Cost, Service Comparison Sites are in the Pink

Venture capitalists are pouring healthy doses of cash into consumer health web sites, revitalizing a boom-time sector that nearly wasted away during the dot-com bust.

A confluence of reasons is sparking VCs' interest: Online advertising is finally a realistic revenue model for web sites with enough visitors. The growth of health savings accounts (HSAs) or consumer-directed health plans is sending many medical information-seekers to the web. (HSAs save employers money but require members to pay high deductibles and comparison shop for doctors and medicine.) And aging baby boomers are turning to their computers for quick answers on everything from tennis elbow to liver disease.

"There are 78 million baby boomers whose warranties are wearing down," said Healthline CEO West Shell, 51. "The aging population is completely changing the health-care system. We need tools to be able to make decisions for our parents, friends and children."

Pumping up investment

In the first half of 2006, VCs invested nearly $32 million in U.S. consumer health-care web sites -- double the total amount invested in three post-boom years 2002 through 2004. The sector is continuing a recovery begun last year with $65 million pumped in consumer health care deals.

"Health care is hot and getting hotter," said David Hornik, managing partner of Menlo Park-based August Capital.

Hornik said consumer needs for general health information and cost-and-wellness management are still largely unaddressed on the web, noting that former America Online chairman Steve Case just committed a hefty $500 million of his own cash to Revolution, a holding company he hopes will help focus the U.S. health-care system on consumers' needs.
 
The Washington, D.C.-based venture is buying controlling stakes in health-care providers, health-related resorts, media networks and web sites.

"Two small startups I was looking at -- Simo Health and Wondir -- were both bought by Revolution before they got funded," Hornik said. "So I would say Case means business."

Bay Area companies

One web company that received funding is Mountain View's Healthia, a comparison site for health-care products and services that scored $9 million from Trinity Ventures and Bessemer Venture Partners in April, less than a year after the site's debut. CEO Chini Krishnan said the web site attracts "thousands of visitors a day" but declined to provide specific traffic figures and said annual revenue was under $1 million.

Healthline Inc., a 40-person San Francisco restart, hauled in $14 million in January from VantagePoint and JHK Investment. The medical search engine helps consumers find information, in part, by matching everday words to medical terminology. Five million visitors viewed pages on the site more than 20 million times in the second quarter of 2006, roughly double the number of visitors and page views from the previous quarter.

The company's history mirrors the rise, fall and resurgence of the consumer health web site sector itself. Started as YourDoctor.com, a WebMD-like consumer health information site in 1999, it raised $24 million early on and retained more than 1,000 physicians and medical editors to write consumer-oriented health information. But like so many others, it sank in the bust.
 
"There was no way to make money on content," said CEO West Shell. "Google wasn't around, advertising really wasn't happening online. So when the bubble burst, they didn't have revenue streams in place."

So it morphed into InterMap Systems, an Emeryville firm that sells technology to hospitals, pharmaceutical companies and universities to power their health web sites. And much of the health information it collected over the years is being used by Healthline, which relaunched in October with Shell as its new CEO. It makes money mostly through paid listings and targeted brand advertising. Investors are jazzed.

"One of the reasons we're growing so fast and people are so excited is that 7 to 9 million people are going online each day for health information in U.S. -- that's more than the number of people going to the doctor."

Back East

Silicon Valley money is fertilizing medical web sites around the country. Local VC firms such as Menlo Park's Sequoia Capital in June joined the Polaris Group and other investors in backing New York-based HealthCentral Network. With the fresh cash, the network has launched 25 health-specific web sites.

And the survival of New York-based WebMD, one of the highest-profile consumer health web companies in the late 1990s, may be the most inspiring signal to investors and entrepreneurs. Founded in 1996, WebMD merged with Healtheon Corp., in 1999. The combined entity went public the same year, building a business around consumer content and processing transactions for physicians. After several bumpy years, in 2005, the company spun off WebMD Health Corp. as a separate, publicly traded entity to operate its consumer-oriented web sites. The company's stock, issued at $17.50 a share, has traded higher than $40 in the past week. The company has brought in more than $185 million in revenue in the past 12 months.

Adrienne Sanders covers technology for the San Francisco Business Times