roi analysis of digital river's value...
TRANSCRIPT
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
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