Helping Doctors Go Digital
Epocrates used viral marketing to connect with physicians—and a shrewd business model to profit from advertisers who want to reach them.
By Erick Schonfeld

(Business 2.0) – In an examining room at New York City's Mount Sinai Hospital, cardiology fellow Brian Choi listens to a middle-age diabetic describe a recent bout of chest pain. "I was immobilized," the patient recalls. Outside the room, Choi pulls a Treo 650 smart-phone from his lab coat and starts an application called Epocrates Essentials. With a few keystrokes, he confirms that one diabetes drug, Actos, has the beneficial side effect of helping to prevent the reblockage of arteries after insertion of a stent. Since the patient might need a stent, Choi prescribes Actos. "Most medical applications out there are garbage," he says. "Epocrates is one I can say I actually use."

Many others say the same. One of every four U.S. physicians now subscribes to Epocrates, which is free for basic drug data and starts at $60 a year for information like disease profiles and lab diagnostics. That's an astounding rate of adoption in an industry known as one of the last bastions of the paper-based office. The scarcity of computerized medical records, after all, is often blamed on technology-averse doctors.

So how did Epocrates, a seven-year-old, privately held company in San Mateo, Calif., crack physicians' legendary resistance? Credit a combination of top-notch service, efficient viral marketing, and shrewd methods for monetizing MDs' eyeballs. "Nobody is offering their combination of services," says Forrester Research health-care analyst Liz Boehm. "They have carved out a unique market." It doesn't hurt that the company's CEO, Kirk Loevner, ran software and evangelism at Apple in the 1980s and has been CEO of three startups, including e-commerce pioneer Internet Shopping Network. "Doctors are no different from other professionals," Loevner says. "If you offer them a clinical benefit or help them save time or money, they will move to a new technology."

Viral Spread

EPOCRATES HAS SIGNED UP 200,000 physicians worldwide (85 percent of them in the United States) and 270,000 other health-care workers, including nurses, pharmacists, and medical technicians. Yet until a year ago, the company—which says its 2004 revenue was $23 million—spent virtually nothing on marketing, relying solely on word of mouth. When Richard Fiedotin, a Stanford MD, and Jeffrey Tangney, a Stanford MBA, launched the service in 1999, they put a comprehensive drug guide online and let doctors download it to PDAs for free. The founders e-mailed 300 physician friends about the guide, and within six months Epocrates had tens of thousands of registered users. "Our best marketing tool is our docs," Loevner reports.

In fact, Loevner treats doctors more like a marketing mob. If an insurance company threatens to stop paying Epocrates to host its plan information, for instance, Loevner gets his subscribing MDs to send the company a barrage of e-mails until the decision is reversed. Early on, Epocrates invited doctors who e-mailed the most effusive praise to become official advocates for the service. Those who agreed received a 20-page PowerPoint presentation to pitch Epocrates to colleagues. Today there are 1,500 such advocates—a formidable unpaid sales force.

Epocrates has also found success getting other companies to push its service. "Who goes to see doctors every day?" asks Michelle Snyder, Epocrates's VP for strategic partnerships. Pharmaceutical sales representatives, that's who. Most drug companies prohibit reps from spending more than $100 annually per physician on gifts. So Epocrates positions a basic $60 subscription as the perfect entrée into doctors' offices. Drug companies foot the bill for more than 10 percent of Epocrates's paid physician subscriptions.

An MD Marketing Channel

WHILE SUBSCRIPTIONS ARE NICE, THE REAL opportunity for Epocrates turns out to be advertising. "Our business plan," Loevner explains, "is to get more than 75 percent of our revenue from people who are not the physician but who want to reach the physician." Last year Epocrates averaged $25 per doctor in subscription revenue but took in $86 per doctor from ad sales, marketing surveys, and other services that let companies tap into its physician network. Drug companies, for instance, sponsor "Doc-Alerts"—notices that appear when doctors sync up their PDAs. Epocrates insists that sponsored alerts be "clinically relevant" and clearly labeled as ads. Most alerts, though, are not sponsored. "When Vioxx was recalled, we got the message out in two hours," Loevner says.

According to a survey conducted by Epocrates in January, 90 percent of the doctors who subscribe to the company's service believe that it helped them avoid medical errors such as adverse drug interactions, and a third say it saved them more than half an hour a day. When prescribing drugs, for example, doctors can check Epocrates for the formularies of more than 120 health insurance plans, thereby avoiding late-night calls from pharmacists reporting that medications aren't covered by patients' plans. The time saved means that doctors can see three or four extra patients a day. And physicians don't seem bothered by the ads on Epocrates. "Hardly a patient leaves the room without my using it," says Ira Sutton, a family practitioner in New Rochelle, N.Y. He says sponsored alerts are no different from ads in medical journals.

Unlike print journals, of course, Epocrates can match up doctors' prescribing histories with the ads they've seen and measure response with unprecedented precision. Loevner claims that Epocrates ads targeted by medical specialty can boost a drug's market share by as much as 7 percent. No wonder the world's top 10 pharmaceutical companies are clients. "Pfizer bought all of our 2005 erectile dysfunction ad inventory," Loevner boasts. Conversely, health insurance companies can buy ads urging doctors to prescribe generics. Epocrates has everything to gain from being the arms merchant to both sides in such battles.

Epocrates runs on Palm and Pocket PC devices, and the company is working on porting the software to other smartphone platforms. Loevner says Epocrates is generating cash and might roll out fancier features, such as clinical trial recruitment. But he stops short of what seems like an obvious add-on: PDA-based prescription-writing services (which would require linking up with pharmacies and wireless providers). After all, a long line of startups—including ePhysician and iScribe—promised to revolutionize health care with such offerings but failed to win establishment buy-in. As cardiologist Choi asks, "How can you make my life easier?" Epocrates has succeeded by offering simple answers.