WebMD CEO Saves the Deal
By Jennifer Couzin
May 09 2001 06:20 PM PDT
The slick dealmaker manages to resuscitate its partnership with AOL TW and Microsoft.
Resolving a longstanding conflict, WebMD successfully renegotiated a deal with AOL Time Warner on Wednesday just months after completing a similar partnership renegotiation with Microsoft.
WebMD CEO Marty Wygod had previously cautioned that one of the partnerships might have to be scuttled. Archrivals AOL and Microsoft are both looking for a slice of the online health care business and view WebMD as an important element of their strategies.
The revamped AOL agreement makes WebMD the primary provider of health care content on AOL and certain AOL brands, such as Netscape. WebMD will also design a co-branded health service that combines WebMD content. Terms of the alliance were undisclosed.
That Wygod managed to keep both AOL and Microsoft as partners testifies to the health care industry veteran's deal-making skills. "Being able to sign up both of those, placating both of those, is a major coup," said Anthony Vendetti, an analyst at Gruntal & Co.
The conflict emerged after WebMD, which connects health care professionals over the Internet, agreed to acquire Wygod's CareInsite in February 2000. CareInsite had already signed a $30 million deal with America Online to connect AOL to their doctors and health plans.
Meanwhile, WebMD maintained a close relationship with Microsoft, which held a WebMD board seat and featured the company's health information on its MSN portal. The conflict was one of many that resulted from WebMD's $8.2 billion spending spree in 1999 and 2000 as it acquired companies to help connect patients, doctors, health insurers and pharmacies.
"There is a number of conflicting contracts and arrangements, some of which we'll have to eliminate and some of which will go forward," Wygod said in July.
The revamped Microsoft deal names WebMD as the primary health information provider to MSN. It also calls for the companies to develop handheld devices for doctors, which WebMD expects will be on the market later this year.
Though it's cleared one big hurdle by keeping both AOL and Microsoft, WebMD's future remains cloudy. Some analysts question whether the company shouldn't altogether abandon its mission of providing health information directly to consumers. That business brought in only 11 percent of its revenues in 2000, according to analysts. The balance came from processing insurance transactions and software sales. Nevertheless, WebMD seems determined to amass as many consumer eyeballs as possible through its presence on major portals.
The handheld market, meanwhile, is rapidly heating up as companies from startups to multibillion-dollar corporations try to get a foot in doctors' offices. Indeed, Microsoft signed another deal in March with Pfizer and IBM to provide handheld devices to doctors for prescription and other health care services.
It's remains an open question how well WebMD can compete in this market given the clout of some of its competitors.
Despite the challenges, Gruntal's Vendetti praised Wygod's ability to consolidate or cancel agreements that resulted from earlier deal-making sprees. WebMD, he said, is well on its way to profitability later this year.
Not everyone is so confident. "I guess somebody has an idea that they can make [online health care] profitable somehow," said Rob Plaza, a Morningstar analyst. "If you're the last man standing, you might be able to put a value on that." |
