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BabyCenter may spin off health division

The eToys subsidiary is considering spinning off its health care marketing division because its fast growth is "being constrained," according to a memo obtained by CNET News.com.

eToys subsidiary BabyCenter is considering spinning off its health care marketing division because its fast growth is "being constrained" within the company, according to an internal memo obtained by CNET News.com.

Internet retailer eToys acquired the marketing unit, called Consumer Health Interactive (CHI), when it bought BabyCenter in April. In the memo, sent out yesterday, BabyCenter co-founder Mark Selcow told employees that the company was weighing a possible spin-off of CHI, which launched in October 1998 and develops Internet marketing products for health care firms.

"We will begin evaluating ways that CHI can grow most rapidly, and this most likely means spinning it out to form a new company with a health care partner," Selcow stated in the memo. "CHI has grown so fast that it's now being constrained within BabyCenter/eToys (a content and commerce business) and needs to thrive as part of an organization where health care is the main business."

In a telephone interview, Selcow refused to comment on the memo. He said BabyCenter is "always looking at strategic opportunities."

Lauren Cooks Levitan, an analyst at BancBoston Robertson Stephens, said BabyCenter "has been hinting they're going to do something" with CHI. Levitan said CHI's scope goes beyond what eToys intends to do with San Francisco-based BabyCenter.

Launched in October 1997, BabyCenter runs a Web site devoted to new and expectant parents. The site combines content, community chat, and the BabyCenter online store, which sells maternity and baby products and supplies. eToys sells toys, software, videos, music, and video games.

eToys "views BabyCenter as a tremendous way to feed into the eToys business," Levitan said. "To me, their core business opportunity and what they're obviously very good at is commerce."

In the memo, Selcow said BabyCenter is building new products for parents of older children and expanding internationally, efforts that are demanding company resources. BabyCenter and CHI employ 170 people.

"Everything has grown faster than we anticipated, and we're starting to get constrained by not having enough people and money to do it all," he wrote. "These are huge opportunities for us, but it really forces us to think about restructuring things to get more focused and efficient."

More details about a spin-off are expected by the end of the week, Selcow told employees, and the reorganization will be discussed at a companywide meeting at the end of the month.

"We've had a lot of success with all the things we've done with the company," he said in the interview. "We've always remained open to new strategic decisions about our businesses." However, he added that "no decisions have been made" about spinning off CHI.

Selcow did not identify any potential health care partner, though CHI has worked closely with Blue Cross Blue Shield, most recently announcing it would work on the health care providers' content for a Web site for Massachusetts residents called AhealthyMe.com..

A core CHI offering, BabyDirect, provides information tailored to a baby's developmental stage, plus discounts on thousands of products. Other CHI clients include Sharp Health Care, Oxford Health Care, and Blue Cross California.