MedNet: Confronts Click-Through Competition Essay

It was just 930 a.m., and the twenty- quadruplet hour period was off to a terrible start. Heather Yates, vice pre casent for trade development at MedNet, walked at a quick clip tweak the hall of the companys modern Birmingham, Alabama, office seat, her face darken with concern. The company, a vanesite delivering wellness information free to consumers, gene markd its income through advertisement, most(prenominal)ly from pharmaceutical companies. Now, Windham Pharmaceuticals, MedNets biggest advertiser, had asked to change the rules by which it had done business for the past four years. More anyplace, Mahria Baker, Windhams CMO, had told Yates that this wasnt just an exploratory conversation. Windham was seriously considering shifting its MedNet ad dollars to inquire, a competing website with which Windham already did approximately business. Yates, who had been with MedNet since just afterward the company was founded in 2002, felt blindsided and, at the same time, resigne d. We switch or so legwork to do, she thought to herself.We undersurfacet afford to say No, and just walk away, and we cant just ask them to stay with us because were good people. We have to convince them that our set-up is worth their ad dollars. And we have to move quickly. Our other advertisers wont be far behind Windham. She had asked Baker to fax over a copy of the results of Windhams posthumousst publicizing campaign, and had promised to call her tooshie the next day, as two companies need to finalize their budgets. Then, immediately after they had hung up, Yates had called Bill Bishop, MedNets vice president of consumer marketing. Can you clear well-nigh time for me right now? she had asked him. Windham is thinking of pulling their ad dollars from us and taking them to marvel. Now she was on her way up to Bishops office, twain floors above, with the fax from Baker and notes from her conversation in hand.Industry Background and bon ton OriginsThis case, though bas ed on real events, is fictionalized, and any resemblance to existent persons or entities is coincidental. There are occasional references to actual companies in the narration. secure 2007 by Harvard Business School Publishing. To order copies or request leave to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http//www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any bureauelectronic, mechanical, photocopying, recording, or otherwisewith forth the permission of Harvard Business School Publishing gazillion in profits. (See Exhibit 1 for 2006 income statement.)The accessibly written, easy-tonavigate, and vividly presented content was developed by 24 trained journalists, doctors, designers, and administrators. Additional materials came from the faculty of a prominent medical checkup school, news agencies, a phot ography service, and an active community of visitants that used neighborly media tools such as blogs, community chat, and virtual reality to communicate medical information. (Visitorgene markd media was reviewed by medically trained journalists.) The award-winning site was considered the best wellness website for trusted, evidence-based, consumer health information. Advertisements on MedNet proposed specific and immediate solutions to health concerns. MedNet had 4.3 million monthly visitants, exactly new competitors had flattened its audience growth during the last absorb of 2006.CompetitorsNow, in the showtime quarter of 2007, MedNet faced competition both for visitors and advertisers. nonprofit organization and governmental websites competed with MedNet for visitors by providing similar content on mainstream medicine. The websites of the U.S. National subroutine library of Medicine and World Health Organization werent nearly as easy to navigate as MedNet, but they were compr ehensive. In contrast to MedNet, these two websites provided information on option therapies as well as on scientifically based solutions, albeit with with carefully worded disclaimers. Whats more, employees of large corporations could increasingly change by reversal to customized health websites on their own company intranets. The theory was that if internal health websites could help workers quickly identify health problems (prompting overdue doctor visits) and raise general good health, the employers could reduce their portion of employee health care costs.For-profit health websites posed different degrees of financial competition for MedNets advertisement tax and audience. Recently, so-called condition-specific sites that focused on particular problems, such as Cholesterol.com, had emerged. (Yates was surefooted that Cholesterol.com was already drawing pharmaceutical publicize dollars away from MedNet.) An indirect competitor, ClinicalTrials.com, marketed further experim ental procedures. Its audience was exquisiteer than MedNets and the material was difficult for the layman to understand. ClinicalTrials.com