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Whatever Happened to E-DTC?

There was a distinct moment many months ago when the promise of change was heavy in the air. It was early March 1999, and I was sitting in our office in Copenhagen, Denmark, preparing to address a pharmaceutical industry conference the next day on direct-to-consumer advertising. While I was putting the finishing touches on my slides, our managing director burst into the room. “Have you seen this announcement about Drugstore.com?” he whooped, holding the press release in one hand and gesturing wildly with the other. “This will change everything!”

It took me a minute to catch up with this being the missing piece of his vision of an online marketing model for prescription drug advertisers.

He saw it as a model where marketers would reach out to target consumers in their homes, deliver ads and information on demand and somehow create a patient instantaneously through an online pharmacy.

That, and many other predictions, began flying as thousands of dot-com health sites emerged, seemingly overnight. The promise of sea change in how consumers access health information and how advertisers reach consumers moved rapidly through corridors of client companies and agencies alike, and Wall Street was soon to churn out IPOs as fast as the Treasury prints money.

But a lot has happened since, some of which is obvious to those of us who have felt the pain of the Nasdaq. Let’s look at what analysts and observers were saying then about the burgeoning opportunity for online DTC and pharmacies and what happened to change those optimistic views.

In the months that followed, excitement and activity were fast and furious. Healthcare dot-coms were born and raised in the same instant and began touting their differences: content, connectivity, commerce, consumer traffic, credibility, cachet. Most also had at least some cash. Whether through private funding, stock offerings or alliances, they had enough to get them out into the marketplace seeking sponsors and advertisers.

At the same time, several trends were converging to create the illusion of a massive flow of potential DTC income for these new media outlets:

• Mass media DTC spending was continuing on a steeply upward trajectory.

• Direct marketing was coming back into vogue.

• Consumers in larger and larger numbers were turning toward the Internet as a source of health information.

• Pharmaceutical clients were looking for a marketing edge in directly reaching target consumers with brand messages.

• Online pharmacies were threatening to shake up the entire retail industry while offering an interesting challenge for prescription drug makers.

Wall Street picked up on the convergence of these factors, too, predicting that DTC on the Internet would take off explosively.

But while Wall Street’s fervor was palpable — Drugstore.com had an IPO in July and opened at $65 a share, and PlanetRx opened in October at $31.50 a share — the move to action among pharmaceutical advertisers was cautious. Even though some early alliances were struck with sponsorship deals, banner ads and keyword buyouts, budget movement was slow.

Healthcare information Web sites became very active, both on Wall Street and on Madison Avenue, with reviews ranging from rave to ranting. But a seminal event came Sept. 5, 1999, when the lead story in The New York Times read: “Hailed as a Surgeon General, Koop Is Faulted on Web Ethics,” which detailed criticism of Dr. C. Everett Koop from the American Medical Association and others on objectivity.

Some of this was deflected in time, but the perception remained, credibility was damaged and the industry never really recovered. Hundreds of sites have closed, their riches washed away by red ink. Drugstore.com was trading at less than $2 recently, while shares of PlanetRx are now available at about 15 cents. Each had net losses around $100 million for the first half of this year.

And to add gasoline to the fire, PlanetRx has filed suit against the world’s largest pharmaceutical company, Pfizer, for breach of contract for sponsorship of its diabetes section, seeking $3 million in contract damages and $5 million in punitive damages.

So what happened?

A lot happened as the healthcare dot-com category rose furiously and fell fast. The business models just did not hold together, as they relied on advertiser support as the primary revenue stream. Those that are still alive are now retrenching and recasting their offers. But a lot did not happen, since most pharmaceutical advertisers were not ready to jump in. Here are the five reasons I have identified as contributors to the fall of e-DTC:

• Speed meets conservatism. The Internet frenzy caught the industry by surprise in some ways. Pharmaceutical manufacturers, in particular, because of their conservative cultures, are often slow to respond to market opportunities, and their planning cycles are generally annual, so few were able to move quickly and latch on to the early growth phase.

• Message complexity. Delivering a branded pharmaceutical advertisement requires a lot of copy. Therefore, the banner ad format falls short. There are real opportunities to build a message sequentially from disease awareness to branding to data collection in subsequent pages, as the gold is in driving relationship marketing. But that requires a client capability that can create and deliver segmented, relevant information. Some have capitalized on this, but most have not.

• Regulatory challenges. Many companies could not figure out how to get their branded sites or ads approved, both internally and by the Food and Drug Administration. This added interminable delays and a loss of momentum for brand directors excited to get going and take advantage of the online consumer.

• Fuzzy numbers. Health site sales representatives could not get a handle on the number of page views or unduplicated users, because they were changing so fast. Add to that the lack of marketing sophistication at the sites, and there was more “trust me” than “let the numbers speak for themselves,” which hurt.

• Agencies did not get it. Most agencies that served the pharmaceutical industry, especially for DTC, were not well equipped to guide their clients through the maze of barriers and issues they faced. And the agencies that specialized in dot-coms did not understand healthcare, creating a standoff that kept many on the sidelines.

So where does all this leave us? A whole lot smarter about not having gone into the boom before it went bust. But it is time to regroup and refocus our online initiatives so they make the most sense for consumers and clients.

The Pew Internet and American Life Project estimates that 52 million Americans have used the Internet for healthcare information, with 15 million doing so weekly, so the audience is there. And 70 percent said the information gathered influenced their decisions about treatment and care, while half said the information led to more questions for their doctors or a second opinion.

Yet privacy concerns remain and may continue to dominate in the near term. For example, 86 percent said they worried that a health-related Web site might sell or give away information about what they did online.

So while the industry must address the privacy issue in a way that gives the public comfort, we are on the cusp of an ever more exciting era for consumer-driven healthcare. Part one of the e-DTC experiment went flat, but opportunities will abound as we continue to evolve. Watch this space, as the future is just beginning.

• Frank Hone is executive vice president, global DTC director at Bates Healthworld, New York, a global healthcare communications company. Reach him at [email protected].

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