November 2013, IDC #243954

WHITE PAPER

ROI Analysis of Digital River's Value Proposition

Sponsored by: Digital River

Leslie Hand Randy Perry

November 2013

EXECUTIVE SUMMARY

Meeting customer expectations in an omnichannel world has been the hot topic recently among B2C

and B2B companies alike. The digital shopping experience has been permanently impacted by

consumer-driven marketplace shifts enabled by mobile, social, and cloud technologies. Companies

must pave a seamless path to purchase — in many geographies and

languages — to attract, influence, and retain customers. Technology

plays an important role in making this possible, enabling the most

complex organizations to meet customer, regulatory, and fiduciary

requirements everywhere they operate. The challenges are great, but

identifying strong technology partners can smooth the journey.

Some of the commonly reported challenges related to supporting

digital commerce channels are:

Supporting and maintaining infrastructure

Hiring and keeping appropriately skilled associates

Maintaining digital assets and capabilities, including the Web

site and content

Creating relevant and personalized marketing campaigns

Meeting customer and regulatory requirements in various

regions around the world

Ensuring compliance with all privacy and security

requirements, particularly related to customer data and payments processes

Managing multiple channels to market in an omnichannel global marketplace

BUSINESS VALUE HIGHLIGHTS

Organizations in this study experienced an average ROI of 454% and were able to pay back

their investment within two months after deployment. Benefits per country include:

Generating an additional $230,000 in annual revenue

Driving out $228,000 in

annual costs

Reducing support costs by $60,000

©2013 IDC #243954 2

Companies that want to focus on growing the business, while leaving the complexities of solving common

challenges to someone else, often turn to external marketing, ecommerce, and payments providers for

help. In some cases, companies meet the challenges this marketplace presents by working with a single

provider that enables all of the required business processes and technology infrastructure as a service.

IDC recently engaged in a return-on-investment (ROI) analysis of one of these providers, Digital River.

Digital River

Digital River provides a multitenant SaaS-based global ecommerce solution that handles core

ecommerce merchant services, payments, tax, fraud, security, compliance, and marketing capabilities for

B2C and B2B companies in the United States and Canada, Latin America, Europe, and Asia/Pacific.

It helps online businesses establish direct-to-consumer channels and serves high-tech providers, gaming

publishers, digital goods publishers, and branded manufacturers. Digital River processes $27 billion in

transactions annually and earned $386 million in revenue in 2012.

Commerce as a service and payments are the two primary Digital River capabilities that companies

may leverage together or separately. The commerce-as-a-service capability provides all of the

infrastructure, software, and services required to run an integrated global commerce operation without

having to manage the day-to-day operations of the cloud-commerce technology platform internally.

Companies that employ Digital River enjoy the privilege of outsourcing operational maintenance,

support, and execution capabilities that include:

Commerce. The commerce offering enables seamless Web site integration, design, development,

and hosting of customer-optimized online stores and shopping carts; store merchandising,

catalog, pricing; customer search, personalization, and recommendations; order management;

A/B testing; tax and fraud screening; payments services, cloud-based billing, usage-based billing,

and subscriptions; channel management; and integration to physical product fulfillment.

Marketing. The marketing offering provides services to acquire, convert, and retain buyers

including site and promotion optimization, paid search, affiliate marketing, display advertising,

search engine optimization, email marketing, and loyalty programs.

Payments. The payment processing services include gateway services; commerce payment

services, payment acquiring services, and in-country merchant services; and cloud-based

billing and other payment optimization services.

Commerce business infrastructure and technology services. The commerce business

infrastructure and technology services include cloud enablement; integration services;

multilingual customer service; denied parties screening; export controls and management;

digital product delivery through download; global localization, responsive design, and delivery

frameworks; Web analytics and reporting; and local entities and merchant/seller of record.

The multitenant SaaS solution enables redundancy and global management and control of data and

operations. All of the necessary administrative tools and services are included in the service offering.

