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a biased history of the industry written roughly at the time MedScape became part of WebMD.

Medscape, Healtheon, WebMD, Medicalogic: A brief history

Remember that there are really 4+ different companies involved.

MedicaLogic (Mark Leavitt) was smart well-intentioned people who understood healthcare, trying to change it. But progress (market penetration) was too slow, they couldn't get critical mass. And they couldn't figure out how to migrate to the web, so they had a redundant operation for a long time, wasting lots of bucks and creating ongoing internal tensions.

MedScape (Frishauf) had a good original Niche Market (physician-targeted content supported by pharmco sponsorship), but not one big enough to support the VC/IPO path (at least boom-time expectation levels).

Healtheon (Jim Clark) was non-healthcare techies with the hubris to think it would be easy to re-engineer the entire healthcare info-ecosystem in a few years, with themselves at the monopolistic center.

WebMD (Jeff Arnold) was a total scam from the beginning.

Other companies include Care Insite (Wygod and Zatz), which was similar to MedicaLogic but focused more on physician offices than hospitals; and On Health, which was a consumer-oriented content play.

WebMD got lots of attention, but had no product, so they bought some existing/dying content-type businesses (that had started early and run out of money without gaining much audience). They got more attention and money, and some interest from Microsoft, so Healtheon bought them. Then they bought some existing transaction-driven companies (e.g. ENVOY), so they could get an Internet revenue multiple on non-Internet revenues.

Medscape needed to IPO for the sake of their VCs, so they hired some stupid window-dressing execs who pissed away millions on consumer content (that can't be differentiated from everyone else's stuff) and webapps (that nobody wanted to use) and deals (CBS, AOL) to make themselves appear larger. After the spring-2000 crash, when content became trash, they merged with MedicaLogic to parallel WebMD's content/transactions synergy story.

There is some value to the synergy play targeted as physicians, I believe. I think MedicaLogic should have dumped the consumer content/webapps, reduced the scope of the original Medscape unit, and found more efficient ways to operate the 2 units (e.g. found some key projects to integrate on, and stay relatively independent otherwise). With a smaller plan, they may muddle along for years, but will probably never be a big story.

That WebMD would buy Medscape shows how big a joke their content acquisitions over the past few years have been.

I think the future of the industry looks a lot like the past: fragmented automation suppliers scrapping for every deal, slow change in physician behavior. MedicaLogic can aim for low profitability. WebMD will probably continue to swing for the fences, and thus lose money.

Timeline

1992: Physicians Online founded (dialup service)

1995: MedScape founded within SCP, spins out later

1996: Medi Consult founded (Pharm Info Net)

1999: Medi Consult buys Physicians Online

1999: Cybear spun out of Andrx

2000: WebMD buys Care Insite/Medical Manager (Marty Wygod). Marty Wygod becomes CEO of WebMD, Jeff Arnold leaves.

2001: Cybear buys Medi Consult

2001 (Dec): WebMD buys MedScape from MedicaLogic

2001: Wayne Gattinella hired as President of WebMD

2002: Andrx spins-back-in Cybear Group (owner of Physicians Online)

2004: WebMD buys Physicians Online from Medi Consult

2005: WebMD websites spun out of rest of company, which gets named Em Deon

2005: David Gang hired as CTO of WebMD from AOL

2007: David Gang fired from WebMD

2012: Wayne Gattinella resigns from WebMD.