Medscape – The First 5 Years

Introduction

This is the story of the first 5 years of Medscape the site. It is also the story of Medscape the company that ran the site until its fifth birthday in May 2000.

Most media businesses have plans, financing, and – when they launch – elaborate parties. Medscape had none of that. Medscape was a low-budget experiment that crept onto the Web courtesy of 6 members of a skunkworks team[1] at SCP Communications, the former medical communications and publishing company that staffed and funded the project.

The Launch and Year 1: May 1995-April 1996

Medscape was launched to the world on Monday, May 22, 1995. A few days later, Bill Seitz, SCP's manager of electronic medical information, posted the following notice on the Internet's “usenet” bulletin board/discussion system:

Medscape(sm) – the online resource for better patient care.

A new, free Web site for health professionals and interested consumers. Practice-oriented information is peer-reviewed and edited by thought-leaders in AIDS, infectious diseases, urology, and surgery. Highly-structured articles and full-color graphics are supplemented with stored literature searches and annotated links to relevant Internet resources. From SCP Communications, Inc., one of the world's leading publishers of medical journals and medical education programs.

At SCP's regular Friday afternoon party at our 1915-era factory loft in Manhattan's Chelsea district (New York, NY), we raised a toast to Medscape and feasted on chips, beer, celery, and peanut butter. A few feet from the party table were our Medscape servers, a few Macintosh computers piled atop a desk with a bundle of exposed wires that the office cats, Boots, Felix, and Chelsea would occasionally play with. The computers seemed to be celebrating in their own robotic way: A few hundred people had discovered Medscape, and thousands of the articles that we posted had already been served to a new audience of readers – Medscape's first members.

SCP had been on the Internet since 1992 using it for email, and on the Web since September 1993, when Marc Andreessen, a graduate student at the University of Illinois at Urbana-Champaign, released the first Web browser for the Macintosh. Prior to committing to building Medscape, the SCP editorial, sales, and technology team had spent a significant amount of time trying to identify ways to get into electronic distribution of its clinical content through strategic partnerships, before finally deciding that we were probably best off launching into the business on our own, and doing it on the Internet. These early efforts were not universally supported: One member of SCP's Board of Directors stated that we should “stop playing with computers,” cut our losses, and focus on our core business. Following the hugely successful initial public offer (IPO) of Netscape a year later in August 1995, he changed his mind.[2]

So without a formal dedicated budget but keeping track of our time and costs, the SCP skunks started working on Medscape in March 1995, completing the initial site in about 3 months and simultaneously preparing sales and marketing material, including an educational print newsletter, Internet Medical Marketing, for potential sponsors in the pharmaceutical industry.

Medscape in May 1995 was a shadow of the comprehensive site that it is now. But many of the features found on Medscape, 2005, were present from the start and are visible – albeit much improved – today. Here's what an early visitor to the site would experience:

A Free Site, With Reliable Content and Good Searching

The Web – especially the medical Web in 1995 – was a much more unreliable place than it is today. At the time, no major medical publisher had any meaningful Web presence. There were a few notable exceptions,[3] but few searches on Yahoo! (incorporated by Stanford University [Stanford, California] graduate students David Filo and Jerry Yang 2 months prior to Medscape's launch) turned up content that was worth reading. The first Medscape homepage linked to dozens of peer-reviewed, full-text articles in 6 topic areas: AIDS, infectious diseases, managed care, surgery, urology, and oncology. A member could access content with a single click.

A Site That Knew Who its Readers Were

From day 1, Medscape was free, but visitors had to register as members and tell us who they were before they could use the site. Registration was one of the most hotly debated features of Medscape: It added significant technical complexity and was a barrier to people entering the site, as it took 3–5 minutes for users to complete. Nevertheless, we considered registration essential for editorial and business reasons. From an editorial point of view, we knew that in the near future we could use our registration database to automatically send readers to pages of interest, so psychiatrists and social workers would land on pages with mental health content, and Ob/Gyns and nurse midwives to pages with women's health information. And because registration provided a member's email address, we could soon send specialty editions of MedPulse eNewsletters to members – creating, in essence, electronic minipublications. MedPulse was soon to become the most important driver of visitors to articles on the site.[4]

From a commercial point of view, registration permitted us to create a business model that for the first time would permit us to verify that readers in a target audience had seen a page that contained an advertising message. Medscape would never reveal the identity of the member who had seen an ad – and it never has – but we could provide demographic details, such as “275 American urologists saw your BannerLink ad for UriWiz between May 30 and June 15, and 25 clicked on it and were referred to your Web site.” In this respect, Medscape could offer a service that was more accountable than professional medical journals. Print journals can only provide advertisers with projected “advertising exposure” data based on survey samples; Medscape would have the advantage of being able to verify the actual behavior of all users looking at every page.[5]

A Good Name

Medscape was easy to remember, pronounce (in many languages), and spell, so it was relatively painless to type into a search engine or enter the Web address. It also didn't hurt us in the early years that the name sounded much like Netscape, and we sometimes would get callbacks from publishers, bankers, and thought leaders, all who thought that they were being contacted by a much more famous Web entity. Credit for the Medscape name went to recently hired SCP designer, Vincent Keane, a talented musician, graphic artist, and former Vermont ski mechanic, who won $50 in SCP's name-the-site contest.

It Was on the Internet and on the Web

It's worth remembering that while the nonprofit Pew Internet & American Life Project reports that since 2003 more Americans turn to the Web for healthcare information than any other media, back in 1995, the Pew project to collect data on the topic didn't even exist. Online usage was increasing but it was tiny by today's standards. America Online (AOL) had 2.5 million members in May 1995 and was not even providing direct Internet service.

The superiority of the Internet and Web over older technologies that displayed information to users on a computer screen was to be a decisive advantage for Medscape. We believed – correctly, as it turned out – that Internet technology would soon be ubiquitous, as it was technically superior and far less expensive to deploy and access than traditional online technologies (such as those used then by AOL and services, such as Physicians Online (POL), that had started the year before Medscape). Although AOL's 2.5 million users in 1995 were impressive for its time, just 10 years later it has been eclipsed by the Internet, used by 222 million in North America, and used by 900 million people worldwide.[6] Today AOL is just another Internet service provider (with a few added features) and provides Internet access to less than 3% of the worldwide audience.[7]

Editorial Strategy

Medscape took its editorial cues from SCP and provided freely available, practical, peer-reviewed clinical material, leaving basic science content to others.[8] We also embraced a concept radically different from other publishers who were putting content online. Most publishers saw the Web simply as a way to put their print magazine online on their dedicated Web site, where, they reasoned, they might eventually figure out how to “monetize the audience.” (Translation: Make money though advertising, subscriptions, or both.[9]). In contrast, Medscape, from the start, was going to be a megasite: a brand of which large numbers of visitors could quickly find content from a group of trusted publications alongside original Medscape content.

And so we started a partnership called the Medscape Publishers' Circle. Publishers would provide content to Medscape, and we would assume the costs of reformatting it, putting it online, and marketing it to our audience; we would then share revenue with the source-publishers when the content they owned was viewed. Inspiration for the concept came from reading a history of the Associated Press (the “AP”), a confederation of newspaper publishers started in 1848 to share content that still thrives today.[10] It was a difficult idea: Most medical publishers today – like the newspaper publishers of 1848 – are fiercely proud, independent, and competitive. Many were (and still are) threatened by the notion of computer technology, use it poorly, and would make references to “having printer's ink in our blood.” When Medscape launched, there were no members of the Circle. But within a year, we had persuaded 14 journals to participate. Today, 20 societies and over 20 publishers and data suppliers have joined the Circle to provide over 120 publications and databases.

