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2/20/2001

Internet Business Success Requires Planning

Kate Traynor

A post-mortem on failed Internet ventures points out lessons that Web-based businesses, including pharmacies, must learn if they are to succeed.

After the Gold Rush: Patterns of Success and Failure on the Internet, published late last year by the consulting company Innosight L.L.C., blamed the practice of "cramming" for the demise of many Web-based businesses. Cramming refers to building an online business that duplicates a company’s brick-and-mortar organization. By failing to tailor their online offerings to the Internet’s unique properties, businesses that cram will struggle to lure customers away from their familiar brick-and-mortar shops.

Troubled mail-order pharmacy Drugstore.com, said the report, is guilty of cramming. Even though the company exists solely as an Internet business, it essentially duplicates the offerings of a typical community pharmacy. Drugstore.com’s inability to attract and keep customers is evident in the company’s stock price, which varied from $25.75 per share to a low of $0.72 per share over the past year.

Using Drugstore.com and PlanetRx.com as examples, the report points to another predictor of trouble: the failure of a business to research competitors that already have an Internet presence. Pharmacy benefit management companies (PBMs), said the report, perfected their mail-order and prescription-filling processes long before offering these services over the Internet. PBM companies adapted easily to the Internet, and companies like Drugstore.com and PlanetRx.com could not compete effectively.

According to the report, Merck-Medco Managed Care L.L.C., a well-established PBM, takes just four weeks to earn the revenues that PlanetRx.com makes in a year.

Shortfalls in revenues led to PlanetRx.com's announcement last week that it would shift from the general pharmacy market to a focus on specialty pharmaceuticals. The company suggests that consumers request transfer of their PlanetRx.com prescriptions to Drugstore.com.

Another piece of basic advice offered to Internet ventures is to know what customers want. For example, when customers in a market segment want reliable service, an Internet-based business that touts convenience as its main feature will likely fail.

To obtain a free copy of After the Gold Rush, visit the Innosight Web site.