Intel invests in Internet
health
By Lawrence Aragon
Redherring.com
July 20, 1999
The world's largest chip maker is quietly becoming one
of the biggest investors in Internet health care ventures.
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.
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