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Fiscal cliff? WebMD hit by the patent cliff

The Obama administration is rolling out its Affordable Care Act website Tuesday morning.

The online health-information site WebMD is prescribing some tough medicine -- for itself. The company announced it will be slashing about 14 percent of its workforce. It's aiming to cut operating expenses by around $45 million, as it struggles with a loss of ad revenue.

WebMD has been around since the dot-com era, and it has commanded some of the highest advertising rates among websites. Every month, around 100 million users click on close to a billion of the site's webpages, and many of those visitors are well-heeled baby boomers.

Lately, however, advertising for pharmaceutical companies has been harder to come by. Not only are there tighter government rules on how the big pharmaceutical companies can promote themselves, but the drugmakers have lost their patent protections this year on several lucrative brand-name drugs.

As it turns out, there couldn't be a worse time for the meds to stop working for WebMD. Online competition has heated up.

"It's just amazing the proliferation of good free (health) information for consumers," says James Unland, editor of the Health Finance Journal.

In fact, National Research, a health care data firm, reported that 96 percent of almost 23,000 consumers it surveyed said they use Facebook -- that's right, Facebook -- to find information about health care. As Unland explains it, hospitals and health-care providers are putting more of their own information online.

"Facebook has become the go-to place for a lot of people, a lot of organizations, to put their presence on the web," he says, "for better or for worse."

The competition also comes from YouTube -- 28 percent of those surveyed search out health information there, and another 22 percent use Twitter.

Even as more websites are competing for ad revenue, drugmakers have been coping with the expiration of patent protections on such popular medications as Lipitor. They've also been focusing their shrinking advertising budgets on old media, says John Mack, who writes the Pharma Marketing Blog.

"There's a lot of spending on television," he says, "and not so much on online spending by the phamaceutical industry."

Mack says more ad dollars could eventually start flowing again, with more drugs for diabetes and obesity in the pipeline. Still, he points out that WebMD will have to fight for a smaller dose of those profits.

About the author

Bob Moon is Marketplace’s senior business correspondent, based in Los Angeles.

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