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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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