Medscape launched with a pool of about 100 full-text articles, but it seemed like a lot more. This is because each specialty topic area could link to any article in the pool. We assumed correctly that in print publications, clinically relevant articles only reach a fraction of the audience that could make use of them. We used the Web's ability to access articles from many different paths to overcome this limitation. By presenting collections of articles by specialty topic area (rather than try and create a journal for each topic area), editors could select articles for audiences based on relevance and from a variety of sources. So pediatricians, for example, could have easy access to articles on urogenital or infectious diseases that they would likely have never seen in their specialty publications. The Publishers' Circle allowed us to put this cross-distribution idea on steroids. Medscape, of course, embraces this principle today, and provides editors of its specialty topic areas a robust selection of articles and features from many sources.[11]

Ease of Use

Web design and the nascent field of what is now known as “usability” were also carefully considered. We understood that our audience would only use Medscape if it was fast – faster than producing an answer with paper and phone-based information retrieval. And Medscape had to be easy to use: Healthcare professionals are not computer geeks. Many doctors couldn't type and found the transition to point-and-click difficult. Among the design principles used at the start and still largely followed today was that no article link featured on the homepage would be more than 1 click away from the article itself. Future research was to show that with each additional click needed to get to a desired piece of information, 50% of Web users leave the site.[12]

One critical and controversial usability principle started at the launch and followed by Medscape today is that every article was to be presented in a single, identical format, with highly structured content links to each section. The “consistent article” mandate eliminated the need for users to learn a new interface depending on the source of an article. Although the benefit may seem obvious to users, most publishers at the time insisted that their online content look like their print magazines. Most publishers avoided the Web altogether, chose CD-ROMs for their “electronic strategy,” and attempted to sell image files (most commonly PDF files) of their print publications – an expensive proposition that found few customers. Some publishers put their PDF files on the Web, resulting in a slow and clumsy experience. Medscape rejected this approach (as well as the PDF files); it was designed from the ground up to present content in a format optimized for fast Web browsing and searching on a relatively small laptop screen.

Interactivity

We also wanted to take advantage of the Web's ability to display pictures. This desire was in conflict with our wish to keep the site fast, because compared with text, picture files are large and display slowly. Our solution: Use only graphics that contributed to clinical understanding, and present small “thumbnails” that were zoomable – enlarged with a click of the mouse. Many Web sites fail because they are bloated with large graphic files that load slowly. Medscape was relatively snappy from the start.

To take advantage of the interactivity offered by the Web without compromising our desire for speedy loading, we developed a quiz called PicTours, in which users could click on different parts of a clinical image to make a diagnosis.

The Medscape Audience and Business Model

Medscape's primary target audience was and is American clinicians: a business decision made prior to launch. SCP understood the information needs of healthcare professionals and had success in interesting potential sponsors who wanted to reach them. But significantly – and controversially – Medscape was also designed to be open to anyone who registered. Physicians, consumers, or any combination thereof could register and have full access to the site, whether they lived in Portland, Oregon, or Prague, Czech Republic.

Our open-door strategy to get as many people interested in Medscape as possible was in contrast to POL, the leader in the field at the time whose tagline, “for physicians, by physicians,” embodied a clear commitment to prevent anyone but an American MD from entering their site. POL was so determined about its “physicians-only” strategy that in its first years, it avoided the Internet and Web altogether: To access it, doctors had to install special POL software on their computers and dial into a private network to verify their identity.[13]

Just as it does today, Medscape at launch welcomed everyone interested in professional-level medical information for both commercial and philosophic reasons: We liked the idea that consumers and non-MDs could finally get the same information their doctors read. As it turned out, and in contrast to the conventional wisdom at the time, many doctors liked that, too.

From a business point of view, we also believed that by acquiring the loyalty of nonphysician and non-US members, we had the opportunity to develop commercial services for them in the future, at little or no incremental cost at the start. The first efforts to do this began shortly after launch, when we started discussions with European publishers, which later developed into a full-fledged effort to start Medscape International – a dedicated attempt to develop content and services relevant to specific non-US countries and regions.

Technology

Medscape was a low-budget operation that had the benefit of years of work spent at SCP developing software and work practices designed to help people collaborate in creating content. To manage the workflow of articles in 1983 – 12 years before the launch of Medscape – SCP developed an Article Tracking System (ATS) that permitted articles from various sources to be pooled, and then prepared by different groups of people for a number of different publications. The ATS was adapted to Medscape's needs, and was still in use through 2001.

The initial site was served on Macintosh computers, as Windows NT was in its infancy and we had no expertise in UNIX, the only other alternative at the time. Unlike modern Macs, pre-2001 Macs were not suitable for large-scale Web serving. But they were ideal for our purposes of Web-prototyping and testing our thinly financed business model. Once scalable performance and reliability became significant issues for Medscape, and we realized that we would want to be able to buy certain high-end capabilities (ad servers to dynamically insert ads according to business rules rather than just randomly, template-based middleware for creating sophisticated search capabilities), we knew we had to switch to another computer platform.

Medscape also took an approach to content management that was anathema to publishers at the time. We used human editors to sort, prioritize, annotate, and link content. Instead of leaning on technology at launch (ie, a software-based publishing engine), Medscape was a hand-coded site all the way through 1999–2000. It was economically viable and gave a growing cadre of editors an amazing amount of control on what and how content could be most beneficially presented to their readership.

Results

Medscape's first Web software was a 1994-era Macintosh product called WebSTAR. It had a wonderful feature that permitted administrators to watch, in real time, the progress of users visiting links on the site: You could see when someone entered the site, what articles they visited, what picture-thumbnails they “zoomed,” and if they answered the question we asked of all new registered members: “How did you discover Medscape?” Being a fly on the wall and watching what and how people read was hypnotic, instructive, and permitted us to continually improve the site based on our observations.

There is nothing more important to a writer and publisher than to understand what's of interest to their audience. Twenty years earlier, the editorial premises for Hospital Physician, the first medical journal I edited, was based on my watching housestaff read journals in the cafeteria of Bellevue Hospital (New York, NY), rounding with them, and seeing them rise from a broken sleep on a ward library to fix a stopped intravenous. Now we could watch not 1 but hundreds of Medscape users in real time, see what articles they clicked on, and learn at what point they left the site for other Web surfing.

Registration on the site numbered a few hundred after a week, and increased every day. Of special interest was heavy traffic from new members in Hong Kong, China. We emailed one of the members to learn why they used the site, and what they liked and didn't like about it.

The traffic was emanating from Queen Mary Hospital, one of the largest acute regional medical centers in the southeastern part of China, and a teaching hospital and research arm of the medical school of The University of Hong Kong. The hospital sported high-speed access to the Internet – unusual for 1995 – and made it available to several medical departments.

One of the physicians at the hospital had read Bill Seitz's Usenet post announcing Medscape and circulated the news to others in the hospital by email. The department of infectious diseases was especially pleased to discover Medscape and the 3 infectious disease-oriented journals from SCP on the site.[14]

I noted with interest the name of another user early in 1995: George Lundberg, MD, editor of JAMA and the prime mover behind the American Medical Association's (AMA's) nascent Web efforts. The AMA's site started a few months after Medscape was interesting, but you had to work hard to find it, entering the awkward Web address http://www.ama-assn.org/. If you entered “AMA” in the Yahoo! search engine, the first results would be for the American Management Association or the American Marketing Association.

Medscape's efforts to reach early Internet users were low-key but effective. Office interns were hired to scour the Web for disease and health-related sites. The interns emailed managers and Webmasters, invited them to evaluate Medscape, and asked them to include a link to Medscape if they liked what they saw. Among the hundreds that obliged was Jerry Filo, founder of Yahoo! By the year 2000, some 15,000 other sites linked to Medscape, all at no cost.[15] In addition to the links encouraged by interns, MedPulse was made freely available, and soon became a regular publication on many small medical Web sites (complete with its links to full-text articles on Medscape).

As the first year drew to a close, membership passed 40,000, and some 700 visitors were signing in to the site daily, reading an average of 9 articles per visit.

