Goodsol Solitaire Blog

The Chart Is...

The answer to the Name That Chart post is...

Digital River.

The reason the stock is down is complicated, but Eric in the comments pretty much nailed it.  Wall Street is concerned about Digital River's future earnings because Symantec is Digital River's largest customer and Symantec makes anti-virus products.  The concern is that Microsoft will be taking away sales of Symantec's products with their own.

In my opinion, this is a problem of Digital River's own making.  I believe that Wall Street does not understand what Digital River does, and Digital River likes it that way.  If you look at the things stock investors see about a company, you would not know that Digital River has anything to do with shareware.   
While we in the shareware industry see Digital River as the dominant company in the entire industry, I suspect that most shareholders in Digital River don't even have the slightest idea that the company is even involved in the shareware industry.  For example, the company profile on Yahoo says:

Digital River, Inc. provides e-commerce outsourcing solutions. The company offers e-commerce site development and hosting, site merchandising, order management, fraud prevention, denied parties screening, export controls, tax management, digital and physical product fulfillment, multilingual customer service, email marketing and advanced reporting, and Web analytics services.

Shareware, or any other word that might even hint at what kinds of companies are Digital River's customers, is not even mentioned.  You would not know that of the many thousands of Digital River customers, the overwhelming majority are shareware companies.  On their own about page, they list only Symantec, Motorola, 3M, H&R Block, Novell, Autodesk, ACT! and Staples.com as customers.  Shareware, or even any hint of "small software companies" are completely left out.  The word shareware does not appear in their annual report (10K). As far as Wall Street is concerned, the mass of companies that make up the bulk of Digital River's customers simply don't exist.

I often read Digital River's SEC filings and sometimes listen to their conference calls, and it is astounding to me how they manage to pull this off.  They simply do not talk about what they actually do.

Digital River is essentially the eBay of software.  They provide the ecommerce tools that thousands of small companies use to sell software.  Most of this software is marketed as shareware.  Their earnings are therefore dependent on the software sales of many thousands of small companies with all sorts of different kinds of software products.  The only company that is mentioned in their 10K is Symantec, which accounted for 27% of their revenue in 2004.  27% is a lot, but that leaves 73% that is not Symantec. 

The unfortunate by-product of having one large customer is that their stock trades almost entirely on the fortunes of that one customer.  Everything else is pretty much ignored.  If they didn't have that one dominant customer, their stock could trade on the fortunes of an entire industry of small software companies, which would be considerably more stable.  But it would also be a lot less likely to generate big news and hot momentum, which I suspect is what the management of Digital River wants.  They want their stock to be a huge momentum high flyer.  But the cost of having huge news driven stock run ups is the downside when the news is bad.  And that's what Digital River is experiencing now.

Note: I do not own any shares of DRIV.  My company has been a customer of Digital River's for 8 years.

Hug Your Customers

Note: This was originally posted on the old site on June 30, 2003.

I just read a great book over the weekend.  The book is called Hug Your Customers by Jack Mitchell. Mitchell is the CEO of a high end clothing retailer in Connecticut. They have only two stores, but they do a stunning amount of business out of those stores (65 million a year). The reason they sell so much is not because of the clothes (which are all brands you buy elsewhere, and probably at a lower price) but their service. They go to extraordinary lengths to help their customers. In this book Mitchell lays out all the things his company does to make customers keep coming back.

Clothing retailing is a face to face business, so much of what Mitchell does relies on being actually in the physical presence of the customer. Nonetheless, there is a lot here that can be applied to an online business where you never even see the customer. Here are some of the things Mitchell discusses in his book.

The number one principle of his company is that everyone in the company comes in contact with the customers. Everyone sells on the floor at least sometime. Even the CEO. This is really important and I think an online business should be the same way. Everybody in the company should answer emails from customers. Certainly it is that way here (of course there are only two of us). It's only by that constant contact with the customer that you know what customers are thinking and what they want. Without that daily contact with the customer, it's easy to lose sight of what the company is about.

As a related point, Mitchell believes that you should know who your top customers are. His company knows exactly who spends the most money in their stores, and he knows their names and even knows a lot about them (I would kill for Mitchell's customer software system where he tracks all this stuff, I really want software like that). He knows who his top 100 customers are. Now I can't really say I know who my top 100 customers are by sales volume, because we only have a very few products, so once someone has bought them all, that is it (which is, of course, one of the problems with my business - too few products). But I do know a large group of what I'd call my "most active" customers - that is, the customers who email me often, show up on the top scores list or post on the discussion forum regularly. I don't know if there are a hundred of them that I could name, but there are a lot of them in any case. Although these people represent a small part of my sales, they represent a large part of the community of players of my games. They are the core group that I think about when I'm thinking about what kinds of new games would appeal to my customers.

