Tom Taulli is the author of "Investing in IPOs" (Bloomberg Personal Bookshelf). The book can be purchased at Amazon.com by clicking here. You can reach him at tom@taulli.com

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When it comes to such things as buying books, software, or other gadgets, the Web provides a tremendous platform.

However, the Web is still embryonic when it comes to providing health care information services. Yet the Internet seems a perfect fit for health care.

One company that wants to be the leader is WebMD. And, yes, it has filed to go public. The underwriters include: BancBoston Robertson Stephens, Hambrecht & Quist, and E-Trade Securities. The proposed ticker symbol is WBMD.

No doubt, cost consciousness is prevalent in the health care industry. A Jupiter Communications study shows about 80 percent of employers in the United States are moving toward managed care. The result has been declining incomes for the 730,000 physicians in the United States. Thus, physicians are willing to implement measures to improve practice efficiency.

WebMD offers an attractive way for physicians to bring down costs -- yet not compromise the quality of patient care.

Benefits To Consumers

WebMD also offers many benefits to consumers. A study from Cyber Dialogue shows about 70 percent of persons searching for health care information on the Net do so before visiting a doctor's office. The study also shows 17 million adults used the Net to search for health care information.

The company was started in October 1996. Although, it did not start as an Internet company, but generated revenue by selling cardiac monitoring products. However, in July 1998, the company sold off these operations and jumped on the Web bandwagon.

Now, the company is building itself into a destination site for health care -- providing administrative, communications, and information services to medical professionals and consumers.

The site is divided into two segments: There is a subscription-based component for health care professionals and a free content site for health care consumers.

As for the subscription services, doctors have access to such things as patient referrals, Virtual Receptionist (which manages incoming calls, e-mail, and faxes), eligibility verification, customized physician websites, and so on. WebMD plans on providing other services, such as transcription, fraud audits, and professional job placement, as well as continuing medical education courses.

The technology does not require any proprietary tools. It is completely browser-based.

For consumers, WebMD offers information on health and wellness, which can be personalized based on a consumer's profile. There are also online health care communities, accomplished with message boards and real-time chat rooms.

Alliances With Investors

Sounds like a lot of work, right? It is. This is why WebMD has aggressively signed strategic alliance agreements with partners such as McKessonHBOC, which has made a $23 million equity investment in WebMD.

So far, McKessonHBOC has installed health care information systems in about 52 percent of the U.S. community hospitals with more than 100 beds. Basically, McKessonHBOC has agreed to place or pay for a fixed number of WebMD subscriptions, which can be distributed within its huge channel.

WebMD has also entered strategic alliances with Envoy (leading provider of EDI and transaction processing), DuPont's Life Sciences Division, MedQuist (leading provider of electronic transcription and document-management services for the health care industry), DePuy Orthopaedics (a division of Johnson & Johnson), Matria (leading provider of comprehensive disease-management services for health plans), CNN, PDN (provides audit services), J&C Nationwide (job-placement services), iXL (website development), and so on.

Of course, WebMD has much competition. Perhaps the most important threat is Healtheon, which went public Thursday. The company is backed by the legendary Jim Clark, who is the founder of Silicon Graphics and Netscape. Like WebMD, Healtheon has been able to quickly sign many strategic alliance agreements.

As with most Internet companies, WebMD is losing money. Since inception, the company has produced an accumulated deficit of $13.9 million. Let's take a closer look at the finances, using figures for the first nine months of 1998.

By the end of September, the company had revenue of $75,000, all from a management-services contract with Matria. The company expects revenue will come from subscription fees and advertising in the future. Product-development costs were $5.9 million, the result of the huge investment in the company's Web offerings. Sales and marketing expenses were $1.5 million. General and administrative matters cost $7 million.

WebMD has $45.9 million in goodwill stemming from acquisitions. This amount must be written down over the years.

The company also had to account for the sale of its cardiac monitoring assets for $17 million in cash and $6 million on contingent consideration (amounts based on certain revenue goals). WebMD recognized a gain from the sale of $8.1 million. But the key to Internet success is to get to market first and build an entrenched brand -- which is what WebMD has been doing quickly. While WebMD has minimal revenue, it still has a comprehensive offering of services. Such momentum should pay off in the future.

For comments/questions, contact Tom Taulli at ttaulli@bpia.com.

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