I. CASE ABSTRACT The case discusses how drkoop.

com came into existence and how the Web has started a movement that has fundamentally changed the health care industry. Where medical information once was reserved for those pursuing years of medical training or in expensive and/or hard to get medical resources books, now medical Web sites represent one of the most visited spaces on the World Wide Web. The success of drkoop.com in terms of traffic of visitors and potential future profits has led to an explosion of medical Web sites. A thorough discussion of the drkoop.com case should address the following main concepts: Why did drkoop.com gain initial success? What can drkoop.com do moving forward to maintain its top position in the medical Web site domain? Can drkoop.com ultimately achieve profitability going forward? Decision Date: 1999 1999 Revenues $ 9,000,000 1999 Loss ($34,100,000) II. CASE ISSUES AND SUBJECTS Medical Web site Entrepreneurial Venture Internet C. Everett Koop, M.D. Launched on July 20, 1998 Profit Forecasted in two years Stages of Corporate Development Instant Success Rated number one medical Web site for first 8 months Competitive Strategy

Services Offered Marketing Strategies Strategic Partnerships Evaluation and Control Financial Losses Industry Analysis Negative Cash Flows Managing Technology and Innovation ____________ Copyright 2001 and 2003 by Thomas L. Wheelen and J. David Hunger. Reprinted by our permission only for the Eighth and Ninth Editions of Strategic Management and Business Policy and Cases in Strategic Management. III. STEPS COVERED IN STRATEGIC DECISION-MAKING PROCESS (See Figure 1.5 on pages 20 and 21) O = Emphasized in Case X = Covered in Case IV. CASE OBJECTIVES To discuss the establishment of an Internet company To discuss the financial losses and negative cash flows of drkoop.com To discuss the use of Dr. C. Everett Koops name for the Medical Web site To discuss whether drkoop.com should become a financial successful company To discuss the evolution of a new industry To discuss the life cycle of drkoop.com

(Case authors included it under Section IV, Discussion Question. To discuss the issue of negative cash flows, which caused the demise of many Internet companies To discuss the business model of an Internet company and how it differed from the business model of the traditional company V. SUGGESTED CLASSROOM APPROACHES TO THE CASE This is a very high interest case for the students. We suggest the placement of this case in first half of your course or anywhere you do a segment on the Internet. This case and Case 13, WingspanBank.com, make a nice two case package to discuss the Internet business model. We suggest that you have the students review Chapter 12, Strategic Issues in Entrepreneurial Venture and Small Business. If you want team presentation we suggest the team be limited to three to four students. It worked well as a team presentation. Team presentation of their strategic audit using PowerPoint lasted about 45 minutes. In class, we find it useful to show a break-even chart and discuss the losses as negative cash flow. VI. DISCUSSION QUESTIONS 1. What are the strengths and weaknesses of drkoop.com? 2. What are the opportunities and threats facing drkoop.com?

3. What are the strategic factors facing drkoop.com? 4. Discuss Porters industry analysis forces and how each force pertains to drkoop.com. Note: Questions one through four are covered in Section VII, Case Authors Teaching Notes. 5. Does drkoop.com have a distinctive competency? If yes, what is it? 6. Does drkoop.com have any core competencies? If yes, what are they? The case authors provided three excellent discussion questions and answers here. 7. How has the emergence of drkoop.com and its numerous competitors fundamentally changed the medical industry? The emergence of medical Web sites has fundamentally changed the health care industry. There are three main areas where major change has occurred due to these Web sites: access to and disbursement of medical information; the collection of medical data; and medical marketing, advertising, and distribution. Access to and Disbursement of Medical Information The tides shifted from a monopoly on medical information by medical professionals to a mass distribution of enormous quantities of medical information to the masses. With relatively small amounts of research, the average person can now enter a doctors office knowing more than the doctor about the ailment in question, treatment options for the ailment, and potential problems posed by the ailment. The doctor, at least at the primary caregiver level, must try to keep up to speed on thousands of conditions and may not have the time to study each malady with the same scrutiny as someone suffering from the condition. Further, the Web sites have created a virtual environment where people with similar conditions can gather to discuss their issues and concerns. These virtual communities have become important not only as sources of comfort, but also as places to exchange information