Many additional services may be provided in the course of Digital River engagements including paid

search advertising, search engine optimization, affiliate marketing, store optimization, multivariant

testing, Web analytics, and email optimization services as well as a range of payment processing

services, such as multiple payment methods, fraud management, tax management, cloud-based

billing, and other payment optimization services.

©2013 IDC #243954 3

IDC interviewed and analyzed business performance metrics for eight companies. Randy Perry,

Vice President of Business Value Consulting at IDC, reported that companies were able to improve the

total costs of their ecommerce business by over 50% while reducing their costs per transaction as well as

the costs associated with marketing and fraud. Key findings from the ROI analysis include the following:

Companies that utilized Digital River's capabilities achieved tremendous business performance

improvement, and this financial impact drove the value of the Digital River solution.

There was no doubt among companies we interviewed that the Digital River solution was less

expensive and delivered higher performance than previously installed in-house solutions.

The level of service and support provided by Digital River could not be matched by Digital

River's competitors, albeit at a price premium.

The companies reviewed for this study all reported rapid payback.

IN THIS WHITE PAPER

This IDC white paper, sponsored by Digital River, investigates the ROI of employing Digital River's

ecommerce capabilities. IDC utilized its standard ROI methodology for this project. This methodology

is based on gathering data from current users of the technology as the foundation for the model.

(Please refer to the Appendix for more detail.) The study was based on eight in-depth interviews with

Digital River customers. These companies ranged from small to large, but all had a widespread

operation with business presences in an average of 27 countries (see Table 1).

TABLE 1

Demographics

Details

Employees 400 to 12,000

Revenue $2.5 million to $2.5 billion

B2B ecommerce 100%

B2C ecommerce 71%

Number of countries 27

Transactions per year 853,893

Annual revenue through the Digital River system $34 million

Annual growth rate of business 45%

Industries Technology manufacturing, software, technology distribution, ecommerce

Source: IDC, 2013

©2013 IDC #243954 4

SITUATION OVERVIEW

B2B and B2C companies are all faced with a common challenge: The customer now controls the

buying journey, and there are seemingly limitless paths to purchase products and services. The

customer is shopping across channels, and businesses need to adapt to this reality. From a customer

perspective, ecommerce capabilities must be easy to use, engaging, and rewarding — meaning the

customer finds what he/she needs at the right price, with the right shipping and returns options and

without wasting his/her precious time. From a business perspective, ecommerce systems and

programs must be easy to implement, run, and support in a world where the competitive landscape

has broadened, and the need to adapt to the continually changing needs of customers is certain.

Whether an ecommerce capability is the sole direct channel to market or one of many, business

success is challenged by product manufacturers, wholesalers, and retailers that are accelerating

business growth by adding an ecommerce channel or expanding into markets worldwide. How well a

Web site serves customers' purpose has significant bearing on whether customers will buy or abandon

the site for more seamless, productive experiences elsewhere. Some of the commonly reported keys

to success in improving business performance of ecommerce channels are to:

Simplify the support and maintenance of the infrastructure. For many companies, outsourcing

to a SaaS-based provider is the optimal path to success.

Hire and keep the appropriately skilled associates. With significant movement among a broad

range of companies in the ecommerce space, it has become increasingly difficult to fill roles

that can support the variety of skill sets required in an organization, so identifying how to meet

this need is critical. For many companies, hiring an array of skill sets is neither practical nor

optimal, and leveraging a provider with managed services that fill the need makes more sense.

Maintain the digital assets and capabilities including the ecommerce Web site and content.

Content is a valuable, ever-changing asset that needs to be managed, modified, and

leveraged to maximize impact, value, and performance. Solutions need to enable ease of

ecommerce site content management, collaboration, and publishing.

Offer differentiated delivery models to meet and exceed customer expectations. The

emergence of the cloud is driving new digital business models, with modern consumers

increasingly expecting more convenience in the way they buy, share, and consume content,

and companies need to be able to respond rapidly to these expectations in order to survive.

