October 20, 1997

BUILDING VIRTUAL COMMUNITIES, PART 1

In a recent session of New York City's MIT Enterprise Forum, speakers explored a topic of growing interest to businesses large and small: How to use the Web to build profit-turning "virtual communities." BW Enterprise is pleased to provide excerpts from the meeting's transcript. Part 1 of these excerpts features comments from and question-and-answer sessions with Steven L. Zatz, MD, chairman and CEO of Physicians Online, and Jonathan Sarno, CEO and president of WebCinema..

BLUEPRINTS FOR SUCCESS IN ELECTRONIC COMMERCE: Building Virtual Communities for Real Profit

How are virtual communities creating value for the companies that organize and/or sponsor them and for members of their communities?

What is being done to support positive interaction with and among various constituencies?

What is the mix of sponsor-generated vs. member-generated content?

What revenue models seem to be working?

Comments from Steven L. Zatz, MD, Chairman and CEO, Physicians Online, which connects physician members with the largest online community of their peers. It offers information resources and links to health care sites.

It's a pleasure to be here. I was here a few years ago and had a chance to tell you about Physicians Online then. Some things have happened since then, so we can at least give those of you in the audience from last time an update of where we are at.

Let me give you some basic facts about POL (Physicians Online). It was started in 1992, although the online service we run didn't start until 1994. The company currently has about 95 employees. One of the major things we have been doing this year is converting what had been a proprietary service to an Internet online service. For those of you who have never been through that, I don't think you'd want to. For those of you who are starting companies now in the Internet era, you sort of don't have this legacy. But even starting a company in 1992 and launching a service in 1994, left a fairly large legacy in terms of moving people onto the Internet.

Here is a basic structure of our service. We use Netscape or Microsoft Explorer to display most of the content, although at the bottom of the screen, it looks like a frame but it's actually a separate Internet enabled application that knows where the browser is. It's a way to get messages to physicians and interact with them that we don't think banner ads on the Web really satisfy. So, I'll talk a little bit about that more in a second. It looks like a frame but it's not.

In terms of the applications we provide, doctors seek information all the time, so medical databases are one of the major sources of information and one of the major applications we provide. We also provide everything from bulletin boards to live discussions, to the ability for physicians to get to medical news feeds. There are a lot of surveys and quizzes I'll talk about, too. There is a wonderful ability to ask your audience questions and really understand what they know and what they don't know and then be able to provide them with relative information.

We act as an ISP so we provide Internet access for our physicians. And the last thing, we are less in the transaction business now than in the advertising-supported model. More and more, we are providing transactions, some of which are just physicians buying a book and more towards the referrals and the claims, and a lot of the business that physicians need to engage in.

It is important to understand that we are not a Web site or just a Web site. You can access us through the Web. Again, most people access us with both Netscape and Microsoft Explorer and a piece of proprietary software as well. We are providing ISP services to our physicians. It is something we need to keep thinking about. A couple of years ago, if you wanted to get doctors on your service and you thought the key was building your community, you wanted to lower the barriers to zero, or as close as possible, for getting them online. Well, that meant not telling them, why don't you call this ISP and they'll hook you up and putting them in a queue, that would mean no one would get back to them or no one would treat them the way physicians would like to be treated. Also, no one would price the service the way that physicians wanted it priced. So, we got into the ISP business really in an effort to build that audience and build it as quickly as possible. Although, being an ISP puts you into a business relationship with your audience that can be very helpful in terms of doing other things.

One of the keys to offering service to any of these communities is verifying who the members are, and certainly in a professional community. One of the things you'll need to think about is the difference between a more consumer-oriented and professional-oriented community. Doctors want to know who they're talking to and they want to know it's another doctor, and they want to know that a patient isn't going to wander into a clinical discussion, or anyone else who shouldn't be there. So verifying that the members are physicians and providing security and privacy in our service is really key. Doctors do some leisure things on our service but obviously the reason for the service is to satisfy their business and clinical needs and they need a fair amount of privacy and security for that to work.

We provide telephone support. A third of our company is in member services. Sixteen plus hours a day you can call us if you're a doctor and you don't know how to use Netscape or you can't figure out how to do a database search or you've unplugged your modem. That's obviously not typical of a Web site but that's really important for us in maintaining our relationship with our community, but it is expensive. This message window that we've talked about is fairly unique to our service.

We have about 13,000-14,000 unique physicians each day access the service. They access it at about 20,000-22,000 separate sessions. This is the number of daily hours they produce so we are just creeping up now across 10,000 hours of connect time in a single day if you line all the sessions up one next to another.

