Intel invests in Internet health
By Lawrence Aragon
Redherring.com
July 20, 1999
redherring.com
The world's largest chip maker is quietly becoming one of the biggest investors in Internet health care ventures.
Intel invests in Internet health
New York Times gets Abuzz
What were these eggheads thinking?
Intel (Nasdaq: INTC) has a special unit, the Internet Health Initiative (IHI), that is growing more active in health care investments. Its most recent investment was with HealthAxis.com, which markets and sells health insurance online. IHI put a few million dollars into the company on July 15.
What's a microprocessor maker doing funding health care startups? It's looking to drive Internet usage, which, in turn, will drive sales of its processors for PCs and servers, as well as its wide array of networking technology.
"We're using the portfolio to reach a strategic end; the portfolio isn't the end goal in and of itself," says Steven McGeady, vice president at Intel and director of the IHI.
If Intel's efforts increase the adoption rate of PCs just 2 percentage points, the profit from the processors in those PCs will make its return on Internet health investments "look like peanuts," Mr. McGeady says.
DOCS AND TRUCKS
Intel chose the broad segment of health care for two simple reasons: it's huge, and many of its participants aren't up to speed with technology. "It's the largest single segment of the economy, with 17 percent of GDP, but it has one of the lowest penetrations of IT adoption," Mr. McGeady says. "It's lower than the trucking industry."
IHI is part of Intel's larger corporate business development group, which has 275 investments valued at $3.5 billion, according to a company spokesperson. "Basically, we're one of the largest venture funds in the industry," he says.
The chip behemoth made its first investment in the Internet health care sector about 18 months ago. Since then, it has done more than ten investments totaling "many tens of millions of dollars," Mr. McGeady says.
More importantly, Intel was a major factor behind the increased interest in Internet health ventures. "A year ago, we couldn't get VCs and investment bankers to invest with us," he says. "Now we can hardly get in the round."
Among the companies Intel has invested in are iVillage (Nasdaq: IVIL) (before it was public), which runs Betterhealth.com; WebMD, recently bought by Healtheon (Nasdaq: HLTH); Abaton, which helps doctors automate their practices; BabyCenter, an information and e-commerce site recently bought by eToys (Nasdaq: ETYS); ChannelPoint, which Webifies insurance brokerages; and Lifemasters, a service that helps chronically ill patients communicate with their doctors via the Web.
SECRET AGENT MAN
Despite Intel's significant role in the Internet health space, Mr. McGeady concedes that "it's a well-kept secret." But that's OK with him. He doesn't want everyone and his brother knocking on his door.
"Come to us if you want something other than just money," he says. "We help with marketing, market presence, and connecting [startups] to other portfolio companies."
That's why HealthAxis, a subsidiary of insurer Provident American (Nasdaq: PAMC), came knocking on Intel's door.
None of the $20 million HealthAxis has raised this year is traditional venture capital, and it isn't interested in VC. "We wanted a company that would help us with a name that would resonate with other business partners as well as investors," says Andrew Felder, a cofounder and executive vice president of corporate development for HealthAxis. "We also wanted a company that was central to the technology nervous system."
HealthAxis's other investors include America Online (NYSE: AOL), health benefits company First Health (Nasdaq: FHCC), and insurance consultancy UIC (NYSE: UCI).
HealthAxis claims to be the only company of its kind that allows consumers to actually purchase insurance online. Competitor InsWeb, which is scheduled to go public this week, gives consumers quotes, then refers them to agents to close the deal.
GOODBYE, BLUE SUIT
Mr. Felder and his crew want to fundamentally change the way health insurance is sold, bringing down costs considerably by cutting out the middleman: the insurance agent.
Intel believes HealthAxis will "provide a true open market for insurance," Mr. McGeady says. "Right now, one can comparison-shop, and, very frankly, people don't like their insurance companies very much."
HealthAxis fits into Intel's strategy on a couple of counts. One, it aims to get more consumers online. And two, it aims to change how health insurance is sold, bringing the insurance industry into the Internet economy.
Unlike traditional VCs, once Intel believes a segment is sufficiently served, it moves into another space to pursue its overall goal of expanding the market. For instance, it has no plans to invest in e-commerce pharmaceutical companies such as Drugstore.com.
Intel is also different from most VCs in that it sets out each year with an agenda for tackling what it believes to be an under-served sector. This year it's infrastructure plays that aid security and privacy of medical information, as well as Net-based systems that facilitate communication between patients and doctors.
That doesn't mean it won't look at a deal that falls outside its agenda. "I don't want to say we never take opportunistic deals," Mr. McGeady says with a laugh.
One piece of advice he offers to entrepreneurs: don't come knocking if your venture doesn't involve the Internet. |