Create relevant and personalized marketing campaigns. Customers expect that businesses

will make it easier for them to identify the time and place to buy products, and great marketing

does just that, personalizing messages that influence buyers' purchase decision process

better than the competition. But this requires a significant amount of analytical capability and

acumen, along with outbound marketing expertise.

Meet customer and regulatory requirements in various regions around the world. There is

tremendous complexity and variation regarding customer engagement styles, order

management processing, and fulfillment needs internationally. Organizations must identify

ecommerce providers that understand and can fulfill needs globally.

Ensure compliance with all privacy and security requirements, particularly around customer

data and payments processes. What customer data can be stored and/or shared varies

depending on business process, and companies need to be properly supported by ecommerce

capabilities that address these needs appropriately.

©2013 IDC #243954 5

FINANCIAL BENEFITS ANALYSIS

We asked the eight companies in the study to identify the primary business benefits they had gained

from using the Digital River solution. Table 2 presents their answers.

TABLE 2

Business Benefits from Digital River Solution

Benefit Experienced % of Respondents

Supports all customers' access channels, including all of the different mobile devices and form

factors in use

50

Reduces time and costs for accounting, reporting, currency exchange, tax calculation, and so forth 57

Allows focus on driving traffic rather than on the ecommerce platform, thereby saving time and

increasing revenue

63

Allows rapid business expansion to a number of countries 63

Reduces time and costs of dealing with multiple tax requirements and fraud costs 67

Increases speed to market 75

Reduces time and costs for marketing in certain countries 80

Reduces time and costs of handling multiple payment instruments 88

Handles local and regional payment instruments, facilitating geographic expansion 100

Source: IDC, 2013

All of the companies in this study deployed Digital River's ecommerce solution to serve a global

customer base and expand their presence. Relative to their operations prior to deploying Digital River,

they were able to increase their annual revenue by 6–13% as well as reduce their costs of operations

by 18%. In addition to expanding their business and lowering their cost of business operations, they

were able to enjoy the benefits of moving from an on-premise solution to a SaaS solution, namely

reducing their day-to-day costs for IT staff and infrastructure. On average, each company was seeing

benefits of $13.8 million ($518,000 per country) annually. Because Digital River provides a country-

specific solution, we are presenting all the data in this report as a "per country" metric (see Figure 1).

©2013 IDC #243954 6

FIGURE 1

Annual Benefits (per Country)

Source: IDC, 2013

STAFF PRODUCTIVITY BENEFITS

One of the key benefits in any cloud solution is enhanced business agility. Three-quarters of the

companies in the study saw a time-to-market business benefit. Using Digital River as an integrated

ecommerce solution enabled six companies in the study to get new features or offerings to market in

58% less time than before. Thus they were able to set up business in new countries and launch new

product offerings more quickly, thereby accelerating new revenue streams and gaining a competitive

advantage (see Table 3).

TABLE 3

Time to Market

Other Digital River Advantage (%)

Time to design (weeks) 0.30 0.30 0

Time to develop (weeks) 0.63 0.50 21

Time to deploy (weeks) 0.25 0.20 20

Total time to market/new feature or country (weeks) 24.25 10.25 58

Source: IDC, 2013

Infrastructure $13,137

IT staff productivity

$47,069

Operations staff

productivity $125,465

Business productivity —

operations $102,101

Business productivity —

revenue $230,349

$518,120

©2013 IDC #243954 7

All of the companies cited Digital River's capability to handle local and regional payment instruments

and facilitate their geographic expansion as key business benefits and the primary reasons Digital

River was selected. The companies were able to increase revenue without having to add local staff to

manage the operation, saving $65,035 per country in operational staff costs. The other key benefit to

using Digital River was reducing the time and costs of managing tax requirements and fraud. Fraud

savings are provided in the revenue benefits, while the reduced staffing costs for setting up and

administering country-specific legal operations and dealing with fraud amounted to $60,429 per

country annually (see Figure 2).

As one company explained: "That's always a question. And yes, you can do it. And yes, you can save a

significant amount of money, but only if you sell something in the United States and the United Kingdom.