In a week, we have about 30,000-33,000 physicians access the service and in a month about 50,000 unique physicians. When we last talked, it was right at that inflection point actually. It was the fall on 1995, which is where that is. We've grown pretty rapidly since. Part of the reason for that is we added a lot of communication tools, e-mail, discussions and, recently, live discussions, and that's been very important, I think, to the growth of the service.

Physicians of all specialties use our service. There was some thought that surgeons would never figure out how to put their fingers on the keyboard; it would only be internists. It's not true. Really everyone, it seems, in every specialty will use the service although they use it somewhat differently. The psychiatrists are really agonizing over clinical cases on the service. The surgeons want some information then they get off and do something else. Although there is something there for everyone, their patterns of usage are somewhat different. This is important to our business, because we are trying to provide an audience to advertisers. We can really show that we can bring on everything from obstetricians to orthopedic surgeons onto the service and that they will use it regularly.

One of the unique things about our services, with this separate application on the doctor's desktop, is that we can measure time. It's not just saying you get 1,000 hits in e-mail or 1,000 hits in the database. This is actually, how much time people spend. E-mail is the most popular thing on the service and it moves around in different months but it tends to be on the top. Databases are very high but those clinical discussions keep rising, so when we talked a couple of years ago, they were probably taking up a percent or two percent of people's time on the service. Now you can see that it's almost at 15% and growing.

One of the things we had to decide is that we can't provide everything a doctor might want, but if we didn't provide stock quotes, they were going to go somewhere else, so we do that. It's sometimes a little frightening that stock quotes may be more popular, at least in terms of time spent in medical news. But you can't really fight your audience. You've got to let them tell you what they're interested in and then I think you've got to provide it so that's what we're doing.

In the past, if you wanted advice, you asked the people you passed in the hall. It might be a friend you went to medical school with. Now there's a community of tens of thousands of physicians all over. This doctor may be in Alaska even though the original physician who posted the case is in Florida. This is really the only way to bring this community together. You're not going to do this on the phone, you're not going to do this face to face, but online can connect a profession and allow people to interact who would otherwise never be able to interact on a daily basis. That's really something special. We think there is a collective thinking going on in terms of trying to solve cases, and trying to think about mistreatments that could never take place anywhere else.

Let me just talk a bit about our lines of business. Much of the subject here is, How do you make money? We principally make money today because people advertise to physicians. Pharmaceutical companies, other health care companies and now an increasing number of people who are looking at doctors as consumers. I'll show you those in a second, using our special ad window, which again has some properties that are helpful. As I said, we provide ISP services so some of our revenue is in ISP. We wrote a physician placement service. Doctors who are looking for jobs are matched up with hospitals and other institutions that have openings. Doing that online is much more effective than the traditional way of mailing out 400,000 postcards to physicians saying there's an opportunity in the Ozarks. That's how the physician recruitment industry works today and it can really be streamlined and made more efficient.

We are doing a fair number of consumer type transactions. Doctors buy books and flowers and other things. We provide a sort of concierge service for physicians saying that we know they are busy and that they don't have the time to do certain things. We will at least provide a subset of transactions that have nothing to do with health care but make their lives easier.

We are also starting to do more surveys and market research. This is an incredible place. You can get 1,000 physicians in an evening to tell you what they think of a new drug that has been introduced or what they think of someone's marketing campaign and there's no other way to do that. To try to call physicians on the phone would take you months and I don't think that the information you would get would be as useful.

Here are some things we are doing in the future: providing not only personalized ISP services but office ISP services and the patient health service. Our great strength is the doctors we have online. We'd like to hook them up with the patients that are coming online and be able to link those communities together. That's tricky because a sort of completely open communication between doctors and patients is not something maybe doctors or patients want. There's got to be another way to orchestrate that to make it organized and we're looking at ways of doing that.

Let me talk quickly about this push technology we have. The separate window on the screen that hooks to the bottom of your browser allows us to push out messages. You can't knock it off the screen. If you try to cover it up with the browser, it pops back up. If you try to move it off the screen, it comes back on. Doctors have amazingly gotten used to this and don't complain much about it. It does some cool things. Particularly in the middle is what we think is really important. It's context sensitive. It knows where the browser is so if you're reading about infectious disease information, we can provide advertisements and other information that's related to infectious disease. If you're on an oncology site, it knows that it is on an oncology site, knows what URL you're on and provides advertisements and other material in context.

The other thing is that it knows who you are. It knows you specifically; it knows where you are from. For example, if you're a cardiologist you may want to communicate, even about the same product, in a different way than you communicate with a general internist. You can assume that the cardiologist may be more knowledgeable about that particular product and what you say to them is going to be different so you can individualize the message.

