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Drugstore.com launches with Amazon stake

Drugstore.com launches, and fellow e-commerce business Amazon.com becomes the online pharmacy's largest shareholder.

Dawn Kawamoto Former Staff writer, CNET News
Dawn Kawamoto covered enterprise security and financial news relating to technology for CNET News.
Dawn Kawamoto
3 min read
Amazon.com became the biggest shareholder of start-up Drugstore.com on the same day that the online pharmacy launched its Web site.

The launch ends months of speculation about the closely watched company, which was originally backed by venture firm Kleiner Perkins Caufield & Byers, one of the early funders of Amazon. Meanwhile, the online bookseller has acquired a 46 percent stake in Drugstore.com, earning Amazon chief executive Jeff Bezos a seat on Drugstore.com's board.

As part of a close alliance between the two e-commerce companies, Amazon will include a link to Drugstore.com from its home page and Drugstore.com will give customers who come to its site from Amazon a free first aid kit. Drugstore.com will also incorporate Amazon's "one-click" shopping technology into its site.

Separately, sources say Drugstore.com is also holding talks with Healtheon, which has created a Web-based platform for health care information-sharing and transactions. Healtheon is considering adding Drugstore.com to its site.

Amazon's stake in Drugstore.com is its first investment; in the past, the company has acquired other companies outright. The $102 billion prescription drug market is about six times larger than the book industry--one of the attractions for Amazon. "This is not a need-driven move but an opportunity-driven move," Bezos said.

Peter Neupert, Drugstore.com president and CEO, said Amazon is a significant shareholder and partner that will help the online pharmacy better serve its customers. Amazon lent its advice in the development of the Drugstore.com site.

The site has five departments. The health area will offer such items as pain relievers and family planning products, while the beauty area will include cosmetics and skin care. The wellness department will carry homeopathy and vitamin products, and the personal care area will have items ranging from toothpaste to diapers. The site claims to offer 16,000 products, excluding prescription drugs.

And, of course, there will be an online pharmacy with brand-name and generic drugs. Drugstore.com is also considering adding its own private label generic drugs down the road, Neupert said. The company will not carry Class I and II narcotics, such as medicinal marijuana, however.

Neupert, a former Microsoft executive, said Drugstore.com will be competitive on its pricing, but it's unlikely shoppers will see very deep percentage discounts. The company plans eventually to derive revenues from advertising on the site.

Other features of the site include "Ask Your Pharmacist," in which customers can email their questions to a licensed pharmacist. A similar service is offered through its beauty advisor, who will answer such questions on skin care, hair care and cosmetics.

Customers can also describe symptoms to a shopping advisor and get help in choosing the preferred type of over-the-counter product, such as pills or liquid, as well as a list of products that fit the criteria. Drugstore.com will also house a resource center on its site, with information from a third-party vendor and the company's own staff, and offer an email reminder service.

By launching this week, Drugstore.com arrived before its major rival, PlanetRx, which has announced plans to open this quarter. But both companies were beat to the punch by Seattle-based Soma.com, a full-service Internet pharmacy that quietly went live last month.

Drugstore.com's overall focus on over-the-counter products, mail-order delivery of prescription drugs, and health and beauty products is the same as PlanetRx's focus.

In the race to grab customers, both companies landed distribution deals with America Online. PlanetRx paid $15 million for a multiyear contract to be the premier online pharmacy throughout health areas in its network. Terms of Drugstore.com's deal were not disclosed.

Drugstore.com also has entered into a deal with Excite to be the preferred online pharmacy on its health and shopping channels. Terms were not disclosed.