Some 1800 new members per week (including 700 physicians) were registering. Medscape had 10 topic areas, a daily news feed, 14 members of the Publishers' Circle, and 400 full-text articles – a tiny number by today's standards, but meaningful in its day. In its first 12 months, 3.4 million searches were conducted and 32.2 million articles viewed.[16]

The data were so good it was intoxicating: The small experiment could indeed change the world. Everyone was working long days and weekends, but the results were clear, and company morale was high. If membership increased at its current rate, Medscape would surpass 1 million members within 2 years, far exceeding the reach of any medical journal in history and most consumer publications. (The New York Times, for example, has a daily print circulation of less than 1 million.) In Silicon Valley, the influential San Jose Mercury News stated, “(Medscape) offers a wealth of healthcare information to satisfy the cravings of even the most savvy medical news surfers.[17] The nascent industry of Web review sites, most of which had ratings and awards, also noticed, and Medscape got top billings from sites, such as Magellan, InfoSeek, Physicians' Choice, Point Review, Scout, and Six Senses – sites born in the early enthusiastic days of the Web, but unlike Medscape itself, are gone today.

In our first year, we had done much, and on a financial shoestring did what the giant medical publishers, such as Elsevier, McGraw-Hill, Wolters Kluwer, and the Massachusetts Medical Society and its New England Journal had chosen to ignore. We proved that Medscape had a valuable and loyal audience that numbered in the tens of thousands – already more than most print medical journals. We created the start of a business model. We released our first advertisers' rate card and were soliciting sponsorship. Moreover, we were enthusiastic about the work and the culture of the company, even if occasionally it meant sleeping over at the office or needing to break the pressure with an extemporaneously arranged game of ping-pong on a table shoehorned into our cramped space.

The decision to require registration was richly rewarded in our ability to learn about members, communicate with them, and provide annonomized demographic information to potential sponsors and potential advertisers.

On the business fronts, we had many appointments to demo the site and provide education to potential sponsors. But no actual sales were made in this period. Companies that traditionally advertise to doctors – pharmaceutical and medical device companies – didn't have a Web presence or Web advertising, so it was difficult for them to support the site, even if they wanted to.

The success and challenges of the first year clarified a number of business issues that caused us to think differently about Medscape the site, and Medscape the business. If Medscape was to continue to grow and innovate, it needed a dedicated financing effort to sustain its start-up losses, and the money needed was beyond SCP's resources. Building sales was going to be a slow process, and Medscape was going to have to come up with another source of money to support the effort. Medscape also needed a full-time staff that went beyond the initial “skunks.” As the site's first year came to an end, plans were made to run Medscape in its own company and raise its own money. The decision would have many implications for its future.

Medscape Year 2: May 1996-April 1997 – Medscape, Inc.

On April 1, 1996, Medscape, Inc. was formed, and with interim financing from SCP set out to raise its own money. Medscape soon occupied a separate half-floor in SCP's 29th Street building in Chelsea, and expanded its work staff to 15. (Two of its first hires, Leah Wang and Ted Singer, remain with Medscape/WebMD today.) Its Board of Directors included well-known experts in finance, new media, and technology, such as Esther Dyson, editor of the highly regarded technology newsletter, Release 1.0, who The New York Times described that year as “the most influential woman in all the computer world.” I was chief executive officer (CEO), and passed management of SCP to Tim Fallon, one of Medscape's original SCP skunks who was also elected a Medscape director, and remained active with its sales efforts for years. Within short order:

• We aggressively expanded content and search functionality. The site was updated daily – hardly novel today, but unusual in 1996.
• In June, Medscape introduced the first free, unlimited Web-based MEDLINE searching. Traffic soared.
• Important new features and services were introduced, including online Continuing Medical Education, a Women's Health topic area (created under contract with SCP, and underwritten by Pfizer Pharmaceuticals, the first significant commercial supporter of the site), a meeting coverage service called Conference News Online, and several quizzes in addition to PicTours, including The Exam Room, Brainscape, and “Question of the Day,” a quiz linked to a featured article. We introduced enhanced keyword searching on the site and created the Medscape Academy, an Internet training course that pharmaceutical companies could sponsor at conventions to teach doctors how to use the Web.
• For the 30% of Medscape users who were not healthcare professionals, consumer-level content was introduced in July, with 150 articles in 21 health and disease topics for patients or for physicians to download, print, and distribute – a move that would foreshadow much larger efforts in years to come.
• To help healthcare professionals get on the Internet and Medscape, we began production, sales, and distribution of a Medscape Access Kit (MAK) so that clinicians could get a Netscape Web browser and telephone dial-up access to the Web through an Internet service provider.
• By the end of the year, The Medscape Bookstore was also to debut on the site.
• A “Medscape Remote” tool was created that could be placed on other sites, and permitted searching of Medscape from those sites.

Financial objectives were more elusive, and technical challenges were also mounting. Most pharmaceutical companies still had no Web sites promoting products or programs. (Now, it's hard to even imagine a Web devoid of pharmaceutical promotion!) There was immense pressure on the small staff of 18, yet few resources were available to hire additional help or buy new technologies. Medscape's boot-strapped Macintosh computers were running out of steam to support the skyrocketing traffic, and preparations were made to replace them.

In May 1996, a well-known Wall Street firm was hired to help raise money for Medscape, but the effort faltered, and the relationship with the company terminated before the end of the year. Ironically, obtaining an investment was complicated by the chairman of Medscape's Board of Directors, Alan Patricof, a pioneer in venture capital. Patricof's fund, APAX partners, had also been the lead investor in SCP in 1982, and he was a proud and articulate advocate for Medscape. Nevertheless, Patricof resisted his company's making an investment in the site because of an obscure conflict-of-interest rule that prevented a firm from supporting a firm that may be competitive to another company in which the fund had previously been invested. It was a state of affairs that greatly complicated obtaining Medscape funding by Patricof's peers in the venture capital community who interpreted his reluctance as a reticence about Medscape itself.While Medscape was pumping out articles on its desktop Macintosh computers, on the West Coast, Jim Clark, the man who brought Mark Andreessen's Web browser to the commercial world by forming Netscape Communications in 1995 – and presided over its spectacular IPO – was developing another Internet healthcare solution. While Medscape was going to use content and information to attract an audience, Clark, a wealthy computer scientist who founded supercomputer company Silicon Graphics in 1982, was going to use technology to “fix the US healthcare system.”

In the late 1990s, after a stint in a hospital, Clark sat down with a piece of paper and drew a diagram with the 4 healthcare players: payers, doctors, providers, and consumers, according to The New New Thing, a book by industry chronicler Michael Lewis. In the middle of this “magic diamond,” he placed a new company, Healthscape, which, following a legal dispute with a prior owner of the name, became Healtheon. No one at Medscape gave Healtheon much notice: They were in the technology business; we were in the information business. Little did we know how our lives would intersect in the years to come.[18]

By August 1996, when Medscape released its second advertisers' rate card, there were nearly 70,000 articles viewed per week and nearly 100,000 members – a figure that would double to 200,000 by December, just 4 months later.

More than 120,000 searches were conducted every month. Most users (56%) were between 26 and 44, but a substantial number (23%) were older, contrary to the conventional wisdom that the Web was only for those under 30. Nearly 40% came from overseas, with Canadian usage predominating. In little more than a year and a half, Medscape had almost as many members as The New England Journal of Medicine had subscribers – and their brand had been around since 1812.

Medscape Year 3: April 1997-May 1998 – The Money Hunt

The Web in 1997 and 1998 was much like New York City in the 19th century: The population was exploding with new immigrants landing on its docks. There was conviction about the opportunity, and an outpouring of hard work and creativity. But life was a struggle; there was little clean drinking water or food to sustain the population; and many people had difficulty in finding their way around the unfamiliar new territory.

At Medscape, our content, audience, and features continued to bloom. But our sustenance – money – was in short supply. Prescription drugs, with the exception of a single product, dronabinol (Marinol), had no Web presence, as companies feared sanctions from the US Food and Drug Administration (FDA) (a groundless concern fueled by conservative company lawyers who finally relented in the coming years). Most health products that advertised were folk remedies or medical practices pitching unscientific weight-loss services – a clear conflict with Medscape's ethics.