regarding such topics as how drugs are working for them, side effects, and other types of information and support sharing. The Collection of Medical Data In addition to the disbursement of medical information by the Web sites, the capability to gather large amounts of information has become an apparent benefit. With tens of millions of people visiting medical Web sites monthly, a source has been created to poll the visitors in numerous areas. One strong example is the drkoop.com partnership with Quintiles. The ability to tap into large numbers of people for resources to clinical trials has not only offered large cost savings potential, but also has increased the effectiveness of the trials with greater numbers of people to where current users can discover additional uses for drugs/devices. A hypothetical example would be the discovery that 40 percent of the bald users of a cholesterol drug notice additional hair growth. Such a discovery may be very useful to other users of the drug or to those with baldness who need to take a cholesterol drug. Medical Marketing, Advertising, and Distribution As the shift of knowledge has occurred, companies have changed the way they advertise their products. A noticeable example is the move to begin marketing prescription drugs directly to the end user. This is one of the fastest growing areas of spending in the medical community and was a strong driving force behind the 403 percent increase in 1998 of Internet advertising of more prevalent (i.e. online drug stores), the need to partner with medical and drug information sources should continue to rise. 8. Is the success that drkoop.com initially experienced sustainable? An extremely important issue surrounding the case on drkoop.com is the question of whether the firm can sustain the early success it experienced. Case readers can apply the VIDE analysis, the Teece model, and the Abarnathy-Clark model to assess drkoop.coms future viability. These are explained in the WingspenBank.com teaching note (Case 13).

9. What must drkoop.com do to move forward? This is the ultimate question in the case. The Roberts-Berry model applies to this analysis. How can the firm continue to be successful? How can it become profitable? What must it do to ultimately dominate its market? As was discussed in the earlier sections, drkoop.com is in a difficult position, as much of its information and technology either is already being imitated or it will be soon. This said, drkoop.com is still in a strong position to succeed if it uses what it has built properly. It has two major factors strongly in its favor the largest user base of any of the other medical information Web sites (one of the most highly valued assets when discussing a Web sites future potential) and strong partnerships. Unfortunately, both of the above advantages will not be sustainable unless drkoop.com continues to innovate. As the graph on the following page demonstrates, drkoop.com is in the beginning of its life cycle. It must do several things to continue its life through to the end of the curve. It must continue to find new ways to bring traffic to its Web site. Its management must pursue both new partnerships to broaden the viewer base and develop new technologies that will keep the firm differentiated from its competition. Lastly, drkoop.com must create ways to first become a profitable Web site and then continue to innovate to become profitable. VII. CASE AUTHORS TEACHING NOTE by Nicole Herskowitz, Fred Howard, Michael Iverson, Janet Mehlhop, and Pilar Speer* Case Analysis This was presented earlier in Section I, Case Abstract.

General Framework This is presented earlier in Section II, Student Strategic Audit/Student Paper. STUDENT STRATEGIC AUDIT/STUDENT PAPER CURRENT SITUATION Current Performance High losses in 1999, not projected to profit for a couple of years, burning through cash reserves, negative cash flows, clear leader in number of unique hits in September 1999. Strategic Posture Mission To empower consumers with the information and resources they need to become active participants in the management of their own health. 2. Objectives To establish the drkoop.com network as the most trusted and comprehensive source of consumer health care information and services on the Internet To develop and expand online health care communities ____________ *Reprinted by permission of the case authors. Health care information providers do not have To become profitable and satisfy shareholders demands

