Epocrates: A Rare Success in Ad-Supported Information

The New York Times recently carried a feature story abut Epocrates, whose free mobile apps for drug dosing and interactions are now used by half of all U.S. doctors, according to the company. Since its founding in 1998, the company has grown to over $100 million in annual revenues. The most significant aspect of Epocrates is that the company has succeeded with an advertising model for a professional market. Over 70 percent of Epocrates’ revenues come from drug company advertising. Users must click through messages and alerts from drug companies before they can access Epocrates’ bona fide drug information. Epocrates says it maintains a strict wall between its content and sales operations.
The success of this advertising model makes it a rarity among professional information services. Even with the advent of free, advertising-supported services across the internet, most reference databases for business and professional users still rely on fees paid by users, either by subscription or some other mechanism. That’s because for most business and professional users, information is the lifeblood of their business and is therefore worth paying for. Increasingly, information is being purchased by institutional buyers, not individual users or company departments. Institutional buyers care more about the quality of information than on getting a bargain (though cost is never out their concern).
Doctors, however, fall into a somewhat special category. First, many operate independently, in part because they are trained to think for themselves and in part because their relationships with patients are one-on-one. This independence is present whether a doctor is in private practice or on staff of a hospital. Doctors are unused to paying for information, much of which (along with professional education) has long been subsidized by drug companies in exchange for advertising, sometimes subtle and sometimes overt. The best example is the Physicians Desk Reference, affectionately known to all doctors as “the PDR,” a compendium of drug information which has been doctors’ traditional go-to source for drug dosing information. Now in its 66th annual edition, the PDR is distributed free of charge to all doctors and is still a fixture in many offices.
Epocrates was one of the first companies to recognize another important reality about doctors: they are mobile workers. Whether working in a private office or a hospital, doctors rarely sit still. Capitalizing on this fact when it was founded, Epocrates offered access to drug databases on Palm Pilots and other early personal digital assistant devices. It was an immediate hit with doctors, and with the drug companies, which willing to pay dearly to reach doctors because of their critical role as gatekeepers to what consumers purchase.
Next time, we’ll talk about a few other information businesses that have been built around the same dynamic.

About Lee Greenhouse

Longtime strategy consultant focused on the business of information content, applications, and services.
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