Complicating the problem, few decision makers in the pharmaceutical industry used the Internet or the Web. Even if they understood the importance of the new media on an intellectual level, they didn't incorporate it into their daily lives, and so it was foreign. The challenge was captured vividly in a conversation with Abbott Laboratories, manufacturers of the antibiotic clarithromycin (Biaxin), which in 1996 was heavily promoted in medical journals but had no Web presence because company lawyers feared the FDA. A Yahoo! Search of “Biaxin” brought up several sites that mentioned the drug, most prominently one from a weight-loss clinic that was touting the drug's occasional adverse gastrointestinal side effect as an appetite suppressant! Although there was lots of content on the Web about Biaxin, none of it was from the manufacturer, Abbott. Although the product manager was horrified at some of the information he saw about his drug on the Web, it took a year or 2 for Abbott to finally post its own information about Biaxin, and purchase links to it on Medscape.

Meanwhile at Medscape, we struggled to find the right people to sell our services at salaries that we could afford, offering stock options to sweeten the deal. If we made it big, so would they.

By the summer of 1997, some staffing progress had been made. We hired a Web-savvy vice president (VP) of sales, Alex Martin, a former product manager at SmithKline, whose other credentials included a Harvard MBA, a sense of humor, and the ability to sing perfected in an acapella chorus as a Cornell University (Ithaca, New York) undergraduate. Our parent company, SCP, continued to be our lifeline, lending us money to make payroll, and supporting Medscape's infrastructure and sales efforts. SCP even helped by facilitating the transfer of one of its star salespeople, Mike Collins, to Medscape (where today he is a VP). On the editorial front, SCP continued to produce Medscape Women's Health, which also became one of the first Internet eJournals to be listed in Index Medicus.

In the fall of 1997, Medscape began a series of meetings with its non-Internet-based online rival, POL, whose CEO, Steven Zatz, is now executive vice president and chief medical officer of WebMD/Medscape. The purpose was to discuss a possible merger – and to weigh the relative values of each business strategy.

Zatz articulated the POL vision as one that provided trusted services from peers consistent with its “for physicians, by physicians” tagline. A key and popular POL service was discussion groups on clinical topics, moderated by skilled and dedicated physicians. These highly technical electronic discussions, Zatz said, could only be conducted honestly and productively among physician-peers, and would not be possible in a Web environment like Medscape's that allowed nonphysicians to witness or participate in the conversation. The very presence of patients in the mix would end the enthusiasm of physicians who would not want to scare consumers with the harsh but honest clinical reality of describing a surgical procedure, or to have their words misunderstood. And without the participation of American physicians, an online business model dependent on pharmaceutical companies and other likely sponsors could not succeed.

I maintained that physicians as well as others would continue to be drawn to Medscape's more open environment, if only because its content was the best. I also believed that the presence of nonphysicians would not be a deterrent to MDs visiting Medscape as long as the content was trustworthy. Moreover, multidisciplinary teaching was the norm at teaching hospitals. I pointed out that I had just returned from a Grand Rounds at Cornell with physicians, nurses, pharmacists, students, and patients all discussing their cases in the same room. No one seemed upset.

In reality, physicians went to POL and Medscape for different reasons. Medscape had a far larger content offering, which emphasized free access to full-text articles and searching. And anyone with an Internet connection could get to it. POL had a popular free email service, free MEDLINE searching, and robust and useful discussion groups for physicians, but they weren't on the Web. POL was ahead of Medscape in revenues and believed it was worth much more than Medscape. We believed that we were worth more because our audience and audience potential were much larger and our Internet-based cost structure was much lower. We continued to coexist as friendly competitors.

Another robust competitor was of greater interest than POL: in the HIV area a Web site called Clinical Care Options, owned by Healthcare Communications Group (HCG).

HCG had HIV content and features second to none, and a successful business model. Its founder, medical entrepreneur Dr. Jeffrey Drezner worked with a network of HIV experts who wrote summaries of topics at HIV conferences – many run by HCG – and then put the summaries on the web in CME format. The HCG web site also provided tools focused on HIV for physicians such as databases, textbooks, and a sophisticated and highly useful HIV drug interaction tool and a drug scheduler. Moreover, Drezner was managing to sell sponsorship of his services for more than what Medscape charged. HCG also rejected the POL strategy of a physician-only network: it was open to all, and not even registration was required to use it.

Encouraged by HCG's success we started to correspond by email. One year later Medscape's business model was to be transformed when it acquired HCG and gave Drezner a major role and a Board seat (Clinical Care Options, now an independent medical education company, continues to offer free access to continuing medical education at www.clinicaloptions.com).

In early 1998, the editorial, design, production, and technical groups at Medscape introduced the first of a series of major improvements to the site: In addition to a bold new logo and article design, 19 different “specialty Medscapes” (ie, Medscape Cardiology, Medscape Surgery, etc) were created in different specialty areas, along with companion MedPulse eNewsletters for each. Using newly-introduced technology and specialized software, advertisers could now display messages by the context of searches and the profiles of users; therefore, hip replacement ads would be displayed to those interested in orthopaedics, and antidepressant banners to those interested in mental health.

Advertisers could also selectively target an audience within Medscape –physicians, PAs, or consumers within a specific zip code, for example. A major initiative was launched to make US physicians aware of the site through journal advertising, mail, and convention brochures featuring “Medscape Kids” asking rhetorical questions, such as, “You mean all the answers are free?”

Medscape ended its third year with another major announcement: Paul Sheils, a 17-year veteran from Dow Jones, and one of the key architects of The Wall Street Journal Online, had just been hired as CEO. (I stepped aside to become chairman and advisor to Sheils.) With our first financing round behind us, we had money in the bank, and were starting to realize revenue from our sales efforts.

While Sheils, a lawyer, did not have a medical background, he combined a deep understanding of and respect for the editorial process with a strong sense of ethics and excellent business presentation skills. When he told his long-time secretary that he was leaving The Wall Street Journal, she was upset, he recalled, and proceeded to check out Medscape to make sure that he was leaving for a reputable site. While reviewing the site, she saw a disturbing picture of a nose lesion that looked like something that she had spotted in the mirror that morning. It turned out to be early-stage melanoma. The power of information as medicine further motivated Sheils to join Medscape, and the potential of the site to do good stayed with him throughout his tenure.

In his first few weeks on the job, I arranged opportunities for Sheils to shadow physicians at Bellevue Hospital as well as upscale New York Weill Cornell Medical Center, New York, NY. For Sheils it was like visiting “two different countries, one rich one poor,” and we speculated about how much difference it might make if Internet access and Medscape could be put in the emergency services of hospitals. But further exposure to the audience was put off indefinitely as the competitive landscape was changing at breakneck speed. Medscape ended the year with membership at a half million, 35 employees, a new CEO, and money in the bank.

Medscape Year 4: May 1998-April 1999 – Medscape Gets Moxie, Dot-Coms Go Wild

Medscape's fourth year got off to a dramatic start. FORTUNE magazine, in a cover story, crowned it one of the “12 Coolest Companies on the Planet”, declaring “Of more than 15,000 Websites on health, one stands out as the niche's probable future Yahoo: Medscape.”

The article added: “Medscape is fast acquiring the kind of buzz that Wall Street dreams are made of: Its backers include cybercelebrity Esther Dyson, its recently named CEO helped spearhead Dow Jones acclaimed Internet offerings, and it boasts more than 600,000 members.[19]”

It was the equivalent of a Broadway show getting a sensational review in The New York Times. We all believed that we could change the world, and now FORTUNE had said that we had. Just 3 weeks earlier, Crain's New York Business selected Medscape as one of it's top 4 “Awesome Foursome” companies in the city, complete with a staged photo of a rooftop ping-pong match with Paul Sheils and I. A few weeks later a review published by Excite.com declared: “If you think there's a bigger and better collection of freely available articles on and coverage of the medical profession, you may need brain surgery.”