3. Strategies Distribute drkoop.com content to affiliated portals and other Web sites Grow registered users Leverage leading brand name Leverage strength of domestic business to accelerate expansion into international markets Deploy a personal medical record maintenance tool for a consumers lifelong medical record Provide an attractive Web site that can deliver advertising in a highly targeted manner, commanding higher advertising rates Facilitate e-commerce transactions offered by merchants, manufactures, and service providers to highly targeted community Partner with organizations that provide content and service offerings, further expanding its business model into traditional areas of the health care industry Capitalize on the fame and reputation of C. Everett Koop, former Surgeon General of the United States 4. Policies High quality information is most important Proactively assist in the creation of a hi-ethics committee of online health care providers to assist in the industry regulating staff Empower the consumer to make better-educated decisions and participate more actively in their own health care management II. CORPROATE GOVERNANCE A. Board of Directors Case lacks details on Board

One external Board member mentioned provides exposure via position as a medical correspondent for ABC and TV appearances B. Top Management Case lacks details on management experience Cofounded by Dennis Upah and Donald W. Hackett C. Everett Koop, chairman, receives stock for use of name and assists in creation of Medical Advisory Board. Medical Advisory Board consists of five very well respected and accomplished doctors created strictly for monitoring and establishing content. III. EXTERNAL ENVIRONMENT (EFAS see Exhibit 1) Societal Environment Economic Unstable economy, consumer confidence declining; may reduce the ability or desire for luxury items such as Internet access in the home Individual economies becoming interconnected into a world economy Slumping economy directly affects advertising expenditures Technological Increasing demand for customized technology Computer and Internet usage growing at rapid rate Political-Legal NAFTA, European Union, and other regional trade pacts opening doors to markets in Europe, Asia, and Latin American that offers enormous potential Internet legislation is not clear and may easily be changed and/or established in the future Sociocultural

Aging population will increase need for health care products and information Lifestyle drugs becoming increasingly popular Great desire for the preservation and long-lasting life Task Environment Rivalry Medium to High and Growing WebMD partnered with NewsCorporation, The Health Network.com, and Medscape as well as others forming partnerships with television networks to create awareness. Supplier Power High drkoop.com along with others relies on several of the same content providers. Strong and established relationships a must. Entry Barriers Low Hundreds of health information providers have popped up in the last few years. Substitutes Likely Medical advice can be found from personal physicians, pharmacists, the media, and friends, along with each individuals personal experience. Power of Other Stakeholders Low to Medium Governmental legislation on Internet use may change or alter all Internet based businesses in the future. III. INTERNAL ENVIRONMENT (IFAS see Exhibit 2) Corporate Structure Unclear as given by case. Appears to be functionally structured: Medical Advisory Board develops content and shares in Strategic Partnership formation with corporate office. Corporate office duties include sales, marketing, promotional, and information systems duties. Corporate Culture

Culture derived from C. Evertt Koops vision of empowering the consumer with information. Empowering the consumer is a key ingredient. Commitment to quality of information provided. C. Corporate Resource 1. Marketing Brand names successful with use of C. Everett Koop name recognition. Use same message delivery channels as competitors: hightrafficked Web sites and some TV when available through alliance program. Community Partner Program successful with local hospitals. Sales efforts weak. The only sponsor is Drug Emporium. 2. Finance Not projected to be profitable for a couple of years Burning through cash reserves Negative cash flows 3. Research and Development Case does not address this issue. 4. Operations Strategic Partner program operating strongly to continually provide content to the Web site. Medical Advisory Board active in creation and judgement to content quality. 5. Human Resources

Case does not address this issue. 6. Information Systems DrugChecker technology received several awards and is used on over 9,000 other Web sites. Management realizes consumers demand customized content based on consumers needs. IV. Analysis of Strategic Factors (SFAS see Exhibit 3) Situational Analysis (SWOT) 1. Strengths Brand recognized and known for high-quality content. Dr. Koop and the Medical Advisory Board are well known and respected doctors in the medical industry. High number of registered users and traffic reports are rated above competition. 2. Weaknesses Low sponsorship (only one sponsor: Drug Emporium) Unprofitable and cash reserves are drying up Competition becoming very strong 3. Opportunities Expanding internationally Utilize Community Partners Program to broaden product line into more traditional health care services Develop customized services for an aging population target demographically by age 4. Threats