One of the keys for us, is that it's not just ads. You can page another doctor on the service. But it pages in that window. So, that window has other purposes than just having advertisements. Or, if there are discussions going on that are of interest to doctors, we notify them through that window. Seventy-five percent of what's in that window is promotional, advertising or sponsor messages but a good quarter of it is coming from us because the doctor said this is what I'm interested in, this is something I'd like to know, or one doctor is trying to communicate with another. And like a banner, when you click on it, you can go into full screen HTML.

What's interesting is that people have started to look at this community and say that this is the most defined community on the Web right now. By far, in terms of who they are and what their income is, what their interests are, you can sort of see there is a pattern here. It's luxury autos and financial services. That's who's trying to get to these folks -- whether it's Acura, Lincoln or Volvo, or PC Financial Network or MasterCard. I don't suspect that someone who's trying to sell skateboards is going to come on our service. There's clearly an audience here, incredibly well defined that some people want to go to. So, even in its modest size, saying that we have 13,000 unique people yesterday, I don't know how many unique people Yahoo had, but it dwarfs us. But, this is a clearly defined community that is much more likely to click on the Acura ad and actually go in the showroom and buy the car.

A bit about surveys; I want to give you some sense. It usually frightens a non-medical audience, but if you ask doctors medical questions they never agree on anything. It's a pretty incredible opportunity to educate them and think about what it means. This is not atypical. Here's a survey where 833 doctors participated over a couple of days. We asked them, (primary Angioplasty, when they put a balloon in your coronary artery to try to open it, Thrombolaysis is when they give you a drug instead to try to open that artery), if someone comes into a hospital with an acute MI, do you think that primary Angioplasty, the balloon, is superior to using drugs or not?

Well about 44% think it's a barrier and about 38% think it's not. There's a lot of opportunity to try to understand why doctors don't understand the literature. Is the literature consistent here? One of the great problems in continuing medical education is the people who already know things go to classes and say, Oh that's great. I feel better. I thought I knew it, now I'm sure I know it.Ó This is sort of reinforcing. The people who don't know certain things tend not to be the ones who take those continuing medical education classes. There's a real opportunity online to start to understand the different physicians' different needs and deliver them the material they really need; there are also a lot of people in the industry who like to know what doctors think about these things.

Where do we think things are going? Basically, we think a couple of things. I think this sort of personalized interactive online communication with doctors and other health professionals is really going to replace, not all, but a lot of what's currently done to influence patient care decisions; those magazine advertisements, those representatives who call on physicians. As we move forward, all of those are inefficient, all don't meet the doctors' needs. They really aren't giving information to people when they want it. When that rep knocks on your door and you have 5 minutes for lunch, but you give them that time to talk to you, you're not receptive to information. When you come online whether it's 8:00 am or it's lunch-time or midnight, you've come online to get information. You're receptive. It's a great time to talk to people.

In the medical field there has been a lot of talk about the electronic medical record, where when you go to see a doctor that whole interaction is being recorded electronically. Don't hold your breath. It's just not going to happen tomorrow. It's such a complicated affair and it's actually very easy for doctors to check some things on pieces of paper right now. So that full-blown electronic medical record is probably a number of years off, but a whole bunch of transactions are not.

Today, when you get referred to another physician, if you're in a managed care organization for a managed care member, that's a paper transaction in 99.9% of managed care organizations. Doctors will scribble something on a piece of paper, you take something with you, it's in triplicate. All that can be done electronically. Claims submission can be done electronically. Prescriptions where there are 2.5 billion written in this country each year, a minute fraction are done electronically from the doctor's office. There is huge opportunity to move those transactions, which today technology can move electronically from paper to online.

I also think these secure online interactions are really going to be key to virtual organizations that exist in healthcare. Your doctor is a member of 15 managed care organizations, three medical societies, and has all sorts of other relationships. They are all virtual. Doctors almost never see these employers, never goes to a meeting, but it's very important that they interact with Aetna, US Healthcare or Oxford. The only way to stitch those virtual organizations that the doctor belongs to together is online, we believe. It's not the phone. It's not letters. It's not face-to-face.

For a long time people said technology is a problem, doctors don't like using computers. It's not true. Again, 10,000 hours yesterday, 10,000 hours today. Doctor's fingers are going to be on the keyboard just on our service and they're also going all over the Net. They are doing other things as well. So, I think no longer do we have to say, Oh we have to wait for the technology to catch up.Ó It's really there. I think we are an unusual professional community, but I think a lot of the things that are true about POL are true for anyone else who is looking to create a virtual community.

