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WebMD Saga Continues

The Wall Street Journal can’t seem to get enough of the WebMD story. And rightfully so. Following an 87% drop in the firm’s stock price over an eight month period, and the resultant institutional investor frenzy , WebMD founders Jim Clark and Jeff Arnold resigned in October, 2000. Prior to WebMD, Jim Clark brought us Silicon Graphics and Netscape.

So what’s Jeff Arnold doing now after having left WebMD under fairly awkward circumstances? Skeptics who chalked up Arnold as yet another dot-com casualty were wrong, as it turned out. In March 2001, just five months after his departure from WebMD, Arnold began the process of launching his next enterprise.
The venture has two components to it. Part one: a smart web navigation device / advertising delivery engine capable of discerning web users’ interests sufficiently to reach consumers in a more targeted and economical way. Part two: a WebMD of sorts for the internet space more broadly. Arnold’s venture is based on the premise that the internet bloodbath of recent months has created a buyer’s market for failing dot-coms. Arnold proposed identifying the most promising segments within the internet market and “roll-up” failing companies as WebMD’s did within the online health care segment.

Was Arnold’s strategy successful in the end? The jury is out on whether Arnold’s strategy of attempting a “helter-skelter assemblage” of online healthcare assets gave WebMD competitive advantage. Despite the precipitous drop in stock price since the days when WebMD was the darling of Wall Street, the company has endured and is in fact, back in favor once more. Amongst the flurry of failing dot-coms, WebMD has emerged as a potential long-term survivor. The stock price is currently trading at $8, giving the company a market value of approximately $2.8 billion, and 12 Wall Street analysts have Buy recommendations on the stock.

Some of the attendant risks of WebMD’s partnership and acquisition strategies have been evident over the last few months. A federal judge ruled last week that WebMD would have to continue to honor its partnership agreement with Quintiles Transnational Corporation (QTC). QTC and WebMD signed a data-sharing agreement in2000 as part of the terms of the latter’s acquisition of QTC’s Envoy Corporation unit. The dispute arose over WebMD’s stoppage of data transfer to QTC based on the premise that while explicit patient data such as name and address were excluded, elements could be used to identify patients if cross-referenced with publicly available data sources.

Patient confidentiality lies at the very heart of the success of the WebMD model. While WebMD’s success hinges on adoption by physicians (who remain somewhat skeptical of the online patient data sharing concept) watertight patient confidentiality is a pre-requisite for patients agreeing to allow physicians to file share with health care providers and other physicians.

And what of WebMD? After Clark, Arnold and several other of WebMD’s top management team departed, Martin Wygod took on the roles of Chairman and CEO. Arnod’s grand internet vision has been considerably scaled back and Wygod is renegotiating several of WebMD’s partnerships. Wygod’s central aim has been to pursue much more modest goals in the immediate term: selling software and services to health care plans and physicians.
Recently, Pfizer stepped up to seek a piece of the online healthcare pie as well, rendering Wygod’s decision to refocus on building consistent and profitable subscription-based revenue stream is timely. In March, 2001, Pfizer announced its intention to form a joint venture with Microsoft and IBM to sell software and services to physicians. Microsoft is already in a non-exclusive alliance with WebMD whereby WebMD has agreed to use Microsoft technology in its software systems.
The next few years in online healthcare promise to be riveting-the only prediction we will hazard to make however is this: watch this space.

April 23, 2001
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