But for all the accolades, the sobering reality was that while Medscape had won the hearts and minds of its audience and critics – and was rapidly gaining a customer base in the pharmaceutical industry – the next challenge would be to cement Medscape the business on Wall Street.

Initially, the management team reasoned that the challenge was to prove that with great content and a valuable audience, we could acquire revenue and become profitable with the same proficiency that we acquired membership and traffic.

What we failed to understand was that the criteria for business success would shift from the performance of the site itself to the company's ability to make high-profile, million-dollar megadeals. In its third year, the story of Medscape would shift from Medscape the site to Medscape the business, and what Wall Street described as the “ehealth” sector.

Within months of Sheils taking the CEO position, a 28-year-old entrepreneur from Atlanta, Georgia, Jeff Arnold, debuted a new Web site, WebMD, and almost simultaneously announced that he had obtained $10 million in financing for his new site at an astounding valuation of more than $200 million – some 10 times Medscape's valuation. At the time, the WebMD site was little more than an idea and a homepage – it had sparse content, and its membership was unknown. Arnold's plan was to build his business through acquisitions and investment. He soon proved to be a master of that universe.

Medscape was on Arnold's radar, and that summer he was in our offices in New York to tell the WebMD story and to offer to merge Medscape into WebMD, valuing Medscape at less than his start-up business. The current site, Arnold said, was just a placeholder for things to come.

WebMD's investor was the hospital information technology company HBOC (since acquired by McKesson). HBOC, Arnold said, had developed exclusive “middleware” that would permit any physician to access a patient's electronic hospital record from any computer, and regardless of the systems of computers a hospital used, all by simply inserting a WebMD floppy disk into his/her computer. It was, Arnold said, part of WebMD's “end-to-end” vision of healthcare, one that would permit a patient to call a doctor's office and speak to a computer-controlled “virtual receptionist” to make an appointment, refill a prescription, or review a laboratory finding. The consumer WebMD site was only a doorway to this larger world.

Arnold is a passionate presenter, and reaction to the meeting was diverse. I remarked that he was “unbelievable” by which I meant that his description of what was possible with technology was not to be believed. To my astonishments, my colleagues took my comment as “unbelievably great.” WebMD, they predicted, would come to dominate the ehealth space.

My colleagues were right, although not for reasons that had anything to do with what was possible with a floppy disk. I followed up on the presentation by consulting several experts who confirmed that the days of the magic diskette and virtual receptionist were a long way off and might never occur. (And who wants to talk to a “virtual receptionist” anyway?) But I failed to understand correctly the power of Arnold's ability to capture the imagination of both an audience and Wall Street.

Arnold's high initial $200 million valuation for his company would soon be eclipsed by a series of ever-more-impressive deals that would leave Medscape eating WebMD's financial dust. Logic had nothing to do with it: From a traditional economic analysis, Medscape was worth more than WebMD. A filing with the Security and Exchange Commission, for example, reported that in the first 9 months of 1998, WebMD lost $7.8 million on revenue of $75,000;[20] by contrast, Medscape had a loss of about $2.4 million on revenues of $1.6 million in the same period.[21] The differences were the perceived value of the WebMD vision and Arnold's showmanship. His initial success with HBOC was to be bested by spectacular announcements in the weeks and months to follow with investments in WebMD that included $250 million from Microsoft and other major deals with DuPont, Lycos, UnitedHealthcare, and the prestigious venture capital firm Kleiner Perkins Caufield & Byers. WebMD continued to reinvent itself more than a dozen times in the following years, creating all its value by buying companies with highly valued stock or obtaining investments from major financial institutions who bought the WebMD story. (Medscape the company along with Medscape the site were ultimately sold to WebMD, which also transformed itself after Arnold left in 2000. But more on this, later.)

WebMD's success with deals – all of which valued it at many times Medscape's worth – caused some members of Medscape's Board of Directors to question Medscape's business model. Medscape was in the media business: The founders and the new arrivals (Sheils and Drezner) all believed that content was king, and its customers were its healthcare audience and sponsors who wished to reach them. But Wall Street in 1998 had tired of the “content sector” and was now more enamored with what they termed “eCommerce” (a financial transaction conducted over the Internet) and on business efforts to connect patients to doctors on the Web. “Consumer-facing” sites like WebMD were seen as critical to this vision.

And so, in the summer of 1998, a decision was made that was to have a profound and ultimately fatal effect on Medscape the company, even as Medscape the site was declared “the #1 medical supersite,” by the AMA's American Medical News.[22]

As a first step, the investors on the Board of Directors asked Medscape to commit to focus more on consumer health, from which several ehealth companies had sprouted on WebMD's lawn. One new entry was Atlanta-based Medcast, a well-financed venture with a logo and name resembling Medscape's. Medcast was running full-page ads in The New York Times and The Wall Street Journal, proclaiming that they had a unique method of educating patients in doctors' offices through Medcast terminals, a custom-built computer that Medcast was proposing to install physically in the physician's office to “own the doctor's desktop” through a program of pharmaceutical sponsorship. Drkoop.com and Onhealth.com were also concentrating on the consumer space.

Medscape's Board wanted a focus to compete with the consumer Web brands, and it was clear that they believed that the people who built the Medscape professional site were not the ones who could duplicate the perceived success of the new competition. I argued that Medscape should stay the course with increased emphasis on the consumer, by creating a sister site, Medscape Health, and that we should stay in the media and information sector, especially in medicine, where in the United States alone pharmaceutical companies spent billions of dollars supporting such efforts. Sheils also believed that Medscape could reach consumers as an extension of its professional effort, and mocked the $20,000 Medcast ads as a poor use of resources that Medscape should never emulate. Rather than spend hundreds of thousands of dollars advertising a service that didn't even exist, Medscape would build something real.

A few weeks later, a very private event took place in one Medscape member's life, that for a time looked like it might point the way to preserving the value of the Medscape professional presence while extending the brand to a new and exciting service for consumers.

John Frazee, vice president of news services for CBS News, had gone to his doctor for a routine physical examination. Days later, his physician called to say that his blood test results showed a raised lymphocyte count, highly suspicious of asymptomatic chronic lymphocytic leukemia (CLL). Another round of more sensitive and sophisticated tests was scheduled.

Frazee did what millions of Americans did as they prepared for the worst and hoped for the best: He turned to the Web.

Fortunately, Frazee did not have CLL, and in fact the new tests showed that he didn't have any disease. But by now Frazee was also intimately familiar with dozens of medical offerings on the Web. Medscape, he was to say, was head and shoulders the best, far more useful to someone like himself than all the consumer sites. “I became a well-informed consumer via the Internet on issues and options involved in lymphocytic leukemia,” Frazee said.

So when CBS decided that it should team up with a healthcare site, Frazee persuaded his colleagues to call us in for a conversation. And he called us personally to thank us for the site and invite us to a meeting.

Other events made the summer conversation with CBS seem especially timely. While rose-colored memories recall the Internet boom on Wall Street as a bubble, in reality it was more like a rollercoaster that kept trending upward with dramatic and sometimes protracted dips along the way. One of the longest dips was in the spring, summer, and fall of 1998, which forced Healtheon, slated to go public in October 1998, to postpone its IPO. It's not a good idea to go public in a dip.

Sheils recognized that despite the lull on Wall Street, Medscape, to compete, had to raise more money as well as improve its sales. His first step was to conclude the acquisition of the Clinical Care Options business in October. In the process, Drezner became executive vice president of sales and was elected a company director.

Then, in November, everything changed in one dramatic day on Wall Street. A little known Web site, EarthWeb.com, with a charismatic CEO, Jack Hidary, ignited the dot-com boom with a record-breaking IPO that awarded first-day investors gains of 248%. Two days later, an even more obscure company, theglobe.com, went public, posting stratospheric first-day gains of 606%. The dot-com days of instant paper millionaires had arrived.