AUDIENCE QUESTIONS

Q: How many users do you have? What percentage of the physician population are members of your service and do you offer unlimited access and can people get to your service without using you as an ISP?

A: There are between 500,000 - 600,000 physicians in the country that people seem to care about. There are probably slightly more that have an MD after their name aren't practicing medicines, they're in research settings and other places where they don't see patients. We've registered online about 155,000 of them, but it's really this core of 70,000 or so who are more active users and as I said in a single day we also don't get all 70,000 of them on. We'll get 13-14,000 of them on. You can get to us just off the Web if you're a physician and go to http://www.pol.net without any additional software, just the browser. Relatively few of our members do that. They tend to get our software and we act as their ISP. In terms of our plans, we run a $14 unlimited plan. We also run a plan that gives doctors five free hours a month and then charges them $1.95 per hour beyond that. We're sort of on the cheaper end. But, now if you want to pay for five years of Internet access you can probably pay $6 or $7 per month. So, now, we are by far no longer the cheapest plan they can get, although, when we came out with the $14 plan, most people were at $19.95.

As I said, while we're happy to be the doctors' ISP, we sort of see less of a need if they don't want us to be. We also see less of a need to underprice it so we're probably going to give away fewer hours in the future but we did that to get people online.

Q: What is POL's competition?

A: Just about everyone that's interested. It's over a trillion dollar industry, so there have been a number of both large and small companies that have looked to launch physician online services. For whatever reason they haven't lasted, at least so far. Some of them were combined. CD ROM online services. Some of them were more tied to practice management systems. Our main competition is really just the Web itself. This idea that you don't need intermediaries so if I want to communicate with physicians and I'm a pharmaceutical company, I'll just put up my Web site and they'll come. Well, we're finding that doesn't happen. That's not just true of physicians but probably many professionals. You want to go to one place and engage in your business activities and you don't want to bookmark 1,000 Web sites.

Comments from Jonathan Sarno, CEO and President, WebCinema, a nonprofit organization for the independent filmmaking industry. Uses new media technologies to finance, create, produce, distribute and market independent films.

Hello. Our site is more for people who want to advertise skateboards. This is kind of like the other side of the Web, in a way.

WebCinema started a little more than a year ago with about 25 filmmakers and people that are involved with new media who realized that the web could be used for filmmaking. The filmmaking industry was very insular. Basically, when you go see some of these big movies where there's no story and the actors are bad, these were all deals that were sort of put together on golf courses and in hot tubs. So, we were thinking, maybe there's another way that films could be made. The Web site is just a trap to get people to sign up to the list. We get about 30,000 people a month that go to the Web site. The Web site basically has some member information; what people are doing. We're not just a virtual organization. I think we are pretty well known in New York for giving really big parties. It's a very social organization. It has a chat area. I find chat is not really working very well for me because people are in all different parts of the world and it's hard to figure out what time to have a chat. Whether it's going to be on the East Coast because obviously we have a lot of members in California, it's going to be 3:00 pm, with some foreign members it will be the middle of the night. Chat isn't really working very well but the listserv is dynamite. Listserv is really the heart and soul of WebCinema.

We have about 1,000 members now. It's a diverse group. Geographically, 75% are from the U.S., say, North America, because there are a lot Canadians on actually. Everything seems to be conducted in English. The other 30% are from Europe and some people from Singapore and we have a few subscribers from China. At one time I posted and said it looks like we have somebody from every continent except for Africa and I got two e-mails back from people in South Africa. Somebody that had a film at the Cannes Film Festival said to WebCinema that there were a few subscribers in the South African film industry. We pretty much cover the world.

There are physical meetings that occur largely in New York City. I have a community that's on the Web and I'm actually working with a community of filmmakers in New York at the Filmmakers Collaborative in Soho where there are nine different production companies in one building all making feature films. We find that as we do more and more things in New York, it's perceived as a global paradox. As you become global, you also become tribal and regional. As filmmakers come together in one area and do an event, we find on the lists that we get a lot of subscriptions from unsubscribed people who can't participate in the event. They feel they are really left out because they are just part of a virtual community.

Virtual community is sort of linked to the idea of profit. Well, we're non-profit and not because I'm a humanitarian or anything like that, though I like to think I am. We're non-profit, because there's no other way you could do something like this. People who've tried it and built Web sites were non-filmmakers, basically. Some people, with downsizing in the distribution business, set up some sites about a year ago and had passwords to get in to look at content and nobody entered. I think you had to pay to enter.

