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Commentary: Healtheon/WebMD's sales seem sickly

Just because the Net health care company beat analysts' expectations last quarter doesn't mean it is entering an era of wine and roses: It still faces numerous challenges.

    By Michael Davis, Gartner Analyst

    Just because Healtheon/WebMD beat analysts' expectations last quarter doesn't mean it is entering an era of wine and roses: The Net health care company still faces numerous challenges.

    Healtheon/WebMD posted nearly a $1 billion loss for the first six months of 2000, and those losses are expected to continue. The majority of Healtheon/WebMD's earnings are tied to Envoy, a recently acquired private network clearinghouse.

    If Healtheon/WebMD's competitors trump the company with lower-cost transactions, its revenue will be jeopardized when Envoy is forced to cut prices to match its rivals. For Healtheon/WebMD to maintain its current Envoy revenue, it will have to significantly increase sales.

    Gartner believes

    See news story:
    Healtheon/WebMD posts wider loss, higher revenues
    Healtheon/WebMD will have difficulty boosting those sales, due to the current level of alienation between the health care company and its clients.

    Subscription revenue, which signals the rate at which physicians are adopting Healtheon/WebMD's service, is slim and suspect. Most of these subscriptions were prepaid by Microsoft and DuPont and were given to physicians at no cost. Gartner believes that Healtheon/WebMD will face a significant challenge when it tries to get these physicians to renew their subscriptions--and actually pay for them.

    Healtheon/WebMD has developed a service that is able to handle significant health care transactions via its spate of recent acquisitions. By 2003, Gartner believes that the company likely will have converted its private network transactions to Web-based transactions, becoming the top e-business health care service.

    However, 2003 is a long way off. Healtheon/WebMD still has to prove that it can capture the physician market and integrate its acquisitions effectively. Gartner believes that Healtheon/WebMD to date still has not done that and must overcome its challenges before it can step into its potential role as leader in the market.

    Entire contents, Copyright © 2000 Gartner Group, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.