The Amazon Rx

  • For a thriving retail industry that rakes in close to $100 billion a year, drugstores aren't always the most comfortable way to shop for medicine. You sometimes have to share very personal information not only with the pharmacist but also with your neighbors waiting in line. Hey, look who's on Prozac!

    This yen for privacy has prompted a band of start-ups to open an alternative apothecary in cyberspace. Last week

    , led by former Microsoft executive Peter Neupert, launched its virtual pharmacy and a selection of 15,000 health and beauty products to a rousing chorus of approval. A crush of visitors overwhelmed the site. Another admirer is online bookseller , which said it had acquired 40% of the fledgling company. For Amazon founder Jeff Bezos, the investment made sense. He has been on the prowl for other retail businesses that fit Amazon's amazing model, and the health-and-beauty sector is six times as large as the book market. "Nobody likes going to the drugstore," Bezos jokes. This week PlanetRx, headed by former FedEx operations chief Bill Razzouk, is expected to launch its own vast shop, with such similar features as secure personal prescription records, online consultations, and e-mail refill reminders. The online health and beauty market should grow from $500 million this year to $6.3 billion by 2003, according to Forrester Research.

    But while the drugstore market may be "ripe for the picking," as Forrester analyst Kate Delhagen argues, it's not low-hanging fruit. A sick person is not going to wait the necessary three to five shipping days for delivery of antibiotics. Instead, the online stores are focusing on people who at regular intervals order maintenance medication for everything from impotence to high blood pressure and high cholesterol. These are the drugstores' most coveted customers, and their purchases make up half the $100 billion prescription business.

    Unlike the bookstores, the big national drug chains are equipped to fight back. Some offer limited online refill services, and No. 3 Rite Aid has plans to roll out a prescription and vitamin website with GNC in the fall. That doesn't worry

    Neupert, who says, "Frankly, I don't know if the existing brands are all that respected." There's another issue, though. With the rise of managed care, close to 80% of prescriptions are now covered by third-party insurers. To capture a good chunk of the business, online drugstores "have to negotiate separately with thousands of plans, and that's going to take a long time," cautions Mark Husson, a retail analyst at Merrill Lynch. Even Neupert, who's secured only 12 such agreements so far, concedes that many prescription-benefit managers (like PCS, which Rite Aid recently acquired) aren't likely to sign up a competitor. Nor will the websites be able to undercut the stores on prices all that much; managed care has already squeezed prices on many drugs.

    Neupert and Bezos, though, are still convinced that the kind of convenience and shopping experience the Web affords will attract consumers the way Amazon has done. If they're only half right, they've still got a healthy business.