If we charge as little as $5 to be a subscriber to WebCinema lists, we would probably get a lot of unsubscribers at this point, which is kind of a shame, in a way. People that are on it are getting a good service. What is going on in the listserv, is there are a lot of different types of people. With Physicians' Online, I sort of envy you because you know if someone is a physician. You take a test, go to school and become a physician. With filmmaking, anybody can claim he's a filmmaker and that's a big problem. So, you get people who are just fans of filmmakers online. True filmmakers, it's a very, very small profession. When you think that there are only 500 films made per year, only 500 people can really claim that they are filmmakers. So, if we're talking about a niche market, it's probably the world's smallest profession.

Of course, having 1,000 people, they are not all filmmakers. The problem is that many of them are wannabe filmmakers. That's a problem we have to deal with and as more of these wannabe filmmakers come on the list and ask how to get into film school, you see more serious people unsubscribing. So, this is a problem that we have to face because we have such a small list. A thousand people is quite small.

We must figure out some way to control the virtual community and give it different layers and qualify people, but we don't have enough people to do that yet. So, there's no subscription possibility. There's not really much of a revenue source for something like this either because we have such a small number of people so we can't really get advertisers. We had a co-venture with VDONet, which is partially by Microsoft, because they have a streaming video technology that we've used on our Web site. We can't really get any advertising revenues until we build up, like you were talking about, the list of people. We could probably do that by not aiming just at filmmakers, but strategizing our lists so that there's a list just for cameramen, a list just for actors, and then you have a lot more people. In the Screen Actors Guild, there are 60,000 people. So, if we start segmenting those list and have requirements to enter those certain lists we probably could have something that could generate a revenue. Transactions, well that's really the heart and soul of WebCinema but it's not there yet.

WebCinema was set up by filmmakers not by distributors and it was set up to serve the customer. The customers were these 25 filmmakers in a room and everybody is a filmmaker that's really involved with WebCinema, so we're all customers of our service. What were trying to do is a worldwide schmooze. We're trying to put together film projects. We see the film industry as something that, like Bill Gates says, is frictionless capitalism. And we see that coming soon like with William Morris. Basically, we can take over the role as agents where filmmakers can make deals and raise their funding without going to the studios, angels, or limited partnerships.

As far as revenue sources, it's a small list. It has to be set up as a non-profit at this point and we rely on funding from foundations or things like that. Our maintenance is zero. It's ridiculous, too low to talk about at this meeting. Our competitors are a film organization that in nineteen years has only 3,500 members and they're charging people $100 to join. We're only one-year-old and we have 1,000 members and we're gaining about 20% per month. So, it will be only a matter of time before we become the largest film organization in the world. Maybe like two years as opposed to nineteen for this other organization.

It's funny. This organization never set up a listserv, they don't have chat. They finally got a Web site. It baffles me in a way because I think a listserv, if you're trying to set up a community, is obvious. It's a no-brainer. That's our competitor.

Where do we think it's going to lead? What direction is it going in? I think it's going to be a major restructuring of the film industry, which, I think, is something out of Dickens. It's so insular and so few people control the movies that are going out being seen by people from all over the world. It's the second largest export of the U.S. We see that it's not difficult to imagine raising money for films on line and I'm going to try it, particularly with some of the changes that the SEC did and that you can file electronically. Score offerings, Reg A, those are up to $5 million and they're certainly fine for making an independent film.

We see that actors, a major actor is going to get it and he's going to register an offering online with him. An actor is a living, breathing brand name walking around and people will trust it and not think it's a scam. He is going to get funding for his venture. We think it's going to go in that direction. We see small listservs, that I'd love to develop for directors and actors that are AÓ talent. That could change the agency business because it's so easy to do that.

I'll wrap up here by saying that I think the future of this, when you talk about satisfying the customers, I think a list like this is only made up of customers and I think it's the reason why it's successful.

AUDIENCE QUESTION

Q: Can you explain how a listserv works?

A: I'm really surprised that there's really not more of the listserv software because I think it's an amazing business. The way Web sites are, I almost think there should be more listservs than there are Web sites. I think it's much more interactive and better for business. Anyway, you sign up on it and then you get a message. Anybody that posts to that message, it goes to everybody on the list. You can get those messages in digest form, which I recommend. It's like if you have 20 people posting a day, you just get 20 messages at one time, just delete it one, two, three, or you can get it one at a time. If you are unhappy with the list, you can unsubscribe by setting up a message to a certain e-mail address.

For more, read Building Virtual Communities, Part 2, in which a computer-gaming company fights to stay alive in the increasingly-competitive online world.