Any Quarterly Announcement press release that leads off with anything but the financial numbers usually signals trouble. WebMD is no exception.
Just got off the WebMD first quarter conference call. Knew it was going to be one of those calls that did not have cheering from financial analysts as they began their questioning with something to the effect of: ” Great results, you really are hitting your numbers, yada, yada, yada…”
No, this was going to be subdued as the company gave everyone fair warning with a pre-announcement that advertising revenue is expected to not grow as fast through 2008 as originally forecasted.
In the call today, WebMD honchos were quite pleased with the number of unique visitors in Q1, now at 51.9M/month, nearly a 25% increase over last year. They were so please with these numbers, they used them as th title for their Q1’08 press release. This translated into overall revenue up 17%, with advertising up 23% while what they call “private portals” (which is really their PHR solution) growing at 9% year over year.
Looking Closer at WebMD PHR Performance in Q1’08
Digging a little deeper into what was said on the call regarding the PHR solution, WebMD saw the number of clients grow from 103 to 122, an 18% growth rate. But if client growth is 18% and they are only experiencing 9% revenue growth, it would appear that they are seeing some significant pricing pressure in the market. And that 18% growth in new clients is substantially below most of their much smaller competitors. Granted, it doesn’t take many clients to boost the growth of small competitors, but when I hear from one PHR vendor that they have had a doubling in the number of clients in each of the preceding two years and now have nearly triple the number of clients as WebMD, it makes me begin to wonder if WebMD is really capitalizing on the growth that is occurring in this sector.
Another thing I found disturbing in the call was the lack of discussion about WebMD’s initiatives in the PHR space. They discussed the competitive solution to Sermo, Physician Connect (now with 20k physicians registered), they talked about expansion overseas (not very informative and what they did divulge was not all that great), they talked about how popular their new magazine, WebMD is (even though the publishing group is still bleeding $$$) and they discussed Health Check, (they claim it is a success, but honestly, I don’t see it and they were not specific as to what metrics they were using to define success). And they spent a lot of time talking about a bunch of student loans they are holding and haven’t been able to sell at auction leading them to having to take a $27M impairment charge (geez, even these guys got caught up in the whole financial mess). The only mention of the PHR (private portal) business was a simple statement on growth, some new clients (Walt Disney and Newell Rubbermaid to name a couple), but no talk about how they are improving this platform, new initiatives, strategies to further penetrate the market. NOTHING!
Really makes me wonder if they are just milking this cash cow and looking for opportunities elsewhere that will be easier for them to defend in the future as the PHR market becomes increasingly more competitive.
If they aren’t able to up selling their add-on stuff to employers or grabbing some consulting dollars for the integration then there really is pretty limited growth value in adding a handful of self-insured employer accounts with their bare-bones PHR (especially when you are working off a base of nearly $100M).
They already landed the big whales on the payer side and with a few exceptions they are largely blocked out of the payer market by TriZetto or a few other vendors.
MG,
While we often agree, disagree with you on this one. First, the employer market is still, for the most part untappped. Yes, WebMD has landed some big ones, like IBM and most recently Walt Disney, but even with these accounts, they still have a paltry 122 enterprise accounts. Not like they are taking this market by storm and conversations with others in the industry tend to lay bear the fact that WebMD really has not put a lot into this product thus creating opportunities for others.
And even in the payer market, yes, WebMD has landed some of the big fish like WellPoint and CIGNA. TriZetto does dominate in the broader software market for this sector, and offers a modest PHR solution, so they are not impervious. But there are quite a few other players out there and HealthTrio for one is capitalizing on the mid-size payer market and doing OK.
My main point of the post is that WebMD is NOT investing in their PHR platform at the level necessary to accelerate future growth and may be vulnerable to attach by upstarts. It appears that they are more focused on straight ad revenue, which may be a case of the old 80/20 rule as ad rev does represent over 72% of their total rev.
Agreed there is a bunch of opportunity in the employer space but there is a key caveat. Typically only employers that are self-funded and larger are willing and able to afford the price of additional care management programs and services (including a robust PHR offering with all the bells and whistles). Pretty much follows the lines of adoption of disease management programs which gradually starts to drop off after that 5,000 or employees threshold size.
There are only about 1700 firms in the US with 5000 or more employees (about 85-90% of these self-insure based upon several data sources/conversations I have had). This is really the sweet spot for vendors to target for a robust PHR offering right now.
Based on the conversations I have had with a couple of HR consulting firms and others, only about 15-20% of large employers have adopted a robust PHR offering from an external vendor like a WebMD. This numbers seems a little low given the conversations I had with Optum Health, WebMD, ActiveHealth, and a few others. Even being pretty aggressive lets says that it is at 30-35% adoption rate among firms with 5000+ employees . Means that 500-550 or some firms have already adopted it.
Seems like there would be pretty of play in this space yet but it is important to point that a small yet sizable portion of these firms won’t adopt a PHR because of their characteristics (e.g., employee turnover rates, etc.). Let’s assume it matches rates for disease management adoption which means that about 25%-30% of firms of this size won’t ever likely consider adopting an external PHR solution. If you also figure that the employers in this segment who don’t self-fund aren’t going to purchase an external PHR solution either. Basically means that about 35-40% (maybe slightly higher) of this segment will never/high unlikely to purchase an external PHR solution.
So if you already have about 500 firms (on the high end) who have adopted and another 650-700 firms that won’t likely ever purchase an external PHR solution, the untapped portion shrinks to less than 500 firms or so. Good opportunity but a drawn out progress that will take 12-18 months likely to bring them on convince them and bring them on board.
The real opportunity then is in the mid-size employer market (say 1,000-5,000 employees) that self-fund. There are nearly 5900 firms in the US that fall into this bucket and about 70-80% either partially/complete self-fund. I just don’t know if these firms are going to be able or willing to afford a more robust PHR solution from a vendor like Optum Health, Revolution Health, WebMD, or the myriad of PHR vendors. Kind of wonder if a “PHR-lite” concept like A.D.A.M. is rolling out in this space might get a bit more traction since the pricing point isn’t as expensive as a more robust solution.
MG,
Thanks for the excellent analysis of the employer market. In many respects, my research came to some of the same conclusions, but not quite as limited.
In the large enterprise space, I would estimate that adoption sits at around 300 or so enterprises of 5,000 or more employees. The 650-700 firms you discount due to high turnover I would lower to about 400-450. Just look at Marriott, a company with high turnover, mostly blue collar workforce who is rolling out ActiveHealth. If they show good results, will see more of these types of companies adoption PHR solutions. Taking your other assumptions and correcting for above and we have an uptapped large enterprise market of ~1,000. That’s a lot of customers.
The mid-tier is also starting to pick-up. If value/ROI can be shown, this is a very lucrative market. A PHR-lite like A.D.A.M. may take hold, but I am also seeing some of the novel health & wellness PHR plays like HealthString and SimplyWell doing very well here with their highly focused offerings. And I do believe that will be the critical ingredient for success in this market. Mid-tier companies will not have the luxury of experimenting with a wide range of potential tools/offerings ala WebMD. Instead, they’ll seek solutions that address a specific problem extremely well.