received a fee for each time a visitor it referred enrolled in a clinical trial.Then there was Alternativehealth.com, a long-time, normal player in the health space. It provided information about scientifically unverified therapies and procedures such as herbal remedies, vitamin regimens, and massage. Its audience was larger than MedNets and its advertising sales more robust. Due to a recent lawsuit concerning its content, Alternativehealth.com had begun employ disclaimerswith no apparent impact on its audience size. Due to the substitute(a) health consumers distrust of pharmaceutical companies, the website did not compete with MedNet for advertising dollars. Still, MedNet had to keep Alternativehealth on its radar.Methods Used to Calculate Advertiser PaymentYatess thoughts raced through the companys competitive landscape as she waited for the elevator. In her short phone conversation with Bill, he hadtold her to take a undersized time to review MedNets original value proposition to its advertisers. What they needed to do was re-justify their approach, if it was possible to do so. But, he had cautioned, they were compelled to keep an open mind. call back through the facts, Bill had said. Why dont you come up here in about half an hour. Ill start to speculate over our options as well. Yates thought back to MedNets roots. Back in 2002, MedNets founders had made some key choices regarding revenue generation. MedNet could, in theory, deal content to site visitors, same(p) an online magazine, charging a few dollars per article or an annual subscription fee.On the other hand, if the site could draw advertisers, and if advertising revenues were noticeable large, the company could provide content free of chargewhich is what most web users expected. An advertising revenue sit down was made possible by advanced(a) web analytics technology that tracked the behavior of each site visitorpages viewed, links come throughed, and so on. This software made it easy for advertisers to calculate their bring back on advertising investment (ROI). The obvious candidates to stopgain onscreen advertising space from MedNet were pharmaceutical companies, which for over a decade had promoted their drugs aggressively to consumers.As it happened, MedNet was launched at a time when many other consumer health care websites were overtaking out of business, leaving pharmaceutical firms looking for web promotion outlets. MedNet seized the prospect to build relationships with these advertisers. In deciding how best to generate revenue from advertisers, MedNet chose tralatitious banner advertising, charging pharmaceutical advertisers such as Windham Pharmaceuticals on a cost-perthousand impressions (CPM) basis. (One advertising impression meant that one visitor requested from a Web server a page that had a specific a dvertisement on it.) quantity impressions was the closest way to estimate the number of people who actually truism an online advertisement. By pursuing an impression business model, MedNet was fully monetizing its available descent of eyeballs (site visitors). An indep endingent auditor verified the companys impression counts each month.Marvels ChallengeYates reached Bill Bishops office and pushed the penetration open. Bill was on the phone, but he waved her to a seat. Two minutes, he mouthed at her. She nodded, and sat back. She thought about what she knew about Marvel. Marvel was essentially a large search engine that had decided to follow the alternative advertising model contextual, or pay-per-click, banner advertising. Under these terms, advertisers paid website owners totally when visitors actually clicked on an advertisement to learn more about an advertize product. The key metric to measuring this kind of online advertising campaign was the click-through rate (CTR), m easured as the number of clicks divided by the number of ad impressions delivered. Advertisers considered website click-throughs (and telephone calls to a call center generated by a newsprint advertisement) to be the equivalent of customers use uped in potentially making a purchase.Yates thought back to 2002. No sooner had MedNets founders opted for a pay-per-impression model than advertisers began resisting that pricing structurebut mainly from general-interest websites, where the majority of impressions came from visitors uninterested in their products. Advertisers based this perception in part on the percentage of click-throughs that ads yielded the click-through rate on a general-interest site tended to be half as lavishly as on highly focused destination content sites equal MedNet.In 2006, MedNet.com therefore could still command a $ blow CPM ($100 for each 1,000 impressions) contract from its advertisers10 to 20 time what general interest websites might charge. Similarly, Alternativehealth.coms advertisers paid for impressions lone(prenominal), and not for click-throughs. But Marvel, a enormously successful