If your business is truly global, then there is basically no point, in my opinion and based on my

experience, of building it yourself. Because in Brazil, for example, you need to establish a local entity,

hire local people, hire local tax advisors. It's really difficult to export the money out of the country. If we

were selling our product only in the United States and the United Kingdom, there's no need to use Digital

River, from my point of view, but to get the same revenue that we are getting now, we'd need to hire a

team … my estimate would be 50 people … to run the global store. And we'd probably spend maybe one to

two years of development. And then we'd either lose the revenue in between or have to pay Digital River

in the meantime. So it would cost us a lot … a lot more to do the same thing."

FIGURE 2

Operations Staff Productivity Benefits (per Country)

Source: IDC, 2013

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

$65,035

$60,429

($)

Total = $125,465

Tax/legal staff avoided

Staff avoided to run local operations

©2013 IDC #243954 8

Cloud solutions consistently provide for better quality service while reducing the IT staffing

requirements. Digital River relieved not only the normal IT staff support burdens for hardware and

software installation and support but also the heavy additional support requirements for delivering

services in multiple countries (see Figure 3).

FIGURE 3

IT Staff Productivity Benefits (per Country)

Source: IDC, 2013

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

$12,576

$5,380

$25,911

$3,201

($)

Total = $47,069

Initial deployment

Annual support

Product development

IT service desk

©2013 IDC #243954 9

Digital River's integrated SaaS-based ecommerce solution delivered 50-60% higher availability by

reducing downtime and other issues that require contacting the service desk. Digital River relieved the

companies of the staff costs associated with responding to service desk issues by 53% and downtime

by 99% (see Table 4).

TABLE 4

Reliability KPIs

Other Digital River Benefit Advantage (%)

Downtime

Incidents per year 5.6 3.1 2.5 45

Hours per incident 2.6 2.4 0.2 8

Hours of downtime per year 14.5 7.5 7.0 48

IT staff hours to respond 141 1.9 139 99

Service desk

Calls per week 990 630 360 36

Minutes per call 164 121 43 26

Service desk hours per year 140,982 66,297 74,685 53

IT staff hours to respond 14,024 6,595 7,429 53

Source: IDC, 2013

BUSINESS PRODUCTIVITY ANALYSIS

IDC defines business productivity benefits as non-personnel benefits associated with lowering the cost of

operations or cost of goods sold and/or increasing revenue. As mentioned previously, one of the most cited

benefits of Digital River was reduction in time and costs for managing multiple tax requirements and fraud.

Most of the companies treated exposure to fraud as a business expense, so reducing the cost of fraud

included not only the reduction in staffing requirements to deal with fraud (mentioned previously) but also

the expense reduction of roughly $89,000 per country (see Figure 4). Some companies were able to reduce

their cost per transaction by standardizing on Digital River rather than paying variable fees to multiple

ecommerce providers. Other organizations benefited from Digital River's marketing services. As one

company explained: "Another benefit would be their robust marketing capabilities. So they can support us

on affiliate programs, paid search programs … and email marketing. The others can do it in varying degrees,

but not to the scale that Digital River can. If we used the others, we'd probably still have to hire a separate

email marketing or other type of contractor like that. That would cost something on the order of 40,000

euros. Also, it would require more staff time internally, managing that. Say 0.25 of a person."

©2013 IDC #243954 10

FIGURE 4

Business Productivity — Operations Productivity Increase (per Country)

Source: IDC, 2013

Companies in this study were able to generate an average of approximately $623,000 per country in

additional or incremental revenue annually through Digital River's ecommerce solution. IDC converts

revenue to net revenue to arrive at the net profit of the benefit (see Figure 5). In this case, we multiply

the revenue by a 37% operating margin to calculate the $203,000 annual net gain per country.

