Behind the counter at Drugstore.com

Behind the counter at Drugstore.com
By Dawn Kawamoto
Staff Writer, CNET NEWS.COM

Peter Neupert is no stranger to the Net, as one of the main players behind MSNBC online.

But after 11 years with Microsoft in various senior management roles, Neupert decided he was ready to test the waters on his own. The executive left Redmond last July to lead start-up Drugstore.com as president and chief executive.

Stepping behind the counter at Drugstore.com gives Neupert the opportunity not only to be the head of a promising company, but an influential player in a burgeoning industry that he says will be the next big thing.

Drugstore.com, which sells prescription medication, over-the-counter drugs,

and healthcare goods on the Web, is looking to capture some of the $89.1 billion prescription drug market, as well as a piece of the $19 billion over-the-counter medicine business.

After the site is launched tomorrow, Neupert will have to use all his business savvy and flash to guide the fledging company in the rapidly growing market.

Competitors like PlanetRX are also looking to stake a claim in the online pharmaceuticals market, while established retail pharmacies ready plans to launch their own Net stores.

Drugstore.com received seed funding from venture firm Kleiner Perkins Caufield & Byers. Today, the venture firm was joined by online bookseller Amazon.com (also backed by Kleiner Perkins), which announced a "significant" minority investment in the online pharmacy. And, in an unusual move, KPCB partners John Doerr and Brook Byers both sit on Drugstore.com's board.

Neupert recently looked into the industry's future and that of his company in an interview with CNET News.com.

NEWS.COM: What is going to drive people to buy their medication or healthcare products online?
I think the most important thing is convenience. If you can avoid going to the drugstore by making sure that you're going to get the products you want when you want it, with a guaranteed home delivery and from the privacy of your own home, why not?

Healthcare products can be heavier to ship than drugs, so how much money are consumers likely to save using an online service compared to going to the local drugstore?
Although I think people are very focused on price because some of the online commerce people have got them very focused on this, I don't think that'll be the primary reason people will buy these products online. I think the primary reason people will buy these products will be things that are different than price. It's got to be a fair price, and a low price, but I don't think their objective is to try to save a ton of money by buying these products online. I think their objective is to say, 'I want to save 20 minutes. I want to get it delivered to my home. I want to get the products that I want.'

What age group will use this service most? It seems senior citizens are the biggest buyers of prescription drugs, but they aren't a majority online.
I think it'll be broadly distributed, just like I think you see it today in e-commerce. As for seniors, 20 percent of people over 50 are online, and there's 47 million online users. That's over 9 million people to go after. That's a big bar and I'd be happy with that.

NEXT: Building a store from the browser up

Building a store from the browser up

Do you think your company will take business away from the mail-order drug business or the brick-and-mortar retail pharmacies?
I don't think of it so much as taking business from either one. The market is going to grow substantially over the next year or two. I think the demographics we're going to attract are people who are working today and some set of seniors who say, 'I'm not happy with my current experience. They don't have the selection I want. They're not convenient.' So, we're going to get some people who'll want to try something new and are comfortable with online shopping. They may say, 'Geez, here's yet another thing I can do in five minutes instead of 25 minutes, and use that extra 20 minutes to spend with my kids.'

How concerned are you about PlanetRX and your other competitors?
PlanetRX will be a competitor, but they're not the thing that I worry about day in and day out. The biggest thing I worry about is inertia--people used to doing things in a particular way. I need to build a superior experience to capture people who are used to going down to the local pharmacy or grocery store.

With the competition, how will you differentiate yourself?
I've focused on building the best team. Sure, it's a horse race, but is it a sprint or a marathon? How long a horse race is it? I think it's very important to focus on building the infrastructure in place to win in the long run. I've been totally focused on building the right team, the right culture and the right expectations at the same time that we're trying to get the store up. I spend a lot more time doing that, than picking the one central feature that's going to be the winner because I think it's premature to say what that is. I want to learn that from my customers.

What challenges do you face in terms of doctors placing orders at pharmacies for patient prescriptions, leaving your company out of the loop? And what are the challenges in the changing landscape for health maintenance organizations (HMOs)?
Doctors by convention and law can't tell people you have to get your prescription filled at this pharmacy. They phone in the order wherever the consumer tells them to phone in. But integrated health delivery systems like Kaiser have customers get their prescriptions at Kaiser, so there are umbrella organizations that change those rules. In general, though, doctors don't tell people where to get their prescriptions.

Do I think doctors can be concerned and have issues about what's this new Internet thing? Sure. And I think it's important for us to reach out to doctors and tell them all the things we're doing to make sure we deliver very high quality service.

I also need to have a relationship with the people who pay the bills. Some [HMO] want to offer consumers a choice and are happy to have a new channel of distribution. There are many things that this channel of distribution can do for the HMO in terms of improving a person's information about what are the right steps for managing their health. I think you'll see more and more HMOs turning to the Web to deliver information and, or material to consumers. And then I think there will be other HMOs where they have a closed practice or environment where it might be more difficult to build a win-win business relationship.

With any start-up, it takes money to build out the business. When do you think you'll start looking for more investors?
Not for a long time. We've got great partners and have been able to raise the money very straightforwardly. We've raised a bunch [of money] and we're ready to roll.

And what about an IPO down the road?
It's not a thing we're focused on. There's no point in talking about it until you have lots of satisfied customers.