The Medscape phones were ringing off the hook, and discussions began with several Wall Street firms. Two investors, Robert Lessin and Media Technology Ventures, suggested that Medscape consider a fast-track IPO itself.[23] Especially since the Clinical Care Options acquisition, Medscape had more revenue and a better business model than EarthWeb or theglobe.com. But other investors on the Board of Directors wanted a more conservative approach, and it was decided that Medscape would contract with a major Wall Street investment bank, Credit Suisse First Boston (CSFB), to raise one more $20 million “private” round, and then go public the following year.

The decision to delay the IPO proved to be a costly mistake. While other companies took advantage of the hot IPO climate, Medscape management immersed itself in a bureaucratic and costly process with CSFB, which finally produced the required offering memorandum for the private financing in February 1999. The $20 million was raised, CSFB said, “with a single phone call,” the same week when the memorandum was produced, leading some to wonder why the document was necessary in the first place. By contrast, Healtheon raised $40 million in its IPO in the same week, and saw its stock price triple on the first day, giving it a valuable currency in its public stock that was not available to Medscape. It was the first sobering sign that although Medscape understood how to create content, attract a valuable audience, and was on its way to winning customers and becoming profitable, both management and its Board of Directors would not be as successful as other dot-coms when it came to creating magic on Wall Street.

Nevertheless, throughout 1998 and through the first months of 1999, the basic low-cost operations at Medscape and its start-up culture remained largely intact, including its inexpensive 29th Street office loft. And the site itself made many improvements, adding a new drug searching tool integrating 2 databases and by incorporating the innovative Clinical Care Options content. Significantly, Medscape members going to the site would now land directly on one of more than 30 specialty pages of their choice, such as Medscape Surgery, Medscape Pediatrics, or Medscape Psychiatry. A milestone was achieved when Dr. Carl Barresse from Sarasota, Florida, became the 100,000th US MD to become a member. The December 31, 1998 calendar year closed with $3.1 million in revenues, up 102% from the previous year. Costs were up about 40%, primarily because staff had grown to 56.

The basic Medscape approach to its business was in contrast to many of the newcomers to the dot-com scene, such as pets.com, women.com, and govworks.com (immortalized in the documentary film Startup.com). We had a ping-pong table and office parties, but Medscape was devoid of the archetypal dot-com office where one could find $1000 Aeron chairs, designer Knoll desks and furniture, expensive espresso machines, panini sandwich presses, pool tables, foosball, expensive Italian leather couches, glass doors with sandblasted logos, $20,000 granite conference tables, and even massage rooms. Medscape eschewed lavish media events and advertising – such as $2 million 20-second Super Bowl spots – that competitors bought to grab “mindshare” to get Web traffic and create an exciting image on Wall Street. In some ways, by 1998, conservative Medscape was already an old-fashioned dot-com in contrast to newer entries. We were built on substance, not smoke.

The founders of Medscape, and Sheils and Drezner, were also comfortable with the notion of Medscape as a media business that – like The New England Journal of Medicine or Yahoo! – made money from sponsorship and advertising. We believed that we could grow the business to profitability in 2–3 years. The CBS discussions, the Clinical Care acquisition, and Medscape's response to a dramatic event that was to occur the next month, all kept Medscape on course: We would be the best Web site offering medical content, period. Company morale remained high. Yet, it was clear that success was also increasingly being judged more by the company's ability to close high-profile financial deals, often with little or no regard to strengthening Medscape's commitment to content.

We also understood the consequence of the failure to make the right deals, a poignant example being the sale of Netscape Communications to AOL in November 1998. Netscape the storybook company led by financial wunderkind and yachtsman Jim Clark and the idealistic ubergeek-boy-wonder-graduate student Mark Andreesen, the inventor of the Web browser. Netscape the company developed fierce brand loyalty as it commercialized the Web browser and went public in a spectacular IPO in August 1995. Netscape the company changed the world and challenged Microsoft only to be crushed by it, and then, for all practical purposes, disappeared as a relevant organization, all in less than 3 years. And the final irony of the Netscape sale was that a large part of its value to AOL was the popular Netscape netcenter.com page that was the default Web starting page for users of Netscape browsers. Netcenter, the only legacy of the company that survives today, is comprised of news feeds and a Web search box and makes money from advertising – it is every bit as much of a media business as Google is today. So at the same time when Medscape was being advised that on Wall Street “content is a loser's game” and “forget the media business,” AOL was buying a media property! It didn't make sense. Medscape, a promising and accomplished media player, was being told that it would suffer the same fate as Netscape but for the opposite reason: failure to switch from a media business to an ecommerce transaction business. Our Wall Street advisors trotted out charts demonstrating how “the mood” on “the street” was going through “sector rotation,” a form of financial bipolar disorder in which the “smart investor who gets it” could switch sectors in anticipation of the street's next behavioral swing, just as Arnold had.

But there was little time for reflection, as events around us opened up an enormous new opportunity for Medscape, courtesy of a presidential sex drive and the incompetent actions of the AMA.

In the lens of history, the attempt to impeach President William Jefferson Clinton in January 1999 for trying to keep secret a private sexual affair – and lying about it – seems like a distant memory. A footnote to the impeachment – the AMA's firing of George D. Lundberg as editor of JAMA – was to provide another opportunity to transform Medscape – and perhaps to solidify for the long term its standing as a preeminent force in medical media.

Lundberg's offense was the publication in January 1999 of data from the Kinsey Institute for Research in Sex, Gender, and Reproduction that found that 60% of college students surveyed in 1991 considered oral sex as “not having sex.” E. Ratcliffe Anderson, executive vice president of the AMA, said the article was “inappropriately and inexcusably” timed to support Clinton's famous assertion that “I did not have sex with that woman Monica Lewinsky” and personally and summarily fired Lundberg.

In the New York offices of Medscape, we agreed with Lundberg's JAMA columnist Thomas DelBanco, quoted in The Wall Street Journal that the AMA “has made fools of themselves so often, they almost have a death wish.”

I looked up Lundberg in our member database and noted that he had been a member since 1995. And he was a regular visitor. When I called he said, “Medscape is the best in the world at what it does” and welcomed a conversation. One month following his AMA firing – and with a contract guaranteeing him editorial independence – Lundberg was introduced at a press conference at the New York Academy of Sciences, New York, NY, as Editor in Chief of Medscape. Within weeks, he introduced MedGenMed a primary-source, peer-reviewed medical journal that has since published some 1300 articles. He quickly became – and remains – the most identifiable spokesperson for Medscape the site, and continues to innovate by publishing (and often authoring) original and provocative ideas in medicine and health policy.

Healtheon may have had its successful IPO in February 1999, its ecommerce vision, and its “magic diamond.” But Medscape had George Lundberg, the world's most credible medical editor who, under his 17-year stewardship, had transformed JAMA into the most quoted medical journal of all time – both in the professional literature and the consumer media. Now Medscape could execute on its Board's vision to develop a consumer franchise, preferably with CBS (where negotiations were progressing) with no compromise to staying in the media business in which it had its roots.

In retrospect, the most important and lasting achievement of the events of February 1999 was to insulate the fortunes of Medscape the site from Medscape the company, which, despite the optimism of the moment, was about to begin a series of fatal missteps that would lead to its demise a little more than a year after Lundberg's introductory press conference. The strengths of Medscape the site were understood when Lundberg began and, under his leadership, continues to improve to this day.

Medscape the site ended its fourth year in good health: By the end of April 1999, members logged in 4.6 million times, with American MDs accounting for 2 million of those visits. Membership was approximately 1.1 million, including more than 350,000 consumers, just as we had predicted in 1996. The Publishers' Circle had some 90 content sources.

Medscape the company also ended its fourth year with good financial news: In its first 3 months, revenue was more than half the revenue of the entire preceding year. Some 90 companies were doing business with Medscape, including every major pharmaceutical company. The Web had arrived as a medium. The little start-up on 29th Street had hit its stride and was now on the path to its own IPO. The company had 83 employees, and leased an entire additional floor (10,000 square feet) at its 29th Street location to accommodate its growing ranks.

