Drugstore.com has the prescription for online shopping success, allowing
consumers to purchase products for the body from the privacy of their homes.
Consumer anonymity is an
attractive option in a society with increasing privacy concerns, especially
when shopping for highly personal items. After all, who wants their neighbors
to know they have hemorrhoids or take Prozac? The truth is, purchasing certain
items for the body is uncomfortable for consumers because, let's face it, there
are a lot of things about being human that are embarrassing -- even in today's
hard and fast American culture.
But the corner drugstore
does little to shield its customers from the unpleasant task of checking out
with personal products. In fact, it's quite likely the person in line behind
you will accidentally learn something about you that your own mother doesn't even
know. Enter drugstore.com. In an
Internet arena still struggling with privacy issues, this online venue actually
allows consumers greater secrecy than a traditional pharmacy.
"People enjoy shopping
in a bookstore, but they go to the drugstore because it's a chore on their
list. No one likes browsing the Preparation-H aisle or purchasing
laxatives," says Peter Neupert, CEO of the Redmond, Wash.-based drugstore.com.
"We are much more private than a bricks-and-mortar pharmacy, in terms of
being able to ask questions, reveal personal information, and purchase products
without embarrassment."
The mission of drugstore.com
is to revolutionize the way people buy healthcare products by offering more
than 17,000 brand-name goods and services for the body -- from antacids to
eyeliner to prescription antibiotics -- as well as a wealth of decision-making
information and resources packaged in one convenient location on the Web.
Drugstore.com debuted Feb. 25, 1999 with more than 10 million visitors on the
first day, squelching skeptics' concerns about consumer confidence in the
online healthcare market.
Indeed, the concept of
drugstore.com is as healthy as they come. Though consumers may not especially
enjoy drugstore shopping, the drug, vitamin, personal care and cosmetics
market, for which Neupert is vying, is much bigger than the traditional
e-commerce darling industries: books and CDs (revenues are in excess of $160
billion -- and climbing).
While Neupert was the
driving force that took drugstore.com from novel idea to Internet starlet, it
was Jed Smith who actually developed the concept and early strategic
positioning of the company. Smith's prior experience in the high-tech arena was
with Cybersmith, a now-defunct chain of retail stores he founded to showcase
the latest advances in technology. Drugstore.com would be his second startup
and a sure-fire prescription for Internet success.
Smith realized he had a hot
concept on his hands when he first conceived the notion of an online drugstore
in the early part of 1998, and wasted no time in searching for a venture
capitalist to support his cutting-edge vision. Since venture capitalists (VCs)
and angels were lining up with funding for innovative "dotcom"
startups, it didn't take Smith long to enlist financial backup. In fact, by
springtime, he had attracted some pretty heavy hitters, including John Doerr,
partner at Kleiner Perkins Caufield & Byers,
one of the most renowned VC firms in America.
In addition to seed capital
from Kleiner Perkins, e-commerce guru Jeff Bezos, founder and CEO of Amazon.com, was an early booster and a
significant minority investor in drugstore.com. Doerr, who is also on the board
of Amazon, is credited with bringing Bezos to the table, which quickly led to
Amazon.com purchasing a reported 46 percent stake in the fledgling online
enterprise. And Starbucks CEO Howard
Schultz has also joined the cause with a seat on the drugstore.com board of
directors as an equity investor. Though the amount of seed capital has not been
disclosed, company executives reveal drugstore.com has raised more than $60
million during its first three rounds of funding.
With start-up capital in
place, Doerr began looking for a world class CEO to power the project forward and
set his sites on 15-year Microsoft veteran Peter Neupert. At that time, Neupert
was the vice president of online news and publishing, a title that included the
responsibility of operating MSNBC. This
experience gave Doerr confidence in Neupert's ability to make things happen
fast in the Internet arena, and by July 1998, Neupert was at the helm of
drugstore.com with a steadfast belief in the company's mission.
"The world is migrating
from a physician-centric world, where people do what the doctor tells them, to
what I call a patient-centric world, where the patients now want to be in
charge of their healthcare, using the doctor as a tool," explains Neupert.
"The Web is one of the many elements that is helping empower the patient
to get educated and to get more current, more quickly and more
effectively."
Neupert never supposed he
could build a leading Internet pharmacy alone, and he says his first task was
finding individuals capable of taking drugstore.com to the top of a
fast-growing online healthcare market. Neupert's requirements: leadership,
vision and direction, for starters.
"I spent a lot of time
in the beginning recruiting, and I looked for senior people first,"
recalls Neupert. "As with everything, luck and timing have a lot to do
with it."
Drugstore.com's management
team is a diverse and experienced combination of professionals from the
pharmaceutical, information technology, communications, financial and legal
industries. Though equity stake is a common incentive for top management brass
entering a risky Internet venture, Neupert feels his executive team was
especially attracted by the enormous market opportunities in an emerging online
healthcare industry that's promising to improve the way people shop for
everything from aspirin to insurance.
