What Happened To My InternetInvestments.com?

Are ‘wellness’ dot.com’s dead?

By Adam Ismail

Not too long ago we set out to map the entire Internet wellness space. It sounded like a relatively easy task when we embarked on it. However, the list of companies either providing content or selling products kept growing—first there was over a hundred…then two hundred…we quit after the list grew to over 500, a little perplexed at how there could be so many companies out there, especially when you consider that you could probably count, on one hand, the number of profitable ones.

The whole tech sector has suffered lately and everybody says the “bubble” has burst, but the health and wellness space has been hit much harder than the normal markets. Does this mean there is no hope for Internet health companies? Let’s take a look.

Drkoop.com (KOOP).

Drkoop.com has an interesting distinction. It became one of the first dot-com companies to have its auditors question whether or not it can continue to operate. The company has only been public since June, but it has a shareholder deficit of nearly $75 million. It even admitted that it might not have enough capital to meet its needs in the next twelve months. The shares were already depressed, in part because a number of its insiders had registered to sell their own shares, but this did not help. In fact, when this article was written the shares were down over 75% since its IPO. Ouch!

Healthshop.com.

This one stunned a lot of people. In April, Healthshop closed its “doors,” firing nearly all of its employees and shutting down its e-mail system. The company had operated for just under a year and a half, but it just could not succeed. What is really shocking is that the company had a lot of capital behind it, with Warner-Lambert, Vantagepoint Ventures and Delphi Ventures backing it. In September they even raised a $25 million round of financing, but it all dried up. Its “stealth marketing” tactics didn’t work in the Internet space. Most of the larger companies in online wellness were shouting from rooftops and blaring their horns to get people to visit their sites; in that type of environment you cannot sit back and hope to be found.

MotherNature.com (MTHR).

MotherNature.com is trying to be an innovator. The Management realized that e-tailing was going to be hit and began developing an all-encompassing online wellness company. Instead of totally abandoning its model, it added B2B (“business-to-business” in ‘net speak’) features for mainstream healthcare by signing agreements with two large HMO’s to move products into its networks. It also plans to enable small natural product retailers to use the net without a significant investment in technology by using the MotherNature e-commerce engine as a backbone to the retailers’ sites. The market has not reacted favorably yet, but if its results do improve, as the company is hoping, it should improve significantly.

A Final Note

Part of the problem behind the consumer-focused online companies is that they spend a large amount of money on gaining clients, but few have done anything to retain them. Companies like more.com, which Health Business Partners invested in before any other institution, have promotions that lock in prices for life. These, and other efforts, are geared towards repeat purchases. Consider the economics—if you spend $100 on advertising to get a customer to your site the first time and that individual likes the low-cost-for-life feature, then the next time he/she comes back you cut the average cost in half. Over time this adds up and helps stem the losses, once the company has built a large enough scale.

NW

Adam Ismail is a financial analyst with Health Business Partners (HBP),Warwick, RI) a boutique investment bank that works exclusively with companies in the natural products and complementary health services industries. HBP also provides capital to businesses in these industries as well as tracking financial data in the natural products industry and providing M&A and strategic advice, in addition to direct investments. HBP can be reached at 5784 Post Road, Warwick, RI 02818; 401-885-4670, Fax: 401-885-4686; E-mail: [email protected]; Website: www.healthbusiness.com.