Drkoop.com Chief Diagnoses Firm’s Ailments

Richard Rosenblatt, 31, was one of the first entrepreneurs to strike out into the new world of e-commerce. He co-founded IMall Inc. in 1994 and went on to sell it five years later to Excite@Home for $565 million.

He is now the head of the Santa Monica venture capital firm Prime Ventures. Last month, his company joined with a group of other investors to take over one of the most troubled companies in the “dot-com” world--Drkoop.com.

The investors took a controlling 70% share of the company in exchange for a $27.5-million infusion.

Drkoop.com, based in Austin, Texas, a year ago was one of the darlings of the dot-com world, a hot stock with a hot brand name in the hot market of providing medical information over the Internet.

The company, co-founded by former U.S. Surgeon General C. Everett Koop, saw its stock skyrocket last year from its initial offering price of $9 in June to more than $45 for a brief period.

But its highflying days were short, and at one point this year, its stock closed at 75 cents.

As part of the effort to revive Drkoop, Rosenblatt was just named chief executive of the company.

Question: Drkoop.com has become almost the poster child for dot-com failures. Why did you invest in this company?

Answer: I had the same impression as the rest of the market, that Drkoop was dead and it was a bad company. But sometimes when everyone hates something, there’s a real opportunity there. I flew down to Texas with four people from the Prime Ventures team, and we realized very quickly that it actually had a very good business. It had a very strong brand, it had strong partnerships, and it was the No. 2 health-care site on the Web.

The problem was that they made a lot of very bad deals and the company was not run like a business. They got caught up in the Web hype that everyone else got caught up in: Spend as much money as you can, cut whatever deal you can, don’t worry about any financial ramifications and Wall Street will applaud you.

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Q: Is it worth $27.5 million in its current state?

A: I mean, we bought control of a company with one of the strongest brands in health care, with an active, functional Web site and a great team that just needs to be motivated, and we did all that for $27 million.

If you really look at the company, it is worth far more than $27 million. Look at their closest competitors. People always talk about Drkoop and Healtheon/WebMD in almost the same breath. Healtheon/WebMD is a $4-billion company. Drkoop at that stage was a $30-million company.

Although Drkoop has a long way to go before it becomes a Healtheon/WebMD, it is in the right space. The health-care space is a $1.1-trillion market. Drkoop is a leading brand in what is the largest part of the economy that people care about. We believe with the right positioning and the right cleaning up of the company, you’ve got a real asset there that could be utilized in a lot of ways.

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Q: But there has been so much negative publicity about Drkoop. Is it too deep a hole to dig out of?

A: There’s been a lot of damage done. As a stock, people are very concerned. However, if you look, since the capital infusion and since our team has taken over, the stock is up almost 100%. It’s not that Wall Street or investors are completely forgetting Drkoop, I think they’ve got a wait-and-see attitude. And we’re ready to take as much time as it takes to prove to the market that we’ve got a real viable company here.

Dr. Koop is an American icon. If you talk with anyone in the medical profession or you speak to any doctor or patients or consumers, everybody knows and loves Dr. Koop. They trust him; they grew up with him. He was the first one on television to really fight back against smoking when no one else wanted to talk about it. He was the first one to support AIDS research and make it a national issue. Everyone believes in him.

When everyone says Drkoop is in bad shape, yes, the business is in bad shape. It was run badly. But it’s very easy to fix, and we’re fixing it already.

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Q: What steps are you taking to get control of spending?

A: First, we laid off 41 part-time and full-time people. That was part of the first strategy to get costs in order and we have done that. Layoffs are now done. There’s been so much bad news and bad feelings about Drkoop and it’s over.

That’s actually the second biggest chunk. The first biggest chunk was renegotiating the portal agreements. We had an agreement with AOL that cost us $89 million. That was renegotiated.

Drkoop got caught up in the Internet phenomena that a lot of people got caught up in. This is not only Drkoop. . . . They weren’t focused on running like a real business. I mean when they announced a deal with AOL for $89 million, their stock went up! It didn’t make sense. It was a different time, and the times change. It’s time now for serious businesspeople to run serious companies.

You can’t make those kind of deals. Those deals are like splash deals to get everyone’s attention. So there’s no more of that. This is just blocking and tackling now.

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Q: What is the strategy to build up revenue?

A: What I believe we can do with Drkoop is make it much more than just a consumer brand. And in fact, if you look at it closely, it is. Drkoop’s content is already being licensed to 31 hospitals. A third of our revenue in the second quarter was licensing our content.

