Software Marketing Resource Articles: Digital River Purchases SWREG

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Sunday, April 24, 2005

Digital River Purchases SWREG

Brant Pallazza from Digital River was kind enough to answer the following questions related to Digital River's acquisition of SWREG. The questions are bolded, while Brant's responses are not.

1. Inquiring minds want to know, what did Digital River pay for the acquisition of SWREG? I know past negotiations have involved earn-outs. What earn-out was involved in the SWREG acquisition?

We paid $8.8 million cash for the assets of the business plus assumed liabilities. There is an earnout subject to the completion of specified development milestones and achieving specified revenue targets.

2. Historically SWREG's business model has been significantly different than Digital River's. How will SWREG's platform fit into the Digital River portfolio?

Yes, Digital River's business model has been geared a little different. Features and functionality place a significant emphasis on revenue growth. Hands-on account managers plus tools like analytics, email, merchandising and catalog management all come at a premium price. SWREG, on the other hand, is all about value. Getting a great service at a great price may be the primary driver for some developers. Keep in mind that Digital River also has significant experience in this market. RegSoft, for example is ideally suited for the cost conscious developer who also wants a solid ecommerce service.

3. Many developers have stated they feel that Digital River's acquisition's reduce competition, giving them less choices in the marketplace what reaction do you have to that statement?

I understand this concern. But if you really think about it, it is completely unfounded. First of all, we have never shut down a platform that we have acquired. In some cases, we have acquired only the assets of a platform. But the functionality and even the original pricing still exists. Take PSL for example.

Furthermore, it is quite possible that some of the services that we have acquired might not even exist today had we not made the acquisition. Everyone of the platforms now owned by Digital River are more safe, secure and redundant. And each retains it's own brand. It's own contract. It's own pricing. To say that there are fewer choices simply doesn't make sense. I would argue that there are more.

4. Will you increase rates at SWREG?

What do you think? Honestly. Look at our track record. We are the only provider that, to the best of my knowledge, has lowered rates.

5. What changes both short and long term can developers using SWREG expect to see?

Short, security, and redundancy. No question. Steve will be the first to admit that we have a lot of work to do in this area.

Long be honest, I need to work with Steve on his Roadmap. He knows better than anyone what his clients are looking for. Digital River will help fast track some of these items.

6. Why didn't Digital River release a press release regarding the recent acquisition of SWREG?

The timing of the acquisition closing was not ideal for making a separate announcement due to the filing of the 10-k and our raising our outlook for the first quarter all in the same week. So, we included notice of the acquisition in the 10-K as a subsequent event where it is freely visibile to the public and announced the transaction directly to the SWReg client base.

7. What unique product or service does SWREG bring to Digital River's offerings?

Value. Steve has done a great job of creating a product that provides a level of service at a price that vendors appreciate. Not to mention, like element 5, SWREG understands European developers, consumers, banking systems, VAT, etc. very well. Digital River can learn a lot.

8. At this point in time most of Digital River's past acquisitions still function as single entities although I understand there is backend integration with the Digital River platform, each company retains its own distinct brand. Do you expect that you will begin consolidating these properties under a single corporate brand at some point?

Nope. We certainly may "tie" the brands together where it makes sense.

9. At some point do you intend to make the RegNow affiliate program available across all the platforms? Do you intend to consolidate the power of the network and making some of the unique registration service features available globally?

This is extremely difficult. When it was built, the RegNow affiliate program was tightly integrated with the RegNow ecommerce systems. Originally, there had never been any intention of integrating or supporting other ecommerce platforms. However, we are currently looking at ways of supporting other DR platforms.

That said, one corporate 2005 objective at DR is to enhance the network. By SIC, we will be launching a number of affiliate and network enhancements. Some have already been released. This will continue throughout the year.

10. What future acquisitions do you anticipate? (I had to ask) Would you like to purchase us? :-)

Digital River's acquisition strategy is focused on meeting the needs of both our software publisher and network partner clients. The opportunities that will continue to be of interest to us will be ones that expand our geographic reach, product catalogue, service offering and technology solutions for our clients on a worldwide basis.

As for purchasing you, there is not enough money on the planet! ;-)


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