again bankrolling health information Web sites.

Time Warner has sunk money into Waterfront Media, a four-year-old Brooklyn publisher of self-help information founded by Ben Wolin and Michael Keriakos, two former executives with spirituality and faith Web site Beliefnet.

Unlike three years ago, when money for Internet start-ups was harder to come by, the company this past year raised $6 million from several sources, including Time Warner, to build The site, set to launch later this year, will deliver personalized health information, even by phone or personal digital assistant, to more than 11 million people who have created profiles on one of Waterfront's existing health-related sites.

The Carlyle Group, Allen & Co., and Sequoia Capital last year invested in HealthCentral Network, formerly ChoiceMedia Inc., which bought a collection of sites created during the dot-com boom and revamped them into a network of 25 condition-specific destinations that offer physician-reviewed information and the ability to connect with ordinary people who have experienced the same illness.

Both HealthCentral Network and Waterfront rely on advertising, and could benefit from a shift among pharmaceutical companies away from television and toward the Web, where they have unlimited time and space to relay such information as side effects.

Revolution Health, probably the most ambitious of WebMD's would-be competitors, is backed by Case and board members/investors such as Carly Fiorina, former chief executive of Hewlett-Packard Co., Franklin D. Raines, former chairman and chief executive of Fannie Mae, and Stephen Wiggins, founder of Oxford Health Plans.

Its Web portal,, is slated to launch in the fall. Revolution Health plans to offer, in addition to the usual searchable encyclopedia of disease information, tools for finding doctors, making appointments and managing health-related expenses.

What sets Revolution Health apart is its offline investments in walk-in retail clinics at places such as Walgreens and Wal-Mart for minor medical issues, and in insurance providers that offer high-deductible plans directly to consumers.

"It's best to attack this problem through multiple prisms and build a set of services that can attract an audience and can aggregate benefits to those consumers as well as those who want to provide services to those audiences," Case said. plans to make money by selling customized services to employers and health plans, selling advertising and charging membership fees for a suite of premium services, which may include access to better-quality doctors.

"We don't want to be the place you go to when you're not feeling well. We want it to feel more like your buddy list and your portfolio, a service that engages you because it's personalized, several times a day, not several times a year," Case said.

There were rumors earlier this year that Google was also looking into the delving into the online health information business, a development that does not surprise any of the current players.

"I think you'll see several other companies coming into this space because it is such a huge marketplace and so underpenetrated at this point," Martin J. Wygod, chairman of WebMD, told analysts during a May conference call.

© 2006 The Washington Post Company


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