Everyone believes Drkoop is simply a business-to-consumer play that has to focus on advertising and sponsorships completely. That is not true. There are multiple revenue streams we’re going to focus on going forward.

We’re focusing on three main things: sales, content and partners. We have some of the best technology driving all three of those. We’re going to make sure our sales are recurring and that they’re multiple and predictable. We’re going to make sure our content is deep and sticky. We’re going to make sure we serve our partners.

Everybody believes the big pharmaceutical companies are going to be spending a lot of money online. Right now, they’re spending the majority of that money on Healtheon/WebMD simply because no one believed Drkoop was going to be around. We believe now that we have stabilized it, and they’re going to want to advertise with us.

There are also a lot of partners in the health-care space who want to use Drkoop’s content and its 1.4 million registered users to create transactions. We will benefit by getting a small piece of those transactions.

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Q: How long will this new $27.5 million last for Drkoop?

A: About 18 months and that’s based on us not making the changes we have planned and revenues not growing. We clearly expect that the company is not going to run out of capital in 18 months.

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Top 10 Web Sites by Category

The PC Data Online Top 10 Hit Lists are based on traffic obtained from a sample panel of more than 100,000 U.S. home Internet users, balanced to represent the U.S. home Internet population. For the week ended Aug. 26:

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Entertainment % of total Unique This Last Web audience users week week Site reached (thous.) 1. 1. Real.com 5.6% 4,612 2. 2. ESPN.com 4.5 3,704 3. 5. WindowsMedia.com 3.0 2,429 4. 4. Napster.com 3.0 2,419 5. 3. Shockwave.com 2.8 2,319 6. * CBS.com 2.8 2,273 7. 6. PlanetofMusic.com 2.6 2,165 8. 8. MTV.com 2.4 1,962 9. * Eonline.com 2.3 1,871 10. * Ticketmaster.com 2.2 1,817 Home and Food 1. 2. OurHouse.com 2.9% 2,342 2. 1. ValuPage.com 2.5 2,079 3. 5. Foodtv.com 0.9 703 4. * Cooking.com 0.8 669 5. * Pepsi.com 0.6 516 6. * Homestore.com 0.6 485 7. 3. Food.com 0.6 472 8. 5. MyCoupons.com 0.5 404 9. 4. OmahaSteaks.com 0.5 390 10. 9. NabiscoWorld.com 0.5 372 Sports 1. 1. ESPN.com 4.5% 3,704 2. 2. Sportsline.com 2.7 2,235 3. 4. NFL.com 1.9 1,518 4. 3. CNNSI.com 1.8 1,489 5. 5. Nascar.com 1.2 1,016 6. 8. Majorleaguebaseball.com 0.9 715 7. * Sportsdrive.com 0.8 684 8. 6. Rivals.com 0.8 636 9. 9. Foxsports.com 0.6 486 10. 10. Sportingnews.com 0.6 472 Finance 1. 1. X.com 4.0% 3,292 2. 2. NextCard.com 3.0 2,461 3. * Onmoney.com 2.0 1,652 4. 4. AmericanExpress.com 1.8 1,496 5. 5. 1st-Netcard.com 1.8 1,448 6. 3. MarketWatch.com 1.7 1,419 7. 9. Aria.com 1.5 1,213 8. 10. WellsFargo.com 1.5 1,193 9. * Fool.com 1.4 1,178 10. * BankofAmerica.com 1.4 1,122 Health and Family 1. 1. WebMD.com 4.4% 3,628 2. 2. OnHealth.com 2.6 2,110 3. 4. AllHealth.com 1.1 937 4. 3. PlanetRx.com 0.8 695 5. 5. BabyCenter.com 0.8 691 6. 7. EDiets.com 0.8 679 7. 6. Drkoop.com 0.8 628 8. 9. More.com 0.7 577 9. * NIH.gov 0.6 512 10. 10. Drugstore.com 0.6 452 News and Media 1. 1. MSNBC.com 5.2% 4,260 2. 3. ESPN.com 4.5 3,704 3. 2. CNN.com 4.4 3,642 4. 4. Weather.com 3.5 2,886 5. 6. SportsLine.com 2.7 2,235 6. 5. NYTimes.com 2.1 1,749 7. * Onmoney.com 2.0 1,652 8. 8. CNNSI.com 1.8 1,489 9. 7. MarketWatch.com 1.7 1,419 10. * Fool.com 1.4 1,178

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* Web site not on last week’s Top 10 list

Source: PC Data Online