Medscape Year 5: May 1999-April 2000 – A Good Year for Medscape the Site, but the End of Medscape the Company

Soon after the start of its fifth year, in May 1999, Marcel Wormser, one of Medscape's original investors, visited our offices.

Wormser was the chairman of a French bank, and we met in a cramped space converted into a makeshift conference room. I apologized for the peeling paint and lack of air conditioning (A/C) – it was a hot day and we were sweating, but turning on the A/C would blow a circuit. “Don't apologize,” Wormser said. “In fact, if you move to fancier space tell me so I can sell my investment.”

It was a prescient comment. Medscape the site was continuing to make strides. Medscape the company was at a crossroads, as plans were made to compete head-on with the companies pouring millions of dollars into the consumer ehealth space dominated in the commercial sectors by leaders, such as WebMD, drkoop.com, and onhealth.com, and in the noncommercial sector by mayoclinic.com, the National Library of Medicine, oncolink.org, and others. We were going to be a big company with a big staff and fancy large offices to replace our inexpensive open space on 29th Street.

In April, Sheils was simultaneously working on completing preparations for the IPO, finalizing negotiations with CBS, and – bowing to the will of investors on its Board of Directors – creating a separate consumer division to create a new site with CBS, a decision that was to have a major effect on the company, its products, and its fortunes. Wall Street, Sheils was told, would have little interest in Medscape as a company dedicated primarily to professional information, a field it had to itself. Consumer traffic was needed – even if there was no registration involved, so advertisers wouldn't have a clue as to who might be accessing the site, and although not a single consumer site had any significant revenue.

To create the new consumer site, a separate division was created with its own president, technology, content, and marketing and sales staff, none of whom reported to any of the people who had started Medscape.

The decision to split the company into separate consumer and professional divisions, each with its own Web site and staff, was the seed that led to the destruction of the company. Each division had different philosophies about what a quality Web site should be. And it was expensive. The cost was largely dismissed as a concern: With an IPO coming, one had to “think big” and money would soon be plentiful. “Spend money ahead of the (profit) curve” and “get large or get lost” was the wisdom of the day. If Sheils knew that the new consumer division might destroy the productive and relatively low-cost Medscape culture, it was a chance that he had to take. All the financial evidence, and all of Medscape's financial advisors, pointed to the success of “a new” Internet business model that was quite unlike that followed by the Medscape of the past.[23] Plans and budgets were made to double the size of the staff of 83 by the end of the year – mostly for the new consumer site, and to move to fancier, larger space around the corner at 4 times the rent and requiring $5 million in renovation – complete with thick glass doors with sandblasted logos.

Then, in May 1999, the ehealth world shook with a series of stunning financial announcements that once again validated the opinion of the Wall Street advisors to get big fast: Healtheon announced that it was merging with WebMD Inc. in a deal worth a reported $5.5 billion. It was a remarkable event, not just because how the deal was valued – $5.5 billion was more than $1 billion more than what AOL paid for Netscape, for example – but because in addition to the merger, several high-tech heavyweights, including Microsoft and Intel Corp. pledged to take stakes in the new venture, with investment estimated at $500 million. Healtheon stock soared to more than $108 within days of the news – nearly 14 times its IPO price 5 months before. The new company would have 1300 employees.

Less than 3 weeks later, on June 8, 1999, drkoop.com raised $84.4 million in an IPO. Koop shares gained 39% on its first day of trading.

It was the beginning of one of the headiest of times of the dot-com era, where Wall Street professionals and ordinary investors got rich faster than ever before. Inside and outside the dot-coms themselves, the pressure was on to make decisions quickly, without any clear idea of the consequences.

For Medscape the site, building on 4 years of substantive accomplishment as the leading Web destination for healthcare professionals and now under the direction of George Lundberg, the financial fireworks were of little consequence – the site continued to improve, with ever greater traffic, features, and reputation. Medscape the company started hiring and spending rapidly, hoping to keep up. We too, were going to get big fast.

On July 6, 1999, drkoop.com stock soared to an all-time high of $45, five times its IPO value less than 1 month before. Given the Internet mania of the time, the stock price itself was not surprising. What was surprising was the reason for the spike: Drkoop.com was going to pay AOL $89 million to carry Koop content. Those of us in the media business were used to being paid for our content. But to pay others to carry your content made as much sense as a store paying customers to take its goods (an Internet model that was actually tried by grocery site webvan.com with predictable results – bankruptcy). Nevertheless, Wall Street cheered the Koop deal and the stock market listened. In this Alice in Wonderland curiouser and curiouser environment, only 1 brave analyst at CSFB took a bearish view of the deal and correctly predicted Koop would be bankrupt in a year. He was fired a few months later.[25]

Medscape's own IPO was scheduled to debut at the end of July, and Sheils was working around the clock to cement its own high-profile deals to provide the buzz that its IPO banker from Donaldson, Lufkin & Jenrette (DLJ) deemed critical. Within days, he concluded agreements with CBS to provide $150 million of TV advertising for the still-to-be-built Medscape consumer site, and another $10 million deal with National Data Corporation (NDC), a provider of electronic commerce solutions in the healthcare industry. Thus, 2 of Wall Street's cannons for a successful ehealth IPO were marked off the checklist: The CBS deal meant that the consumer site would have a big advertising splash, including television ads, print ads, outdoor billboards, and ads in mass transit systems, such as subways and airports, all locations where the CBS $150 million could be put to use. And the NDC deal could give Medscape an ecommerce presence that could lend it a WebMD/Healtheon-like glow.

In this “fire-ready-aim” corporate climate, major decisions were inevitably given little thought. The decision to build a consumer site with a staff and technology that were largely divorced from what was now called the Medscape professional site was one such decision. What to call the consumer site was another.

CBS – and Medscape's new consumer president – believed that Medscape could never be a consumer brand, as most consumers were not like John Frazee – the man who brought Medscape to the attention of CBS executives during his scare with CLL. The founders wanted the site called “Medscape Health” with a design and identity to complement the professional site. The consumer team rejected the notion, wanted a separate site and identity, and that's what they got.

Initially, the consumer site was to be named CBSMedscape.com, and the offering documents for the planned July 26 IPO were prepared with that name. But the presence of the Medscape name was to be diminished to near obscurity by the time the consumer site actually launched. Both CBS and the new Medscape consumer president wanted to name the site CBSHealthWatch to match the financial site CBSMarketWatch. But they couldn't because the HealthWatch site name was taken. So, while negotiations were undertaken to purchase the HeathWatch name, CBSMedscape.com was used as a temporary placeholder for the IPO document. In the days after the IPO, the HealthWatch name was purchased. When it was pointed out that the public company would be traded as “Medscape” not “HealthWatch,” the words “By Medscape” were added in small type under the CBSHealthWatch logo. In reality, there was little connection between the brands – or the company cultures that spawned them.

The internal turmoil and falling morale that split the company were partly offset by the excitement of going public. But the July 1999 IPO was not to be. Despite Sheils bringing in CBS and NDC, Medscape's bankers at DLJ reported that interest in the Medscape IPO from institutional investors was weak, and the stock market itself was going into a “summer slump.” What Medscape needed, they opined, was “one more big deal like – like Koop did” and then try for an IPO in September. DLJ strongly recommended that an “AOL deal” for Medscape could do for Medscape what it did for Koop. In fact, the management of the new consumer team had lobbied aggressively for just such a transaction.

And so negotiations were started with AOL. Under the proposed deal, Medscape would pay AOL $33 million over 3 years so that AOL could get consumer content from Medscape. The money – like the $89 million that Koop was on the hook for – was to come from the IPO and future revenue from sponsors that were presumed would follow.

The Medscape Board of Directors engaged in a heated debate over the AOL deal. In the end, they agreed to heed their IPO advisors from DLJ, and by a 5-to-4 vote approved it.