Competitors becoming stronger through partnerships with hospitals and media organizations. Poor economy will have impact on advertising expenditures by clientele. Cash reserves are nearing an end and cash flows are projected to be negative for at least 2 more years. Review of Current Mission and Objectives Mission should focus on companys financial health. Case listed several strategies that are actually objectives. Timelines need to be given to objectives. IV. Strategic Alternatives and Recommended Strategy Strategic Alternatives Growth Through International Expansion Continue to expand Partner Program in Australia and other foreign markets. Pros: Partner program and content currently exist and can easily be expanded. Cons: Additional investments may prove too costly and force company to close. Pause Strategy Establish profitability by reorganizing marketing efforts to focus more on sales and less on content. Pros: Increased sales efforts will raise revenues and bring drkoop.com closer to profit levels. Cons: Past performance not indicative company can satisfy shareholder demands. Retrenchment Strategy Deteriorate unprofitable partnerships and focus only on partnerships that are profitable for drkoop.com.

Pros: Maintain cash reserves and lengthen companys chance of survival. Cons: Loss in quality of content may deteriorate audience (registered user base). Competition growth strategies may reposition drkoop.com negatively. Recommended Strategy Recommend retrenchment strategy, at least for a year, so drkoop.com can hold on to cash reserves and give itself an opportunity to survive. Reorganize Partners Program to deteriorate unprofitable relationships, or those that do not create revenue streams through sponsorships. Once market recovers, and advertising expenditures revive themselves, I recommend a growth strategy. Capitalize on high-quality brand and strong customer base to attract additional revenues. The key to raising revenues is being able to continually deliver a large and targeted customer base. VII. Implementation To increase profitability drkoop.com will need to create many profitable partnerships. Rules and regulations for partners must be clearly established. Agreement in which drkoop.com appears to be paying for access to a subscriber base must be deteriorated. Improve marketing by reorganizing sales force. More emphasis should be placed on sales rather than content to increase revenues. When growth phase is initiated, drkoop.com should license content remaining to overseas markets. Once a profitable Partner Program is established, drkoop.com can seek revenues from overseas markets. VIII. Evaluation and Control Current information systems providing drkoop.com with additional exposure through over 9,000 Web sites via the DrugChecker program. Each partnership agreement should be reevaluated based on financial merit to the company.

IX. EFAS, IFAS, and SFAS Exhibits Exhibit 1 EFAS (External Factor Analysis Summary) Key External Factors Weight Rating Weighted Score Comments Opportunities Expand internationally .05 2 .10 Just begun to open markets Broaden product line .10 3 .30 Partners program working Customized technology .20 5 1.00 DrugChecker successful Aging population .20 4 .80 Content fits population needs Threats

Competitors strength .20 2 .40 Not responding quick enough Poor economy .20 1 .20 Still spending reserves Internet legislation .05 4 .20 Leader in hi-ethics committee TOTAL SCORES 1.00 3.00 IX. IFAS, EFAS, AND SFAS EXHIBITS Exhibit 2 IFAS (Internal Factor Analysis Summary) Key Internal Factors Weight Rating

Weighted Score Comments Strengths Brand recognition .20 4 .80 Capitalize on C. Everett Koop Medical Advisory Board .10 4 .40 Prominent and well respected Number of registered users .20 5 1.00 Industry leader Weaknesses Low sponsorship .20 1 .20 One sponsor Cash reserves drying up .15 1 .15 Must hold on to Competition strong

.15 2 .30 Partner programs are strong TOTAL SCORES 1.00 2.85 IX. SFAS, EFAS, AND IFAS EXHIBITS Exhibit 3 SFAS (Strategic Factor Analysis Summary) Key Strategic Factors Weight Rating Weighted Score Duration SIL Comments Strengths Low sponsorship .30 1 .30 X X X

Capitalize on C. Everett Koop Competition .20 4 .80 X X Prominent and well respected Number of users .20 5 1.00 X X X Industry leader Broaden product line .10 1 .10 X One sponsor

Poor economy .20 1 .20 X Must hold on to