With the key officers in
place, the team began focusing on the drugstore.com business model. Unlike many
online shopping venues that seek revenue streams from both e-commerce and
advertising, drugstore.com does not accept ads. Neupert says drugstore.com's
business strategy is simply providing a great customer experience (a credo
borrowed from sister site Amazon.com).
"I don't want to
clutter up the site with ads that are trying to distract the customers,"
says Neupert. "The goal of an ad is to distract somebody, and my goal is
to make it easy for them to find the products they want, quickly."
However, Neupert is not ruling out future relationships with manufacturers:
"I think manufacturers have lots of information and promotional programs
that are good for consumers, but we have to find a way to keep the consumer in
charge of how they interact with the manufacturers' information."
Drugstore.com stocks all of
the 17,000 products it offers, but you won't find everything in this Web market
that you would in a traditional drugstore. There are no office or cleaning
supplies, no greeting cards or film; the focus is strictly on products for the
body that fit into drugstore.com's five categories: health, beauty, wellness,
personal care and the pharmacy.
"We think those are the
high-touch products, and they are also the ones where information really
matters," insists Neupert. "You want to know which cough medicine
will make you drowsy, and which one won't." In the online health space,
putting products together with information can make a real difference in the
shopping experience, he adds.
Most brick-and-mortar
drugstores have a pretty even draw between pharmacy and non-pharmacy customers,
and drugstore.com follows suit. Neupert admits he expected the majority of
company revenue to initially stem from "non-rx" products, because
customers would want to test the service before revealing personal medical
information. But that hasn't been the case. Neupert reports an overwhelming
acceptance of the pharmacy, and he feels this is a testament to consumer
dissatisfaction with traditional drugstores.
Drugstore.com made a
big splash during its first year in e-business, but Neupert admits the
challenges of running an online drugstore are many, starting with the overall
complexity of the U.S. healthcare system. Coming into the project, Neupert had
to gain a detailed understanding of how the healthcare marketplace operates,
and he quickly discovered that working with insurance companies would be an
ongoing obstacle for drugstore.com.
First of all, the healthcare
market is not totally consumer-driven like the book or music industry. Though
an estimated 70 percent of all doctor visits end up with the prescription of
some medication, the patient isn't allowed to browse and select their drug of
choice. In addition, the payment system is usually driven by HMOs or employers,
rather than the patient.
Thinking through and learning
not only how that transaction system works, but who the players are, what
influence they have, and what kind of impact those factors would have on site
design, market size and opportunity were early challenges, says Neupert.
Perhaps the most difficult
pill to swallow, however, is not being able to service willing customers.
Drugstore.com doesn't have a relationship with every insurance agency in the
country yet, so it can't accept everyone's insurance card.
"I have to turn away
customers that otherwise would be happy to do business with us just because I
don't have all the insurance coverage I would like to have," says Neupert.
"All of these factors had to be identified early, and we continue to work
on them, even as we speak."
Drugstore.com is committed
to customer service -- an area of critical importance to online shoppers -- and
the site was designed for convenience and ease of use. The drustore.com
Resource Center, for example, includes features such as Ask Your Pharmacist,
Health & Wellness Guide and Shopping Advisors.
Ask Your Pharmacist is a
private, patient-to-pharmacist e-mail exchange – a service most real-world
druggists are too busy to provide -- that allows users to trade personal health
information for medical advice. Similarly, the Shopping Advisor allows users to
build a one-to-one e-mail relationship with expert consultants who can
recommend products based on customer requirements in the areas of beauty and
skincare products, vitamins, and cough and cold medicines. In addition to
individualized user support, drugstore.com empowers the consumer to make
informed purchase decisions by archiving relevant reference data on both
prescription and over-the-counter drugs.
"We've taken each and
every one of the 17,000 products we carry and typed in all of the
back-of-the-box information on the Web, so you can get the active ingredients,
the instructions, and a picture of the product," explains Neupert. This
drug index feature allows consumers to run a crosscheck for potentially harmful
drug interactions. "It's much easier to check out these drug interactions
online, from the privacy of your home, than it is to turn the back of every
bottle."
Although drugstore.com was
forced to turn visitors away on its first day, Neupert says there is still a
lot of benefits communicating to be done with the pharmacy-going population.
"There are still people
who are skeptical about buying toothpaste online," says Neupert. "We
have to communicate to them why it's more convenient to not wait until you run
out of something to run out and buy it."
To help spread the word,
Neupert struck strategic multi-million-dollar relationships with the major portals,
like American Online, Excite and Yahoo!.
This is now a common strategy for Internet companies trying to build brand
awareness in a vast Web arena. Neupert realizes if you want to introduce your
name and your service to the online world, you have to go where the people are.
And at this stage in Web evolution, the most significant portion of Internet
traffic goes through major portals.
Drugstore.com will be the
key pharmacy partner for both Excite's and AOL's health-related areas, and
Neupert says users will also be able to access and purchase drugstore.com's
products via merchant button and banner ads on Yahoo's health-related network
pages.