If the decision to split Medscape into separate consumer and professional divisions was the seed of the company's destruction, the AOL deal was the coup de grace that doomed its future.

On September 27, 1999, Medscape went public, trading under the symbol MSCP, a tip of the hat to its roots with SCP Communications, and the defunct Netscape, whose symbol was NSCP. The offering was considered a modest success, raising some $45 million for Medscape. The price of the stock posted a healthy, but (by dot-com standards) not dramatic increase on its first day of trading, from $8 to $12. The company had money, and some of us were, for the moment, “paper millionaires”: Our stock, on paper, was worth millions. But because we were restricted from selling stock for a period of time, the wealth was actually an expectation of what we thought we would be worth, as we expected the stock to go up. That, too, was not to be, and few of those who had Medscape stock or options were to benefit financially.

The month after the September 1999 IPO, CBSHealthWatch launched, along with slick TV and billboard advertising for the site created by mega-ad agency J. Walter Thomson. Full-page newspaper ads in The Wall Street Journal and The New York Times at $20,000 each were purchased, burying the business logic of the earlier year, when we derided competitors for such spending. Entire New York City subway cars were saturated with CBSHealthWatch advertising, an expensive tactic called “whole car advertising” that was said to create special excitement. The Medscape name was barely visible in any of the promotions.

The HealthWatch site itself was an uneven offering. Although some accolades were received, the poor searching on the site, its buggy technology, and lack of integration with the Medscape professional site were an embarrassment to many of company founders – as well as to Lundberg and Drezner. Within months of the launch of CBSHealthWatch, several of the executives who had been hired to launch the site left. Sheils moved to heal the wounds by consolidating a number of functions and remerging the split division, including sales, technology, and – most important – putting consumer editorial directly under Lundberg's authority. But the damage had been done.

The financial consequences of the AOL deal – and the dramatic increase of associated costs as a result of the deal, the consumer site, and the lease and construction plans signed for the upgraded new offices – were rapidly taking their toll, and depleting the company's cash. Although it was projected originally that there would be 173 people at the company by the end of the year, there were currently 180, with requests for 90 more, most going to the consumer effort, which was producing only a trickle of revenue. At the current rate, Medscape would miss the year 2000 numbers that it had projected for Wall Street by a wide margin, a turn of events that even in a normal market would tank its stock.

Nevertheless, the performance of Medscape stock was relatively stable between $10 and $12 in the period between the IPO and January 2000. Although in today's (2002–2005) Wall Street environment Medscape's 1999–2000 stock price, valuation, and stability would be seen as attractive, in the go-go days of the dot-com bubble, it was disappointing. Without the ability to sell more stock in a future offering at a price significantly higher than its IPO price, Medscape had few attractive alternative sources of funds. Medscape, with its $500 million valuation, was worth less than 10% of Healtheon/WebMD. In the words of Alan Patricof, chairman of Medscape's Board of Directors, Medscape “failed to capture the imagination of Wall Street.”

And so within a month of its public offering, DLJ, the same Wall Street advisors who took Medscape public and strongly championed the $33 Million AOL deal, were recommending that Medscape be sold. “Content companies” were “dead on the street.” The solution: Sell Medscape to a company in a “hot sector.” In October, DLJ advised that the hottest sector in ehealth was “business to consumer ecommerce,” and so negotiations were started to lure several online pharmacies into buying Medscape. They weren't interested, which proved fortuitous, as by December DLJ was advising Medscape that “business to consumer ecommerce” as sector was cooling and the really new preferred hot sector was now “business to business ecommerce,” and the proof, DLJ said, was the resoundingly successful IPO of a medical records company, MedicaLogic.

MedicaLogic was a software company, the leader in the electronic medical records business, with a reputation for a good product and good ethics. Medscape management liked the concept of electronic medical records, and the management of MedicaLogic liked and respected Medscape. So in the face of it, the proposal to sell Medscape to MedicaLogic had merit. If we had to give up our notion of running Medscape the company as a media business, so be it: Medscape the site could still prosper under the arrangement, especially as MedicaLogic readily agreed to the terms of Lundberg's “no interference with editorial” contract.

It was also clear that Medscape the company would soon run out of money, given the albatross of expenses that it had around its neck from its consumer site obligations and increased spending in all other areas. And although MedicaLogic had a 15-year history of losing money, its IPO on December 9, 1999 succeeded far beyond Medscape in the “capture the imagination” department. MedicaLogic stock started trading at $17.50 and rose to $54 in 2 months. At about the same time as MedicaLogic traded to its high, the Board of Directors of Medscape voted to sell Medscape, Inc. to MedicaLogic. Medscape's steady but modestly performing stock would be traded in for stock in a hot company; and given that MedicaLogic was valuing Medscape at one third its substantial value at the time, it was considered a good financial deal.

For most company insiders, however, the high stock price on the day of the merger was of no financial benefit, as lockup provisions prevented any selling. And although Sheils and Drezner agreed to stay with the company at the time of the merger, it quickly became apparent that MedicaLogic had their own ideas about running the company, and they resigned within a matter of weeks.

Although selling the company was seen by the Board as a quick fix to Medscape's problems – and would absolve Medscape, Inc. of having to fix what the company itself broke – the move didn't work, as the dot-com phenomenon got its first real taste of reality.

It is said that the dot-com bubble officially was burst when Barron's published a cover story on March 20, 2000 entitled “Burning Up,” and listing 207 Internet companies that had gone public but whose high-spending ways were going to cause them run out of cash within 2 years. Both Medscape and MedicaLogic made the list.[26]

Within weeks of the article, MedicaLogic stock dived from its $54 high in March to $13 in April. By mid-May, when the merger was completed, it was trading at 8. Much of Medscape's value to its shareholders vanished.

Within a year and half, MedicaLogic was bankrupt, a victim of its own furious spending. MedicaLogic spent money like the prototypical dot-com – and far more aggressively than Medscape in its most exuberant days. MedicaLogic sold Medscape the site to WebMD in December 2001 for $10 million – a fraction of its value 3 years earlier. CBSHealthWatch was permanently shuttered. And Medscape the company was dissolved.

Although Medscape, Inc. was ultimately a failure, it is a source of great pride to its founders – the original skunks and all those who followed in their footsteps – that Medscape the site itself is thriving and profitable – and as a product, is better than ever today. It remains surprising that the founders had a better understanding of what business Medscape was in (advertising and sponsor-supported content) than some of the sophisticated and experienced investors that directed the company's failed strategy, but not surprising that low-cost operating style of the initial skunks proved more viable than the high-spending habits of the dot-com boomers that dominated decision making in its final years.

Another important factor in the success of Medscape was the healthy, informal, and committed corporate culture that prevailed until the spring of 1999, when the company was split into 2 divisions. Prior to the split, there was heavy emphasis on collaboration, a legacy of the work ethic promoted at SCP. People who had several skills and could apply them were most valued, often rotating through several areas of responsibility. Steve Smith, a physician assistant and former editor at SCP, was initially Medscape's editorial director, but he is also a gifted designer and a computer programmer, who was essential to the information architecture of the site; Leah Wang moved from production to sales and back to production. Vincent Keane, the musician, designer, and ski mechanic who came up with the name “Medscape,” was also a skilled copywriter, marketer, and learned new computer programmers with amazing speed: His skills were just as important in putting finishing touches on a business plan as they were in designing a new logo. As the company grew, much of the fluid collaboration of ideas that made Medscape a reality hardened into traditional business lines, and people were slotted into responsibilities defined by narrow job descriptions. In the resulting culture, the rate of innovation slowed considerably, and the cost of doing business rose exponentially.

Perhaps the most important lesson is that Medscape today thrives because its brand remains true to what it was when it was founded in May 1995: a place where all visitors who register can find freely available, trusted, peer-reviewed content and CME. A good brand can survive ownership by any number of companies that respect it. Medscape the site had the good fortune to have excellent stewards in SCP, Medscape, Inc., MedicaLogic, and now WebMD. May its good fortunes continue.

Acknowledgments

Reference