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Drugstore.com to enter competitive market

America Online's deal with PlanetRx changes the competitive landscape for Drugstore.com, which says it will launch by the end of March.

Online pharmacy Drugstore.com is gearing up to launch by the end of March, but already a competitor has given it a big pill to swallow.

PlanetRx, which is planning to launch this month, yesterday announced it landed a three-year deal to appear on America Online's health-related areas throughout its main Web site and on AOL's Digital City regional sites. Under the three-year deal, PlanetRX is paying AOL $15 million.

"This distribution deal with PlanetRx and AOL is significant," said Jill Frankle, an analyst with International Data Corporation. "When companies are early in development, time to market, early distribution deals and early branding is critical. AOL holds 50 percent of the consumer Internet market and that gives PlanetRx access to 50 percent of the people who are on the Internet."

She noted, however, that Drugstore.com is likely looking for distribution deals as well and "is not out of the game" before it begins.

Debby Fry Wilson, a spokeswoman for Drugstore.com, declined to comment on what distribution deals the company is seeking.

And despite the deal with AOL and PlanetRx, Wilson said: "It's a very exciting category?and this is an emerging consumer space. Consumers will have many choices and we look forward to being a leading player in the marketplace."

Drugstore.com remains largely quiet on what features the site will offer, other than a notice on its Web site that indicates it will offer over-the-counter products, mail-order delivery of prescription drugs, and health and beauty products.

Drugstore.com is backed by venture capital firm Kleiner Perkins Caufield & Byers, and led by former Microsoft new-media executive Peter Neupert.

Other competitors to step up to the plate may later include healthcare sites that are looking to add e-commerce transactions to their content-filled sites and drug manufacturers that currently offer call-in mail-order service, Frankle said.

"These sites should offer such features as drug guides, medical information, question and answer services via email, and medical alerts on medications, in order to differentiate themselves," she said.

Analysts note the online pharmacy industry is in its early stages, but the potential for growth is large. Nonetheless, Frankle said online pharmacy sales are likely to account for less than 1 percent of the industry's business in the first several years.