Digital River Inc is a company that if nothing else, is trustworthy. It has gained the confidence of some of the largest software developers of the past couple of years, including the likes of IBM Corp’s Lotus, Symantec Corp and Adobe Systems Inc. Those companies – and about 1,300 other – have given Minneapolis, Minnesota-based Digital River master versions of their applications for Digital River to distribute them electronically over the web. Digital River does not charge those companies to host the applications, but it does take a percentage of the sales. The company was founded four years ago as a joint venture between Fujitsu Ltd and Joel Ronning, who was the founder of Tech Squared Inc, a direct marketer which at the time was selling Fujitsu storage products. Fujitsu still owns 16% of Digital River, and Tech Squared – which is traded on the over-the-counter market – holds 23%. On Monday Digital River will launch the second version of its service, although almost all of its customers are already using that version. Digital River, at its data center in Minneapolis, hosts software from its customers, some of whom are publishers, like Symantec and Adobe; and some of whom are resellers, such as Micro Warehouse and General Software Inc. When a customer of those companies requests software, the request is sent from Digital River’s servers – it runs on Sun Microsystems Enterprise systems and, claims Ronning, has the largest software database in the world, at more than 1 terabyte. The system is built atop an Oracle database, and the company’s chief technology officer Kelly Wical was formerly director of development and chief scientist and architect of Oracle’s ConText server division, filing 15 patents before joining Digital River in April last year. Ronning describes version 1 of the company’s e-commerce system as more a proof of concept, but version 2 goes way beyond that and proves the architecture can scale, he says. New this time are such things as online reporting for the customers, fraud protection, remote management and customizable options. Customers – the software companies and resellers – use a browser-base interface to manage their software sales and to control how the software the Digital River hosts and sells appears on their own web site. Digital River does not host the web storefront as such, rather it provides the back-end to distribute the software. And if the software is too large to be distributed electronically, Digital River will ship the product physically on CD-ROM. Digital River has developed a proprietary software defense mechanism (SDM) that provides fraud screening and performs security profiling on things like email addresses, credit card numbers and mailing addresses. The card transactions themselves are protected using SSL (Secure Sockets Layer) technology. Digital River’s commerce data warehouse system, collects statistics on sales and enables customer to track the effectiveness of online ad campaigns – it has deals with DoubleClick, Flycast and Burst among others – as well as determine site traffic and produce sales projections. As well as looking after the large companies, Ronning thinks there is a huge market in smaller software companies, especially in specialist areas, such as engineering and CAD software. He points to the limited shelf space in stores versus the almost unlimited shelf space on the internet. The company is talking to almost all the major software retailers about providing the back- end for their online software distribution, as well as to PC manufacturers including Dell and Gateway. Ronning, who was recently elected to the board of the Software Publisher’s Association, reckons there are at least 4,000 software companies in the US, all of whom could sell their wares online. He believes internet sales will prove to be a great leveler in the market. The privately-held company raised $13m in its third round in April and has raised about $20m in all. Some $10m of the new money cane from a private placement with the rest from New York- based Wasserstein Adelson Ventures LP. A fair amount of that has been spent on developing the system, hence the company is not yet profitable, but with version 2 up and running Ronning is bullish about the future. Digital River has a slightly strange relationship to software publishers and resellers. Because it charges them nothing to host the software, but takes a percentage of sales, it is in its interest to nag them into success, as Ronning puts it. It took Digital River two years to persuade Adobe that its system was sound and secure enough, but that’s not surprising, says Ronning, as Digital River is asking for the keys to the castle in order to make the system work.
