Digital River CEO Joel Ronning on E-Commerce Growth Opportunities

If you’ve ever bought software directly off the Internet, the chances are good that Digital River had a hand in it. The e-commerce company helps many software publishers, retailers and others by managing online sales operations, helping to sell software in the most cost-effective way possible.

Today, Digital River (Nasdaq: DRIV) rarely finds a customer for which it can’t boost revenues, says CEO Joel Ronning. By optimizing Web sites using careful data analytics and by ensuring that one-time customers return again and again, Digital River aims to expand opportunities for its customers. In the process, it keeps growing its business, recently beating second quarter targets with revenue rising nearly 50 percent over the year before. The company also recently boosted forecasts for the rest of 2005.

Digital River also continues to pick up high-profile customers. In July, the company announced it would handle online sales in Japan for anti-virus firm Trend Micro and recently announced a push to handle more downloadable games from publishers such as Encore.

Long Road Ahead

Digital River has been around since 1994, when e-commerce was still in its infancy. Ronning believes the e-commerce sales channel still has a lot of growing to do.

In an exclusive interview with the E-Commerce Times, the CEO spoke about how Digital River stays focused on boosting customers’ revenue, the challenges that face the e-commerce industry as it looks to globalize and how search engines create both opportunities and hurdles.

ECT: Digital River has seen many changes in the e-commerce landscape in the past decade. Is this a mature industry yet?

Ronning: I say we’re only about 20 percent in the full maturity of this industry. The business has matured quite a bit, but it’s got a long ways to go. I compare it to direct mail, which really only reached the level of maturity as we know it today around 1980. Now, more than twenty years later, they’ve really got that industry optimized. In reality, the e-commerce business as we know it today has only been around for about six years or so, so there’s room to grow.

ECT: When customers come to Digital River, what are they looking for?

Ronning: We stay focused on growing revenues for our customers. When we pick up a client, we realistically expect we can give them 100 to 150 percent growth in revenue. We focus really hard on the analytics part of the business, things like measuring the performance of different pages and really optimizing marketing and search and keeping in touch with customers through e-mail. If you take a very disciplined analytical approach, there’s a tremendous opportunity to maximize sales.

ECT: You mention search, which obviously is one of the biggest growth areas in online marketing right now. What is your view on Internet search?

Ronning: I think search is a highly confused area for a lot of people. Everybody thinks that it’s a big opportunity and a lot are spending more money than they should there. It’s easy to do search poorly. There’s a lot of optimization that needs to happen, not just in keyword buys, but in how you’re handling that prospect that the keyword listing brings you as they move through the site. You need to look at what offers are being made, based on what keywords and what people are buying and where and integrating all that. The market outside the U.S. is still very far from being optimized.

ECT: Since you’ve brought up the global marketplace, that’s an opportunity many e-commerce companies want to capitalize on to the greatest extent possible. Are they being successful?

Ronning: Every stat we see points at truly global Internet companies, someone with a strong global presence, should be doing a third of their business in the U.S., a third in Europe, the Middle East and Africa and a third in Asia-Pacific. Right now, as we go in and look at what clients are doing, we see 80 to 90 percent of their business coming from the U.S. Hypothetically, there is triple the size of their current business available out there.

ECT: So what are the pitfalls?

Ronning: You have to make sure that you’re translating not just the words, but the cultural values. We’ve found that a person buying in the U.S. has a much different approach, responds to offers in a much different way than someone in Japan or Germany. You have to respect and understand that. Just something simple like handling phone calls. If you are selling to Korea and you don’t answer the phone in Korean, you will lose that sale. If you don’t pay attention to those details, you will probably lose money even though you’re entering new markets.

ECT: You sound optimistic about the future of e-commerce and your niche of digitally delivered software in particular.

Ronning: There is potential for gigantic growth. We’re dealing with a $60 billion global packaged software industry. In that group, we’ve got about 3 percent penetration. When we interview our client base about what they want, when we sit down with CEOs of those companies and ask them where they see downloadable versus packaged, they all say they want it to be 100 percent. The entire industry is focused on maximizing digital delivery. It’s just so much more efficient. It can be delivered instantaneously, you have no issues with returns, it doesn’t have to go back onto a boat and be shipped back. And having a strong digital channel makes it easier to deliver patches and upgrades around the world, which adds to the lifetime value for that customer.

ECT: Of course, software publishers are concerned about piracy. Does the digital distribution model make them nervous at all?

Ronning: We bought a DRM (digital rights management) company about a year ago. We’ve integrated in our Software Passport technology, which means the tool does more than manage or prevent piracy, but also opens up new opportunities for merchandising and marketing. For instance, the ability to let people use products on a trial-ware basis can be a powerful tool to convert them to buyers. A lot of attention is paid to piracy, but more attention is needed to the context of expanding revenue. Because if we don’t deliver revenue growth, there’s not much reason to keep us around.

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