Digital River 2006 Annual Report Download - page 15

completely merchandised online stores. The online stores we operate for our clients match their branding and
website design to provide a seamless experience for shoppers. When a shopper navigates from a client’s
website (operated by them) to its store (operated by us), the transition is seamless and the customer is unaware
they are then being served by our technology platform. We manage the order process through payment
processing, fraud screening, and fulfillment (either digital or physical) and notify the buyer via e-mail once the
transaction is completed. Transaction information is captured and stored in our database systems, an
increasingly valuable source of information used to create highly targeted merchandising programs, e-mail
marketing campaigns, product offers and test marketing programs.
For many of our clients, the solution we provide is critical to their businesses and therefore we operate
data centers that perform and scale for continuous e-commerce operation in a high-demand environment. We
operate multiple data centers globally, which feature fully redundant high-speed connections to the Internet,
server capacity to handle unpredictable spikes in traffic and transactions, 24/7 security and monitoring,
back-up electric generators and dedicated power supplies.
Store Merchandising. Our technology platforms support a wide range of merchandising activities. This
enables our clients to effectively execute promotions, up-sell, and cross-sell activities and to feature specific
products and services during any phase of the shopping process. From the home page of our clients’ online
stores through the checkout and “thank you” pages, our solution allows clients to deliver targeted offers
designed to increase order close ratios and average order sizes.
Order Management and Fraud Screening. We manage all phases of a shopper’s order on our clients’
e-commerce stores. We process payment transactions for orders placed through our technology platform and
support a wide variety of payment types, including credit cards, wire transfers, purchase orders, money orders,
direct debit cards and many other payment types popular both in the United States and around the world. As
part of the payment process, we ensure that the correct taxes are displayed, collected, remitted and reported.
The fraud screening component of our platform uses both rules-based and heuristic scoring methods
which use observations of known fraudulent activities to make a determination regarding the validity of the
order, buyer and payment information. As the order is entered, hundreds of data reviews can be processed in
real time. We also provide denied-parties screening and export controls, which are designed to ensure persons
and/or organizations appearing on government denied-parties lists are blocked from making purchases through
our system. Once a transaction is approved and the digital product has been delivered via download or the
physical product(s) has been shipped, we submit the transaction for payment.
Digital and Physical Fulfillment Services. We provide both digital and physical fulfillment services to
our clients. Digital delivery eliminates or reduces many of the costs associated with the distribution of physical
products, including packaging, shipping, warehousing, handling, and inventory-carrying and management costs.
We offer our clients a broad array of electronic delivery capabilities that enable delivery of digital products
directly to customers’ computers via the Internet. Delivery is completed when a copy of the purchased digital
product is made from a master stored on our technology platform and then securely downloaded to the
purchaser. Optionally, buyers can, for an additional fee, request that a CD be created and shipped as a backup
for their order. Our digital distribution model reduces costs, resulting in potentially higher margins for our
software and digital products publishing clients. In addition, our model helps to address the shrinking supply
of shelf space in retail stores, which limits the number of software titles available for sale.
In addition to electronic fulfillment via download, we offer physical distribution services to our clients as
well. We have contracted with third-party fulfillment agents that maintain inventories of physical products for
shipment to buyers. These products are held by the fulfillment agent on consignment from our clients. We
provide notification of product shipment to the buyer as well as shipment tracking, order status, and inventory
information. We also provide a service called “Physical on Demand” (POD), which utilizes robotic systems to
create a client-branded product CD and packaging materials after a POD order has been placed. This
eliminates the requirement for inventory to be stored in a warehouse as physical product is created only when
needed. We believe physical fulfillment services are important to providing a complete e-commerce solution to
our clients, particularly in the high-tech products market where digital fulfillment is not possible.
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