"Our marketing focus
has been in the online world. We wanted to target customers who are already
comfortable buying online," says Neupert. Probably the biggest opportunity
to do this is through a recommendation and hotlink from Amazon.com, the
pioneering company that introduced most of us to the concept of online
shopping.
Next, Neupert sought
affiliations with complementary players in the online healthcare market, such
as OnHealth, ThirdAge, and Medscape. OnHealth covers the adult women's
market, where users go for information to manage their family's health and well
being; ThirdAge is the leading online community for adults 45 and older; and
Medscape is the leading professional medical Web site for physicians and
healthcare providers. Strategic partnerships are also in place with Intelihealth, a comprehensive
collection of information from Johns Hopkins Medicine and Women.com, a network of content, community and
commerce sites for women.
"This gives us exposure
to people who have targeted themselves as interested in either health, wellness
or activities," says Neupert. "These relationships give us a way to
better target and map our service to the needs that people have in this
environment."
Neupert says Smith, the
founder of drugstore.com, is active in building new strategic opportunities in
the health-services space, and is particularly focused on how the doctor's
desktop will change over the course of the next two years. While this side of
the marketplace has been slow moving, it is clear that doctors are still the
center of healthcare delivery, and Neupert predicts things will soon heat up in
this market segment. It will be Smith's challenge to passionately express
drugstore.com's mission in developing appropriate relationships with medical
professionals.
Neupert says strategic deals
in the online healthcare market are difficult to strike -- not because
drugstore.com is a new entry, but because it is such a competitive environment.
"In the early days, it was clear that we were out there first and an early
player," says Neupert, "but my competition was catching up and was
knocking on the doors right after me, and that made it hard."
Speaking of the competition,
there's plenty. Soma was the first online
pharmacy, and PlanetRx debuted shortly
after drugstore.com, giving consumers freedom of choice from nearly day one of
online pharmacy existence. Neupert's strategy for dealing with the stiffening
competition in this new market is straightforward: You just have to be better.
"You have to deliver a
superior shopping experience," says Neupert. "We have a better
selection, much deeper product information, and our site is easier to use. I
think those are the things customers care about."
There's no question about
it: Online pharmacies are attracting a lot of "eyeballs," or site
visitors, but the ultimate market leader will be successful in enticing repeat
traffic and sales. Drugstore.com addresses this challenge with a combination of
features designed for individualized convenience and express checkout.
Neupert says personalization
is paramount for a Web site catering to the highly sensitive needs of humans;
therefore, Your Shopping List is automatically created for every customer.
Then, on repeat visits, consumers have access to a list of past purchases,
allowing for painless reordering. Shoppers can also place products that
interest them on their shopping list for future purchase.
"We are in the
replenishment service business," says Neupert. "The repeat shopper
saves a ton of time working with drugstore.com."
For example, says Neupert,
one-click shopping quickens the checkout process by charging items to a
pre-selected credit card and shipping them to a pre-determined address.
Drugstore.com even sends e-mail reminders to the consumer, prompting the
reorder of much-used products or monthly prescriptions, an important feature
for many forgetful patients. For insurance cardholders, drugstore.com offers an
online report to help users track out-of-pocket expenses.
On top of an impressive
array of bells and whistles, drugstore.com extends an all-important price
pledge to consumers, along with a promise to keep their private information
safe with the most advanced technology software solutions available.
Though Drugstore.com is very
young, the online apothecary is rapidly weaving itself into the
infrastructure of the Web with many alliances. And, while
Neupert says the company will stick with their five core categories for now,
drugstore.com has yet to reach its full potential in terms of product selection
-- another area his team is tackling.
"We will definitely add
more products going forward. We didn't get everything we knew we wanted in the
beginning," says Neupert. "We've been moving very quickly, and we
just couldn't do everything all at once."
Neupert's team is making
incredible progress, though. Drugstore.com recently announced the debut of two
new areas within the site. First came the arrival of the Pregnancy and Baby
Center for expectant and new parents, followed by fashion-forward cosmetics.
The future looks bright for
drugstore.com, but Neupert says the first year was all about communicating the
benefits of the online healthcare category, along with the fundamental benefits
of online shopping in general. "I clearly want to position our company,
and deservedly earn the position, as the leader in this very large
category," says Neupert.
With the flurry of Internet
IPOs, investors are keeping a close eye on this leading online pharmacy. All
startups need to focus on capital, and drugstore.com is no exception.
"This is a big opportunity, and we're spending lots of money because it's
a big opportunity," says Neupert. "We are inevitably looking at a
time when we are going to need to raise more capital, and in today's public
market, it's certainly got to be one of the things you consider."
Company Snapshot:
Company: Drugstore.com
URL: www.drugstore.com
Founder: Jed Smith
Industry: Online personal
healthcare
Location: Redmond, Wash.
Founded: 1998
Employees: 160
Revenue: undisclosed
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Partnering for Maximum Success.
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