Transcript Value of the Deal

Drugstore.com - Amazon.com
Ross Davisson
Anubha Kothari
Ping Wang
May 8, 2001
Vision
Amazon.com
• Create a network of
closely aligned
companies
• Be a “get-anything
destination”
• Gain reputation of high
integrity among partners
• No partnerships thus far
Drugstore.com
• Become the leading
online drug store
• Low-cost, convenience,
information
Internal
Amazon.com
+ 1 million customers
+/-Strong Brand Name in
books
+ Low Customer
Acquisition Cost
+ Technical know-how
and IP
+ Market experience and
logistics infrastructure
Drugstore.com
+ High gross margins
+ Support from KPCB
+ Recurring revenues
- Requires Change in
Customer Behavior
- Regulatory and medical
system challenges
External
Amazon.com
• +/-$30 billion market
• + Growing online
population
Drugstore.com
+ Targeting 10% of $200
billion market
+ B&M drug stores slow to
go online
- Increasing competition
from PlanetRx
Plan of Action
• Drugstore should ask for exclusivity
• Get clarification on technology sharing
– Ask for perpetual license
• Set milestones
– Customer satisfaction
– Exceed $16 million in valuation within 12 months
Value of the Deal
ROI, fortify
keiretsu,
maintain
relationships
Equity
(30%), fortify
keiretsu
KPCB
Connections,
trusted partner—
lowers risk
Amazon
Seed funding—
“smart” money
($4M)
Equity (30%), growth—
expanded offerings quicker
Drugstore
User base (CAC = ~$16), brand, technology,
~$9M increase in valuation
Concerns about the Deal
Drugstore
• Constraints on future partnerships, ad-revenue, and growth;
no such constraints for Amazon
• Amazon has control, could abandon with no huge loss
• Loss of equity
Amazon
• Risk of hurting brand
• Cannot control Drugstore’s internal operations
A few numbers
Numbers -- Amazon and Drugstore
Customer Acquisition Cost for Drugstore
Total # of Amazon customers
Assumed click-through rate to Drugstore
Drugstore equity given up to Amazon
Therefore, CAC:
1,000,000
25%
$4,000,000
16
Increase in Valuation
Percent equity given to Amazon
33%
Valuation of equity given to Amazon
$4,000,000
Therefore, total valuation when partnered with Amazon: $12,000,000
Pre-money valuation
$3,000,000
Therefore, increase in valuation after partnership
$9,000,000