Sources for the additional revenue were as follows:

Improved conversion rates. Because the Digital River platform is more flexible than others

they had used before, Digital River customers in the study were able to optimize their

ecommerce environment and increase their conversion rates by 2–7%. As one customer

described: "We looked at another vendor, but we would be losing the flexibility of the Digital

River platform. We would be less flexible in the conversion rate optimization, which is

something that we do not want to give up. With Digital River, we are always testing some new

tweaks, like new conversion flows or new checkout pages, and that's increasing our

conversion in the cart. We believe that we are able to make more revenue, because we are

more agile. We could probably spend maybe four hours discussing the details about this. But

you can optimize the conversion and increase the sales by 5%."

Quicker time to market. The benefit of getting new features/products to market spanned the

spectrum from being the first player in a new market to simply realizing revenue from a new

product a day earlier. For one company with a huge ecommerce business, the value of one

day of sales is millions of dollars.

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

110,000

$89,405

$8,046$4,649

($)

Avoided marketing/email costs

Reduced costs per transaction

Avoided costs of fraud

Total = $102,101

©2013 IDC #243954 11

Fewer errors. Digital River provided a higher-quality payment solution with fewer errors,

enabling companies to reduce their lost revenue from errors. An example follows: "Because

we're not integrated, we're talking about a payment solution where the errors are actually

happening. But as far as the errors that we have currently in the ecommerce site store with the

transactions, it's slim to none. I can't even remember the last time we had a payment error. I

would say less than five over four years. If we were doing it in-house, I'd say that

percentagewise, I'll give my team 2% [45 errors per year]."

Less downtime. By reducing unplanned downtime by half, Digital River reduced lost revenue

from downtime by $21,240 annually.

FIGURE 5

Business Productivity — Revenue (per Country)

Source: IDC, 2013

ROI ANALYSIS

The five-year ROI analysis shows that on average, the organizations in this study spent $310,000 per

country deploying and maintaining Digital River commerce solutions and received $1.7 million per country

in benefits for a net present value (NPV) of $1.4 million per country. Because the Digital River ecommerce

solution is SaaS based, the payback of the initial investment is rapid, often within two months. All

companies enjoyed a positive return on investment, with an aggregate ROI of 454% (see Table 5).

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

$262,957

$157,774

$104,861

$75,733

$21,240

($)

Total = $622,565

Value of reduced downtime

Value of reducing errors

Value of quicker time to market

Increased revenue from support in key countries

Value of increased conversion rates

©2013 IDC #243954 12

TABLE 5

Five-Year ROI Analysis (per Country)

Details

Benefit $1,713,687

Investment $309,527

Net present value $1,404,160

ROI (NPV/investment) 454%

Payback 1.1 months

Discount factor 12%

Source: IDC, 2013

Figure 6 illustrates the five-year costs and benefits associated with a Digital River SaaS-based global

ecommerce solution. Initial fees and deployment cost $15,000 per country. Based on that investment,

the organizations realized average annual benefits of $505,000 per country and cumulative

undiscounted net savings of $2 million per country.

FIGURE 6

Cost-Benefit Analysis (per Country)

Source: IDC, 2013

($14,763) ($66,131) ($88,006) ($96,806) ($106,487) ($117,136)

$222,889 $418,025 $480,018

$609,700 $797,089

$2,035,299

-500,000

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

Initial Year 1 Year 2 Year 3 Year 4 Year 5

($)

Investments Benefits Cumulative benefit

©2013 IDC #243954 13

CONCLUSION

Meeting customer expectations in an omnichannel world is undeniably the hot topic recently among

B2C and B2B companies alike. The digital shopping experience crosses multiple channels and spans

geographies. The path to purchase and the final source of goods are less predictable, so organizations

that want to attract, influence, and retain customers need to do everything within their power to pave

the way. Creating a completely seamless and inviting experience is not easy, and the new

expectations of customers are creating a higher level of complexity and cost for businesses sustaining

digital commerce channels, particularly when operating in multiple regions globally.

Companies that want to focus on growing the business, instead of managing the complexities of

supporting and operating infrastructure and software applications that enable seamless omnichannel

shopping experiences, often turn to external marketing, ecommerce, and payments providers for help.

