Wired science

David Perry made Chemdex, an online marketplace for lab supplies, a business-to-business darling. What are his plans for the health-care sector?

Published January 18, 2000 5:00PM (EST)

"Accelerating Science" is the tag line Chemdex liberally sprinkles on its marketing materials. It's definitely got the accelerating part right.

Barely into its third year of operations, Chemdex has already established itself as the business-to-business (B2B) e-commerce leader for life sciences research. And that description doesn't even begin to cover it. The fact of the matter is that it's hard to even talk about business-to-business e-commerce without making some sort of reference to Chemdex. It was the Chemdex online exchange, after all, that arguably offered the first compelling evidence of how Internet-based solutions might be used to unify and streamline otherwise fragmented markets.

The idea of using a virtual trading floor to bring together enterprises, researchers and suppliers may have occurred to others. But it was Dave Perry who took that next step and actually made it happen.

In recent months, Chemdex has been at it again -- making moves to establish itself as a player in the mammoth health-care field. The first public evidence of that new direction came in late September with the announcement of plans to acquire Promedix.com, an infomediary trading in specialty medical equipment and supplies. Then in December things really started to pop. On the very same day it revealed plans to acquire SpecialtyMD.com, an Internet information search-and-retrieval service designed specifically for physicians, Chemdex announced its intent to join with Tenet Healthcare Corporation to form a new company focused on developing business-to-business solutions spanning the entire health-care industry. Tenet's own global purchasing organization currently handles procurements for more than 1,000 medical facilities and nearly 45,000 physicians.

And, yeah, that would qualify as getting up to speed in a hurry.

You've had yourself quite the busy little week in December.

You know, they're all busy. The amazing thing about B2B e-commerce is that the pace just continues to accelerate.

So are you saying there's now a difference between Internet time and B2B time?

That may be a little strong, but a year ago it seemed as if I had to start every customer/supplier presentation with: "Here's what the Internet is. Here's why you should care." And now, in just the last three weeks, I've probably met with 10 Fortune 100 CEOs, each of whom wanted to learn more about e-commerce. Everybody out there is trying to figure out their e-commerce strategy. And because of that, the world is moving at a pace I never would have believed just six months ago.

Is it the case that many of these CEOs don't know exactly what B2B is, but they're pretty sure they need to get some anyway?

By and large, that's true. And because we were one of the first movers in that area, we have a ton of credibility and therefore we get a ton of phone calls.

What is it about the life sciences market that inspired you to build a business-to-business exchange in the first place?

The idea behind Chemdex actually came to me when I was at Virogen, a biotech company in Boston that I helped to found. Because we employed scientists, we bought all the things scientists need. And because we were also on the supplier side of the industry, we knew what was involved in selling things to other scientists. So I became well acquainted with the problems that afflicted both sides -- problems that were due mostly to fragmentation.

Typically, if you were a buyer, you needed to sift through one catalog after another. The average scientist had 40 or 50 catalogs and typically spent more than five hours a week looking for the things they needed. Meanwhile, if you were involved in sales, depending on catalogs wasn't so great because many would only get published every year or two due to the tremendous expense of printing and distribution. The result was that there wasn't an efficient way to introduce new products. Your prices and products were always out of date. And there really was no cost-effective way to market new products or reach out to new customers.

Certainly you're not the only one to have perceived this, given that the life sciences market seems to be proving irresistible to other entrepreneurs as well. Things have really heated up, in fact, with Sciquest.com's recent IPO. How do you propose to hold off challenges from competing online exchanges?

There's no such thing as an attractive market without competition. But I think we probably have a 12-month lead on Sciquest at this point. We certainly can't rest on our laurels, but assuming we continue to execute at our current pace, we'll be fine.

Ultimately, how many online exchanges do you suppose the life sciences market can sustain?

I think it's winner take most. If you look at the consumer market, you'll find that about 60 percent of the market cap in any industry goes to the market leader. And that's pretty much the case if you look at Yahoo versus the other search engines, or Amazon versus the other online bookstores. In B2B, I think the advantage of market leadership will prove to be even greater. I think the difference between being No. 1 or No. 2 is going to be enormous -- so great, in fact, that if you're No. 2, you're probably wasting your time and your investors' money. And if you're No. 3, you probably don't have a chance.

Based on your recent announcements, it's obvious you're now moving aggressively to achieve primacy in the health-care segment. Is it your intention to essentially cover every single procurement requirement a hospital might have -- from the most sophisticated imaging gear all the way down to that yummy hospital haute cuisine?

That's exactly right. As we've matured in the life sciences business, we've recognized a couple of things. We were really the first of the B2B companies, but we were entirely focused on the life sciences segment. As time went on, we recognized that there were a lot of opportunities outside that market and, because we'd been doing this B2B stuff for a while, we'd developed a number of assets that were likely to be valuable in other industries as well. So we began to actively pursue other opportunities, leading to our decision to move into health care with the acquisition of Promedix.

I guess it's safe to say that health care is a much larger space than life sciences research.

Absolutely. And that's one of the reasons it was attractive to us. But it's a market that also has a lot of very similar characteristics in terms of fragmentation, product complexity and channel inefficiency. And those are just the sorts of problems we like to solve.

Sounds a bit like Chemdex Manifest Destiny. What new frontiers will you soon set off to conquer?

Health care actually encompasses the second and third vertical markets we've entered. Through the acquisition of Promedix, we first went into the specialty medical products market. Then, through the joint venture we just announced with Tenet, we're entering into the higher-volume commodity health-care products segment. Those two companies together will offer a complete purchasing solution for hospitals and other medical providers.

And we see an opportunity to continue doing this in other segments. So, over the next 12 months, you'll see us continue to execute similar sorts of agreements where we seek to enable other vertical markets using our technology infrastructure, our capabilities, our customer service, our professional services and all our other operational components as well.

And it's fair to say the markets you pursue will be characterized by fragmentation and channel complexity?

Exactly right. And we've been looking at this long enough to know there's no shortage of opportunity there.

Although presumably you'll stop somewhat short of pork belly futures, right?

Let's hope so.

By Mark Compton

Mark Compton monitors technology trends from a comfortable perch midway between the Silicon Valley and Oregon's Silicon Forest.

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