With Merger, Revolution Takes Aim At WebMD

Revolution Health Network, the online health care business launched by AOL co-founder Steve Case, is merging with competitor Waterfront Media in an effort to better challenge WebMD as the top source of online health information.

The merger, announced yesterday, will create a company called Waterfront Media that oversees a network of two dozen health, diet, fitness and pregnancy related Web sites, including http://www.revolution health.com. The new network is projected to have more than 20 million unique visitors, based on data from Web rating firm ComScore. As of July, WebMD had 17.3 million unique visitors.

"We decided we could either fight each other for years to try to be number one or join forces and become the top online health destination overnight," said Revolution spokesman Brad Burns.

Waterfront chief executive Ben Wolin will keep his position in the new company. Case, who had been serving as the network's chief executive since April 2007, will take a position on the new company's board of directors along with one other Revolution representative. The fate of 150 Revolution Health Network employees is not clear. Wolin and Burns said any personnel changes will be put off until after a review of the company's operations.

Having more unique visitors than WebMD will help Waterfront pull in more advertising revenue. However, it still faces the hurdle of building a brand identity as strong as WebMD's, as well as profits.

WebMD's parent company, New York-based WebMD Health Corp., posted net income of $65.9 million in 2007. Shares of the company's stock closed at $27.34 yesterday, up .07 percent from the previous day.

Waterfront and Revolution, which are both privately held, do not disclose financial information. Wolin said Waterfront, founded in 2002, turned a profit for the first time this year and expects to be profitable in 2009.

Waterfront and Revolution Health use a similar business model. Both attract viewers through a combination of original content, paid ads that appear with search results, and agreements to sell advertising on other sites such as South Beach Diet.com, whose content they do not own, and e-commerce sites such as Drugstore.com. By contrast, WebMD does not spend as much on search advertising and owns more of its content. As a result, WebMD is able to command a premium from advertisers and does not have to share as much revenue with advertising partners, said analyst Mark May of Needham & Co. in New York.

May said the merger does not necessarily set up a toe-to-toe competition between Waterfront and WebMD. He said the online health media market is still in its early stages. The pharmaceutical and consumer products companies most likely to support it have yet to shift a significant portion of their advertising budgets to online media.

"I don't think it's Waterfront v. WebMD," May said. "I think the market is very large. They have different strategies for addressing the market. The growth in users continues to explode. There's not a lot of competition for users and ad dollars."

The number of visitors to health media sites grew more than 21 percent in the past year, however, four times faster than the total U.S. Internet population, ComScore reported last month.

Revolution Health Group was founded in 2005 and has offices in Washington, Chicago, Seattle and New York. It is principally owned by Revolution LLC, Case's holding company, which has stakes in four other health care ventures, including RediClinic, a retail health clinic operator, and ExtendHealth, a defined benefit provider. Waterfront employs 150 people in Brooklyn, North Adams, Mass., and Mumbai. Its investors include Time Warner Investments and Silicon Valley venture capital firms Rho Ventures and Scale Venture Partners.