In some cases, companies meet the challenges this marketplace presents by working with a single

provider that enables all of the required business processes and technology infrastructure as a service.

The analysis required that IDC interview and analyze business performance metrics for eight

companies. Randy Perry, Vice President of Business Value Consulting at IDC, reported that

companies were able to improve the total costs of their ecommerce business by over 50% while

reducing their costs per transaction as well as the costs associated with marketing and fraud. Key

findings from the ROI analysis include the following:

Companies that utilized Digital River's capabilities achieved tremendous business

performance improvement, and this financial impact drove the value of the Digital River

solution. Two of the areas called out most often for generating significant value were fraud

prevention and the ability to handle local and regional payment instruments, facilitating

geographic expansion.

There was no doubt among companies we interviewed that the Digital River solution was less

expensive and delivered higher performance than previously installed in-house solutions.

The level of service and support provided by Digital River could not be matched by Digital

River's competitors, albeit at a price premium.

The companies reviewed for this study all reported payback of initial costs within two months.

All companies enjoyed a positive return on investment, with an aggregate ROI of 454%.

Most of the companies IDC interviewed for this study operated in multiple regions worldwide and

replaced multiple different applications with Digital River. This should be considered when

benchmarking organizational needs against the results of this study, particularly if requirements are

not as complex. The solution may still be the right choice, but the ROI will need to be adjusted for the

difference. Potential buyers must also factor in capabilities that Digital River does not provide,

including informational site content management services, which will have to be performed internally or

by another provider. Product category support should also be evaluated because a majority of Digital

River customers are high-tech providers, gaming publishers, digital goods publishers, and branded

manufacturers.

©2013 IDC #243954 14

APPENDIX

IDC utilized its standard ROI methodology for this project. This methodology is based on gathering

data from current users of the technology as the foundation for the model. Based on these interviews,

IDC performs a three-step process to calculate the ROI and payback period:

1. Measure the savings from reduced IT costs (staff, hardware, software, maintenance, and IT

support), increased user productivity, and improved revenue over the term of the deployment.

2. Ascertain the investment made in deploying the solution and the associated training and

support costs.

3. Project the costs and savings over a five-year period and calculate the ROI and payback for

the deployed solution.

IDC bases the payback period and ROI calculations on a number of assumptions, which are

summarized as follows:

Time values are multiplied by burdened salary (salary plus 28% for benefits and overhead) to

quantify efficiency and manager productivity savings.

Downtime values are a product of the number of hours of downtime multiplied by the number

of users affected.

The impact of unplanned downtime is quantified in terms of impaired end-user productivity and

lost revenue.

Lost productivity is a product of downtime multiplied by burdened salary.

Lost revenue is a product of downtime multiplied by the average revenue generated per hour.

The NPV of the five-year savings is calculated by subtracting the amount that would have

been realized by investing the original sum in an instrument yielding a 12% return to allow for

the missed opportunity cost. This accounts for both the assumed cost of money and the

assumed rate of return.

Because every hour of downtime does not equate to a lost hour of productivity or revenue generation,

IDC attributes only a fraction of the result to savings. As part of our assessment, we asked each

company what fraction of downtime hours to use in calculating productivity savings and the reduction

in lost revenue. IDC then taxes the revenue at that rate.

Further, because IT solutions require a deployment period, the full benefits of the solution are not

available during deployment. To capture this reality, IDC prorates the benefits on a monthly basis and

then subtracts the deployment time from the first-year savings.

Note: All numbers in this document may not be exact due to rounding.

About IDC

International Data Corporation (IDC) is the premier global provider of market intelligence, advisory

services, and events for the information technology, telecommunications and consumer technology

markets. IDC helps IT professionals, business executives, and the investment community make fact-

based decisions on technology purchases and business strategy. More than 1000 IDC analysts

provide global, regional, and local expertise on technology and industry opportunities and trends in

over 110 countries worldwide. For more than 48 years, IDC has provided strategic insights to help our

clients achieve their key business objectives. IDC is a subsidiary of IDG, the world's leading

technology media, research, and events company.

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