Mitchell keeps track of every purchase every customer makes. The salesperson can call that up when you come into the store and determine what you might need to buy. It's amazing. Have I mentioned that I really want his computer system? He's got a database of information about over 115,000 customers. That 65 million divided by 115,000 gives you 565 dollars revenue per customer per year. Yes, there are definitely advantages to a business where you have a high average sale. I get only $25 per sale ($50 in the cases when a customer buys both major games at once). And this information is not limited to just what the customers buy. They try to find out everything about a person (by just asking in conversation). If they find out the customers dog's name, they put that down in the database too.

All this just makes me think about my dream customer software package. This software would integrate our customer orders database and our email databases. Not only could you see all the orders each customer has made, but you could see all their emails as well. It would put them together in the same database. And if someone emailed us before they ordered, it would be able to go back and pull those emails too and put them in with the order. That would be just fantastic, you could see every contact with the customer, orders and emails combined. This kind of database would just do wonders for us, since you could see the entire history of our relationship with the customer all in one place.

Mitchell also emphasizes knowing the score. By that he means that you need to know how much sales you are getting today, how you are doing for the month and year so far, and how this compares to previous years. This is something I started doing very early on, and I'm fanatic about it. I like to know how we are doing all the time. I like to know how many sales we've had in the last 24 hours, so I know how the business is doing. And I like to know it many, many, many times per day. One of the great things about RegNow, our order processor, is that since at least 1998 they've had a running 24 hours sales total on the main sales report page. So I can call up our orders anytime and see what we've sold in the last 24 hours (at least via RegNow, which is a large portion of our sales). The funny thing is that I get the feeling that this is not a big thing for other people, because several times over the years RegNow has tried to take this off their order report. One time recently they did it on a Friday evening and I was without my sales total for a whole weekend. It just drove me crazy all weekend long. I didn't know how we were doing. I yelled and screamed loud enough that they got it back up there quickly. But to me, this is one of the best things about their system, and unbelievably I've never seen another payment processor in the shareware business that does this. You gotta know the score.

Anyway, this book has given me food for thought for a long time.  The book has a web site at hugyourcustomers.com.

Name This Chart

Below is a stock chart of a company that is well known to most of the shareware developers that visit this blog.

Audience participation questions:

1) What is the company this stock chart belongs to?

2) Why is their stock crashing?

What is Shareware?

Note: This was originally posted on the old site on June 4, 2003.

Most of the people reading this blog right now are other shareware authors, because that's who I've told about it. But a few of my customers are trickling in from links on my sites, and this will only continue. It's possible that there will be people coming in here who don't know what shareware is.

So I think it would be a good idea to define what shareware is, seeing as how that is what this site is about.

The definition of shareware is actually a matter of some debate in shareware circles.  But it is generally agreed that shareware is try before you buy software.  It is a way of marketing software.

It is different from the traditional way of marketing and selling software. In the traditional way, the customer buys the software in a store. They take it home, open the box, install it, and then they pray that it works. This could be described as the buy and pray method of purchasing software.

In the shareware way, the customer downloads a trial version of the software. He/she can use the software free for some trial period (usually 30 days) to see whether it fits their needs. If it does, then they buy it. Shareware could be described as the play and then pay method of purchasing software.

The benefits to the customer are obvious. When you buy software in a retail store, all you have to go on is the pretty box. The pretty box tells you how great the software is. The pretty box tells you what the software does. The pretty box tells you how much you need the software. The pretty box tells you that you should take it home now!

So you buy the pretty box, take it home, install the software, and throw away the pretty box. And, as often as not, the pretty box lied to you. The software isn't that great. Or maybe it is great, but it doesn't do what you actually want.

Shareware allows you to test the software out before you buy it. You'll know if the software does what you actually want. You can try out all the different products of a certain type and find which one you like best, then buy it.

This demo approach now dominates the software industry so that even big companies like Microsoft have demo versions of their software, even if they don't market in the shareware way generally.

And there are other benefits to the shareware customer. Most shareware products offer free upgrades for at least some period of time after the original purchase (I offer free upgrades for 2-3 years). Try walking into a store and saying "Hey, I bought that last year, I see you have a new version, can I take that home with me for free?"

With most shareware products, you can get at least email technical support from the developer. Often it's directly from the programmer himself, as in my case. Again, with most retail software, you can't get any kind of support anymore.

All this makes shareware very attractive to the customer.

What is less generally known are the benefits of using the shareware method to the developer of the software. A lot of people in the software industry think that the shareware method has been a failure. Some examples - Shareware Will Rise Again (as if it fell), Who Will Pay for Software.  It's as if shareware doesn't exist to these people.

But what is known inside the shareware industry, and especially to those of us in the shareware game arena, is how much more lucrative shareware is compared to the traditional retail method for the actual developer of the software. When someone buys a piece of software in a store, how much of the purchase price do you suppose goes to the programmer who wrote it? If he's lucky, a $20 software sale will make him $1, maybe with some change. More likely, it's under a dollar. With the tendency towards bundling in retail games these days, it can be literally pennies.

