Prudential report:
HIGHLIGHTS
· This morning, Microsoft, Pfizer, and IBM announced plans for a joint venture into the health care I/T
market, seemingly squaring off against WebMD.
· We've seen this movie before - newcomers trying to revolutionize the practice management business.
However, we have yet to see any of these ventures pan out.
· We do not believe this new joint venture poses a significant threat to WebMD, as the practice
management market is a relatively mature, stable industry with high customer switching costs.
· In an unrelated announcement, WebMD announced plans for a $50 million stock repurchase program.
Certainly a nice gesture, and we hope to see more.
DISCUSSION
The joint venture with deep pockets has a lot of work to do. This morning, Microsoft, Pfizer, and IBM
announced plans for a joint venture to sell information systems to small physician group practices. At this
point, we believe this announcement is “all hat, no cattle.” There is no product, no CEO, no sales force,
and few people to back the venture, so it is still very early to predict the ultimate impact on the health care
I/T world. The venture plans on acquiring a private practice management vendor to give it a leg-up on
development. However, we believe there is still much work to be done.
We believe Physician adoption is the key barrier to entry for the new joint venture . We believe this
new joint venture will face many barriers to establishing market share in the fickle health care I/T business.
Number one, we question the incentive for physicians to switch from their existing practice management
system to the joint venture’s ASP-based system. Customer switching costs are very high because they
require conversions, on-site training, up-front cash expense, and have a huge impact on A/R for small
practices. Over the past two years, we have seen many companies fail in this arena because they were
unable to attract enough physicians to turn a profit. However, none of these companies had the muscle |
