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  1. Technology
October 10, 1999

Digital River Changes Course

By CBR Staff Writer

By Nick Patience

Digital River Inc, once purely a provider of outsourced software downloads recently turned its business model on its head and started dealing directly with consumers. Up until very recently, Digital River has been happy to sit in the background and take a percentage of every software sale that emanated from its servers. It has deals with about 5,000 software publishers and reckons its software libraries include about 70% of the entire software market.

The introduction of the eBot personal download manager recently marked a sea change for Digital River. Now it is dealing directly with the consumer; well, almost. eBot is meant to replace the 20 or so download managers that exist in the market today as it works with any software titles in Digital River’s libraries. It is adding about 100 a day and is up to 3,500 of the leading applications so far. Digital River installs a new version of each product on a clean machine and uses that to check against each user’s machine on which the eBot agent is running. It can then tell the user what downloads are currently available for all the software running on their machine – and not just the software from Digital River’s partners. For example, Microsoft Corp isn’t a Digital River partner, but is obviously the dominant PC software vendor, the exclusion of which would make the system worthless.

The eBot will detect not only free downloads, but paid-for software as well, and Digital River will take a percentage of any sales made through the bot. In addition, there is an incentive for software publishers to use the bot and include it with downloads of their products, because if they do they will get a small percentage of every software download sold using that eBot, regardless of whose software is downloaded; in effect a royalty scheme.

From a user’s perspective, the eBot is less intrusive than other download bots as it requests no user information; it identifies the users only by their IP address. However, that’s enough to tell software vendors how many registered copies of their software are in use at any time. The eBot automatically registers software that is downloaded.

Digital River is yet to start marketing the eBot, but that’s coming in the next few months. It will offer banner ad space on the bot for free and will also add software news. It has a subscriber bonus scheme whereby the eBot community – everybody has to have a community these days – will be offered exclusive software offers that will be full retail versions of software, not trials, insists Linda Ireland, the company’s VP direct marketing. For example, if a company has a 4.0 version coming out in the next quarter, it could start offering its 3.0 version for free via eBot so as to build up a large base at which it can target paid-for upgrades.

However, due to the massive costs of building its infrastructure, Digital River is still awash with red ink. In the second quarter it reported net losses of $6.7m on sales of $15.8m, but that included $1.3m in acquisition-related costs. But a recent move into a the marketing consultancy business should help its margins. Chief executive Joel Ronning is one part technologist and one-part direct marketer, so the move makes sense, says Ireland. The NetDirect offering has around 50 different direct marketing programs and the Digital River marketing team work as consultants with the client. The company’s most prominent customer this far for this has been Fujitsu Ltd’s PC business. Digital River charges on a revenue-sharing basis, so it costs the client nothing up front. Again, it all helps drive commerce revenues from the company’s digital download infrastructure. Fujitsu also tapped the company for its Commerce Bridge service to build its site that sells the PCs & laptops.

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It also moved into the music download business during the summer and supports all the main music download formats. It has found that while music companies are very familiar with the problems of copyright and intellectual property fraud, they are not accustomed to the kinds of financial fraud that goes on in the software business, says Ireland. Digital River estimates that about 20% of downloads of all digital products are fraudulent, and that could be a very conservative estimate. Digital Rover prides itself on fraud detection and protection. The Eden Prairie, Minnesota-based firm went public in August 1998 and did a quick secondary offering in December 1998. Ireland says the company has about $40m in the bank right now, so has no short- term need for a new cash injection.

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