Internet Week
Like many brick-and-mortar giants that have miscalculated the Internet's impact, drug-store chain Walgreen Co. was stunned when dotcom upstarts came out of nowhere and attracted so much attention. Then came the clincher: Longtime rivals Rite Aid Corp. and CVS Corp. began acquiring their way into e-commerce. Walgreen had to act fast, and the only way to ensure speedy development was to get some outside help. "If we were surprised about anything, it was the tremendous publicity garnered by the dotcom pharmacies, and consequently, we turned to USWeb/CKS to ramp up a bit faster," said David Bernauer, Walgreen's president and chief operating officer. Bernauer was the company's CIO until this past January. In September, the nation's largest drugstore chain, with $15 billion in revenue and as many as 45 million customers, will launch an online pharmacy that will, among other things, keep track of customers' prescriptions and alert them to potentially dangerous combinations. A virtual store for merchandise other than medication will follow in November, mimicking the shopping experience in the company's 2,700 retail outlets. Though the ramp-up is viewed largely as a defensive maneuver, retail analysts agreed that Walgreen's expansive customer database will give the company a potent competitive edge. "For Walgreen, e-commerce is really like the icing on the cake because it already has strategic advantages others don't have--a vast database of millions of customers and one of the industry's best integrated pharmacy [IT] systems," said Lauren Freedman, president of the E-tailing Group, a Chicago consultancy that tracks e-commerce strategies of retailers. At the heart of Walgreen's success is Intercom Plus, a proprietary pharmacy application running on HP-UX that houses the profiles of customers and their prescription and insurance data. At the back end, Intercom Plus is tied to the claims-processing applications of more than 1,000 insurance companies, including top names like BlueCross/BlueShield, Prudential and Aetna, over dedicated T1 lines. Until now, Walgreen has been content to operate a simple Web site that lets customers order refills for close to 226 million prescriptions yearly.
But to keep pace with upstart ventures PlanetRX.com, Drugstore.com and Soma.com, Walgreen will add the ability for customers to order new prescriptions (which requires electronic links with doctors), pay for them online, and even view their drug history. Customers can have the prescriptions mailed to them or pick them up at any Walgreen store.
Today, online sales represent only a tiny fraction of the $100 billion prescription drug market, according to the National Association of Chain Drug Stores. But a flood of business is expected to move online. For Walgreen, an Internet strategy became mandatory when Rite Aid took a 25 percent stake in Drugstore.com and CVS acquired Soma.com.
"We realized that to have a world-class e-commerce site and to move quickly, we needed to go to a company that has the experience and can also train our IT people," said George Reidl, Walgreen's director of new business development, who is in charge of the company's Internet strategy.
Walgreen turned to USWeb/CKS early this year to build a Web front end that would take advantage of the company's back-end pharmacy, inventory and financial applications that link the company to thousands of insurance companies.
Part of the solution is homegrown, Java-based middleware that coordinates transactional messaging between the commerce engine and the legacy Intercom Plus system.
"Our biggest challenge was creating the middleware that will literally replicate everything in the brick-and-mortar store onto the Web," said Antonin Robert, a managing partner at USWeb/CKS.
Walgreen's IT team will take back control of the Web operations in December. Walgreen has 500 people on the IT payroll, with an annual budget of $200 million.
Customers will use passwords to view their drug history, and an e-mail system will notify them when prescriptions are ready. An automated system will further alert patients about drug interactions and suggest alternate products. The e-commerce system will let customers pay with credit cards and set pricing based on customers' prescription plans.
Dual firewalls will secure the Web servers while Walgreen considers the use of digital signatures to better secure individual transactions, Reidl said.
Robert said the Walgreen site uses commerce, catalog, content management and e-mail servers supplied by a single vendor, which he would not name. Down the road, some of the server software will be based on the CORBA standard, to simplify content creation and reuse.
Java middleware links all the back-end systems, which include Intercom Plus, homegrown financial systems on an IBM 390, inventory management on AS/400 systems in the stores, and a new point-of-sale system. ISP services come from Qwest Communications. Intercom Plus, the guts of Walgreen's electronic profiling system, was built from scratch in 1995 at a cost of $150 million, part of a massive TCP/IP network for 97,000 employees. Walgreen is linking the stores over frame relay services and is installing Windows NT on desktops and at point-of-sale terminals.
**Reprinted from Internet Week, July 15, 1999