search engine, glum the table on its competition in the fall of 2006 by declaring it would provide impressions for free and charge advertisers only for clickthroughs. Because Marvel had a vast audience (19 million visitors per month), charging for even a small percentage of click-throughs would pay off handsomely. If the site sold advertisements in enough categories, including the pharmaceutical market, Marvel could bring in huge revenues. By late 2006, some advertisers began to ask other sites to charge only for click-through sales leads like Marvel did. One drawback to this popular revenue model reports of increasing click fraud.Advertisers competitors were fraudulently clicking on advertisements to drive up advertising costs. Not only was Marvel offering MedNets long-standing advertisers like Windham different financial terms, but it also c ompeted for visitors interested in healthcare. Visitors often came to MedNet by way of a search engine such as Marvel, although such search engines served as a starting point of inquiry, not a serious spring of trusted medical information. Mahria Bakers challenge stuck with Yates At Marvel we get all our impressions for free, and we pay $0.54 for each click-through. At MedNet we pay for every impression, and by my calculation we pay $3.33 for each click-through.Granted, were not antipathetic to getting impressionsanytime that anyone sees your logo, your slogan, and your products name, you are theoretically doing your brand some good. But here at Windham, click-throughs are really what matter. They separate unintended observers of our ads from the serious prospects who proactively seek more product information and may buy our product. I cant justify paying six times as much for a click-through from one of your visitors. Baker had paused a moment, so added, Heather, help me here. Is there another way of looking at this that Im missing? Yes, there is, Yates had replied, and if you let me call you back tomorrow I believe I can show you what you are missing.MedNets Audience and Visitor BehaviorBill Bishop hung up the phone and turned to Yates. She spread out a copy of the results of Windhams latest advertising campaign, and the two of them pored over it. (See Exhibit 2 for Bakers data.) many search engines and general-interest websites had large audiences that returned to the sites regularly, in a predictable pattern. By contrast, most visitors to targeted health websites such as MedNet came only when in crisis. However, when they did come, they stayed long and explored avidly, clicking approximately to clarify symptoms or determine the best course of action for a pressing health problem. They often researched unrelated symptom areas as well, in order to help family members, or out of curiosity. These visitors then returned during the next crisis, although som e did become repeat visitors.MedNet visitors clicked on more pages and advertisements than generalinterest web surfers did (see Exhibit 3). In addition, health website visitors tended to buy more products from advertisers when they did decide to purchase. (See Exhibit 4 for a study of results and frequently viewed web pages on MedNet.) If the product advertised was not available over-thecounter, then the visitors would urge their physicians to prescribe the medication that theyd notice in the advertisements on MedNet. Windham produced Vesselia, a prescription medication that reduced cholesterin and plaque in a patients veins with fewer side effects than competitors offerings.High cholesterol was one cause of heart disease, and it was attributed to both genetic predisposition and lifestyle choices. Keeping cholesterol low could be a long-term issue for many patients, requiring months, possibly years, of daily medication. each(prenominal) patient who began a series of treatments wou ld use the medicine for an average of 12 months. To encourage customers to request a prescription for Vesselia from their doctors, Windham provided coupons on its website that customers could print out and redeem at a pharmacy.For instance, when a customer clicked on a Windham ad at MedNets website, he was taken to the Windham website. Windhams ready reckoner system could identify that the customer came from MedNet and insert that information into the Windham coupon bar jurisprudence within fractions of a second. A different coupon code was provided to those web visitors who came to Windham from Marvel Search. (Coupons with yet another barcode were sent by postal mail by the Windham telephone call center to respondents to newspaper advertisements.) When patients redeem the coupons at a pharmacy, the pharmacy returned them to Windham. Windham could thus attribute drug sales to the relevant advertising venue. On average, patients took three months to redeem coupons for Vesselia aft er Windham had first placed the advertisements. The current campaign would be considered closed at the end of February 2007.