 | |
- close
- close
|
|
Topic
Top news source/blog that we're missing
Why do you recommend this news source?
|
||
WIKI ANALYSIS
Digital River is an international e-commerce outsourcing firm. It runs e-commerce sites for software companies and other high-tech corporations such as Motorola (MOT), 3M Company (MMM), and Symantec (SYMC). Digital River also provides marketing and data mining services in order to discover customer trends.
DRIV's revenues have grown by 504% since 2001 despite several industry-wide crises in e-commerce. Because Digital River provides the online marketplace platform as well as derivative products, it receives a percentage of the price of goods sold on its sites. This translates to low cost of sales, while its margins depend on the revenue earned by its clients. As more people around the world turn to the Internet to make purchases, DRIV is poised to benefit by expanding its services to existing clients and adding new ones.
The growing e-commerce market, however, is also attracting new competition for DRIV. Low barriers of entry due to the low cost of sales mentioned above allow for a constant influx of start-up competitors.
Business Overview
Digital River's core business is providing a platform from which its customers can sell their products to a global audience. In addition, they offer marketing research, loyalty programs, web hosting, online advertising, and an online payment mechanism. Furthermore, they are also exploring ways in which to make money in the online gaming industry by operating a gaming news website[1].
Research and development has increased both in numbers and as a percentage of expenses. From 2005 to 2006, it increased 69% from 8.2% to 9.7% of total revenue. Digital River routinely updates its online platform in order to guarantee uptime, security, and speed. Furthermore, having sales originate from multiple countries means that its platform must be able to handle multiple currencies, languages, and tax laws. Sales and Marketing grew largely due to increases in the services provided to clients. These new services include search engine optimization, affiliate marketing, and site optimization.
Digital River's business is dependent on companies wanting to take their sales online. Companies do this in an effort to expand their markets while avoiding the cost of having to establish a physical presence. As the first graph shows, the number of e-commerce sites has grown by 467% since 1997, and despite several recessions, has never declined.
Apart from helping companies establish an online presence, Digital River must be able to guide potential customers to these sites. Since Digital River earns a percentage of price of goods sold, their ability to perform search engine optimization and relevant advertising is crucial to their future growth. The e-commerce business as a whole has seen consistent growth since its inception, and with more and more people purchasing online, Digital River will look to participate in this growth.
Trends and Forces
DRIV's new partnerships are crucial to its revenue growth: A bulk of Digital River's future income is expected to come from its new agreement with Microsoft (MSFT) to sell Windows Vista and Office 2007 upgrades online via Microsoft's Digital Locker initiative. This future income stream depends on people adopting Vista and Office 2007. DRIV is also working with Electronic Arts (ERTS) to further its online sales platform, a move which could bring significant revenue in the future as more people purchase games online. By selling downloadable games, DRIV will be in direct competition with Valve Corporation's Steam content delivery system.
DRIV depends on one client for a quarter of its revenues: Digital River is currently very dependent on its relationship with Symantec (SYMC). During 2007, revenue from its partnership with Symantec accounted for 26.2% of its sales[2]. Although Digital River is attempting to offset this through its partnership with Microsoft, pressure on the electronic security industry to lower prices (and the rise of cheaper alternatives) could harm Symantec's future sales, which in turn would harm Digital River's.
DRIV's growth depends on increasing sales and consumer spending on technology: At the end of the day, Digital River's revenue comes from online sales to consumers. Therefore, it is, like most of the retail industry, susceptible to recessions and other declines in consumer spending. After Hurricane Katrina in 2005, for example, Digital River saw a decline in revenue. Currently, due to the problems in the housing market and the credit crisis of 2007, as well as a possible recession in 2008, Digital River's sales may weaken.
DRIV is looking to expand into additional international markets: Digital River has considerable expertise on global markets, particularly in the areas of payment processing, multilingual support, and online hosting and merchandising[3]. Although GSI Commerce has entered the arena through its acquisition of Aspherio S.L., Digital River still has many more years of experience in the field. It has offices in various European countries, Taiwan, China, and Japan[4]. Such a presence is important to Digital River because it makes its revenue stream less susceptible on the economic fluctuations of the U.S. economy.
Competition
Digital River faces competition from other e-commerce outsourcing companies, including those that specialize in one of DRIV's sub-businesses (such as logistics or search optimization), and companies that have successfully developed and implemented their own e-commerce solutions in-house and now lease them out to others.
In-house competition
Amazon.com (AMZN): Amazon developed their own in-house e-commerce solution, which they now offer as a platform for others to use. Its customers range from individuals to companies seeking to sell their goods online. Its sheer size and name recognition, as well as its expansion into search and application hosting, create a significant threat to Digital River.
EBay (EBAY): After creating a platform where individuals can sell items to one another, EBay extended it to allow small companies to sell their goods its site. Unlike Digital River, it has a very high asset turnover ratio, meaning it makes more money in sales for every dollar of assets that it controls. This makes the company more resilient during recessions.
Other e-commerce outsourcing firms
GSI Commerce (GSIC): GSI is possibly Digital River's closest competitor. It covers the exact same product mix as Digital River. Although GSI is the larger and more established of the two, Digital River is expanding faster into new markets.
ValueClick (VCLK): ValueClick offers comprehensive online advertising campaigns. ValueClick provides most of the same services as Digital River's online advertising division, but on a much larger scale.
NaviSite (NAVI): NaviSite offers website hosting, site optimization, and managed infrastructure services. While it does not offer services such as advertising and search engine optimization, it is a powerhouse when it comes to developing and deploying online applications.
References
- ↑ DRIV FY 2007 SEC Filing Item 1 p4
- ↑ DRIV FY 2007 SEC Filing Item 1A
- ↑ DRIV FY 2007 SEC Filing Item 1 p7
- ↑ Digital River About Us
| ||||||
|
|
