Digital River Takes Over

by NotePage, Inc.

No one is shocked any longer to hear that Digital River has added to their impressive collection of acquisitions. This time, only the size of the acquisition was surprising. On April 19, 2004 Digital River announced that they added ShareIt / Element5 to their collection of registration services for a paltry sum of 120 million dollars. Realizing that I had taken an interest and written about their past acquisitions Brant Pallazza, Vice President of Shareware at Digital River contacted me and welcomed the opportunity to answer any questions that I had. I seized the opportunity, believing that any insight into the acquisitions would help developers make an informed choice about their online ordering service.

***************************** interview *****************************

1.) There is a deep seeded fear amongst developers, though no one will come right out and say it, that DR will consume all of the registration services and then increase rates. At that point developers will be so vested in DR there won't be any other options. Is there any guarantee that this won't happen? Is there anything that you can say to reassure developers who have this fear?

This question has two parts: First, regarding rate increases...we have made many acquisitions in the past and have never raised our ecommerce rates. Instead, we have added features, functionality and stability. In some cases, we have even lowered rates. Our #1 goal is to help our clients grow their revenues through better marketing, sales and distribution opportunities - they win and we win. We can have a much larger impact on both our businesses through this strategy than through simply raising rates.

Second, there are ALWAYS options. We know that our clients have choices. The acquisition of e5 will not lessen that fact that there continue to exist a number of other extremely competitive services out there. We intend to continue to deliver solutions of strength and value that fit our clients requirements.

2.) Why does DR keep acquiring registration services, when they have not yet fully integrated or leveraged the services of the properties they currently own?

With every acquisition, our intention has been to integrate the back end services that make sense (accounting, customer service, hardware, etc.) while retaining the features, functionality and "personality" of the original platform. Believe me, it would have been much easier for Digital River to acquire a platform, integrate the technology into Digital River's core ecommerce platform, and migrate the clients to this new platform. But we know that this is not what the clients want. They want to retain their existing interface and process while benefiting from the elements that Digital River has to offer (i.e. the network).

3.) At some point DR has to realize they are re-purchasing many of their existing customers, I'm not sure how this translates into growth, can you elaborate on any of the thought process?

Following an acquisition, we often times find ourselves reacquainted with previous clients. But we understand that the client was simply looking for an ecommerce solution that best fits their needs.

Hopefully, despite the acquisition, the client is satisfied with their current solution and will continue the relationship despite the acquisition. In fact, they often realize the immediate benefits of being a part of a larger network.

4.) Are there any other directions that DR intends to grow? While the acquisition of ShareIt surprised me, I thought it likely that DR would purchase another download site. In fact with the shake-up at Tucows I thought that might have been on your radar. Can you tell me if the business focus is on registration services or if you intend to grow into other segments? I honestly think developers will be more understanding if they understand both short and long term goals and intentions.

The objective of the acquisition of registration services has been to grow the size of the Digital River's aggregate client product catalog. With a large catalog of titles at our disposal, we will continue our focus on the development of effective channels of distribution for our clients. The more titles we can bring to table, the stronger position we have in getting distribution for our clients in both traditional (online retailers and download sites) and non-traditional (content sites and portals) online channels, which in turn helps us further drive client growth on a global basis.

Creation of our trialware network is just the beginning of several exciting opportunities currently being developed at Digital River. It has been no secret that Digital River has always been very successful and very interested in merchandising, permission-based email marketing, and Web analytics. I see these as continued opportunities for all our clients that will be aggressively pursued in 2004.

5.) Digital River has always taken a hands off approach to their acquisitions letting clients adjust, with as few changes as possible. However, there have been recent key leadership changes at RegSoft and RegNow that no one is talking about. While these acquisitions happened quite some time ago, it appears that they are becoming much more integrated into the DR "machine", is that what will happen with all the properties over time?

It is interesting that you describe Digital River's approach to the acquisition of registration services as "hands-off". That is exactly how we wish the transition to be perceived. But the fact is, many back end processes undergo immediate integration. These changes provide greater security, enhanced redundancy or more depending upon the circumstances.

The fact is that we acquire only very well run organizations with superior solutions and excellent management teams. Obviously element 5 fits this mold. RegNow and RegSoft, two acquisitions referenced by you also fit this mold extremely well. It was several years after having been acquired and being managed by Digital River that the day to day business owner of RegSoft decided to move on. The original development team, however, continues to enhance the platform even today.

As for RegNow, the day to day business managers and support staff continue support the platform today. Although some key roles have been expanded to touch all Digital River's shareware properties. With every acquisition, our objective is to retain the personnel and the "personality" that makes it a great registration service. We then try to maximize the opportunities associated with being part of a larger network.

***************************** my impressions *****************************

I still believe that this will be a defining year for registration services. I was caught off guard by the acquisition, as I was under the impression DR would further integrate their existing properties into a common system, leveraging the benefit of having such a large network before further expansion. Being that Element5 is in Europe and targets European developers, it brings with it, a number of cultural nuances that the other acquisitions did not. This move is slightly out of step with DR's previous purchases and will likely be more difficult to integrate.

I commend Digital River's intention to provide their clients opportunities to further market their software via permission-based email, but I wonder if Digital River is missing the mark. Many savvy web surfers are opting out, of opting in, and simply selecting RSS feeds that contain content of interest.

As for the future, eSellerate has made it very clear that they will not sell to Digital River for any price. They are positioned well and will likely be "the" other industry player. For all the developer rumblings regarding the DR acquisitions, few grumble with their feet and most will likely stay with their existing processor unless they incur some sort of financial loss as a result of the new conglomerate. Of course I don't have a crystal ball, and Plimus, the new kid on the block might surprise us all.

The challenge stands --- eSellerate, SWREG and Plimus improve your services to a level that will compete with Digital River's network. Offer a personal and individual approach, do not treat us, the client's, as a number. Digital River, attempt to reach your potential, strive to combine technology and leverage the power of your network while not losing sight of the small business feel that developers desire.

About the Author:
Sharon Housley manages marketing for NotePage, Inc. http://www.notepage.net a company specializing in alphanumeric paging, SMS and wireless messaging software solutions. Other sites by Sharon can be found at http://www.softwaremarketingresource.com , and http://www.small-business-software.net

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