RealTime IT News

Digital River Streamlines Rival

Digital River Inc. Friday made a play to expand its already considerable e-business package with the acquisition of rival NetSales Inc.'s software services business for $6 million.

Digital River agreed to exchange 1,000,000 shares of common stock, with a contingent earnout for an additional 350,000 shares of common stock based on performance over the next six months. That could bring the total purchase to about $6.4 million, given Digital River's current market price of $6 per share.

By snapping up the NetSales Technology division Digital River, which holds 70 percent of the e-business service market over such competitors as Beyond.com Corp. and IBM Corp., will greatly increase its ability to outsource B2B and B2C e-commerce services for software publishers and software retailers.

The play pushes its rivals farther out of the market by adding 500 clients to its already substantial base.

Over the next 90 days, NetSales clients will be transitioned to Digital River's commerce system and can immediately tap into the company's comprehensive e-commerce services. All of the operations will be consolidated at Digital River.

The impact the deal was not recognized more fully than by Joel Ronning, Digital River's chief executive officer.

"As businesses and consumers move their purchases to the Internet, we're continuing to see a remarkable shift in how software is bought and sold," Ronning said. "The Internet is clearly becoming the preferred medium for digital content publishers."

In an interview with InternetNews.com Friday, Ronning said seeing so much industry consolidation was to expected in a business where many of the competitors have copycat business models.

"We're seeing hundreds of millions of dollars worth of technology being folded into one another," Ronning said. "Today's deal is incredibly accretive when you consider that we took on 120 people with 500 accounts, and you can actually manage those 500 with 12 people."

Ronning said Digital River will now concentrate its efforts on building out the manufacturing and distribution side of its business.

Digital River, whose clients include Hewlett Packard Co., Staples.com Inc. and CompUSA, now services 8,000 companies -- from site development and hosting to e-marketing and customer service.

The firm figures to benefit from NetSales' alliances with Cisco Systems Inc., Chase Manhattan Bank and Wells Fargo Bank.

NetSales generated $1.3 million in net transaction revenue in 1999.