When a shareware sale is made, the developer usually only pays a small processing fee for the credit card or order processing company. This fee usually ranges between 4-20%. On a $20 sale, the developer usually gets at least $16.

That makes a huge difference. But the traditional belief is that because you can sell so many more copies at retail than you sell at shareware, the developer still makes a lot more money at retail.

But I'm here to tell you that is just plain wrong. 

I have products that are sold both retail and shareware. Last fall, the retail version was one of the best selling retail card game products in the USA. Yet even with that huge success, the shareware version outsold it in actual revenue to the developer by more than 10 to 1.

There's just no doubt about it, if a developer can learn any kind of marketing knowledge at all, he can make more money selling via shareware than going through a publisher and selling retail. The reason so few people do it is that so many programmers have a fear of marketing. They don't know anything about it and are scared to try going out on their own. But it's not that hard. Joining the Association of Shareware Professionals is a great first step.

It just makes so much sense for both the customer and the developer that eventually it's bound to take over the software industry in one form or another.

Cyber Monday Update

More about yesterday's post on Cyber Monday:

Today Business Week has an article which basically confirms what I wrote:  Cyber Monday, Marketing Myth.

Apparently someone from shop.org, a division of the National Retail Federation mentioned in my post, simply just made it up.

Links of the Day

Two new links in the blogroll to shareware developer blogs today:

Shareware Beach

Shareware Junction

Cyber Monday: A Meme is Born

Good morning!  Today is the Monday after Thanksgiving.  Nothing special, eh?  True, it's the Monday after the longest holiday weekend of the year, but other than that, it's just like any other Monday, right?

Wrong.  Unless you had your head stuffed inside a turkey all weekend, you know that today is called "Cyber Monday".

Of course, last year you had never heard of Cyber Monday and neither had anybody else.  It seems that somebody, though, really, really wanted you to know that today is Cyber Monday.

A Google News search shows an absolutely astounding number of news stories written about Cyber Monday over the weekend (over 400 at this writing).  A Technorati search shows over 6000 blogs posts about it.

After a little digging through some of the news stories, I believe I have found the source of the Cyber Monday meme.

An organization called the National Retail Federation put out a press release on November 21 called "Cyber Monday" Quickly Becoming One of the Biggest Online Shopping Days of the Year:

While traditional retailers will be monitoring store traffic and sales on Black Friday (the day after Thanksgiving), online retailers have set their sights on something different: Cyber Monday, the Monday after Thanksgiving, which is quickly becoming one of the biggest online shopping days of the year. For the past few years, online retailers have found that sales on the Monday after Thanksgiving have been creeping higher, giving retailers an additional reason to be jolly during the ceremonial kickoff to the holiday season.

This organization put out this press release, and then the MainStream Media (MSM) ran with it.  They've got to fill their newspapers with something over the holiday weekend and this was perfect.

I've never noticed that the Monday after Thanksgiving has sales any better than any other holiday season day, but it will be interesting to see if all this publicity about Cyber Monday draws people to buy online on today, which of course was the whole purpose of the press release.  Online retailers wanted something like the media buzz that surrounds Black Friday.  (Note: that Wikipedia link for Black Friday has a paragraph for Cyber Monday on it now - that wasn't there yesterday when I was first researching this! But wait, there's more: now there is a Wikipedia entry for Cyber Monday - that also wasn't there yesterday).

So what's the greeting for Cyber Monday? Happy Cyber Monday? Have a merry Cyber Monday?

How Long Does Great Shareware Take?

Note: This was originally posted on the old site on June 9, 2003.  Everything mentioned is now 2 years older.  Pretty Good Solitaire is now 10 years old.

There's a great article by Joel Spolsky called Great Software Takes Ten Years.  In it, he claims that all great software takes 10 years to create.  He gives compelling examples.

So how long does great shareware take?

Shareware is software, so the first answer is 10 years. But shareware is generally smaller and less complex software than what Spolsky gives as examples. It's reasonable to believe that great shareware would take somewhat less time. Anyway, there are very few shareware applications that are 10 years old (although anything that makes it 10 years in this business must be great).

Winzip recently celebrated its 10th anniversary.  Paint Shop Pro must be close.  Clipmate is an amazing 12 years old.  My Pretty Good Solitaire will turn 8 next month.  If you have or know of a shareware application that is 10 years or older, mention it in the comments.

So shareware probably becomes great faster, maybe at 5 years, possibly even 3. But it certainly takes years. Many shareware newcomers just don't realize the amount of time it takes. As Spolsky says:

Make a ten year plan. Make sure you can survive for 10 years, because the software products that bring in a billion dollars a year all took that long. Don't get too hung up on your version 1 and don't think, for a minute, that you have any hope of reaching large markets with your first version. Good software, like wine, takes time.

Most shareware applications are not immediate successes.  It took a month to get my first  Pretty Good Solitaire registration.  It took years before I could live on it. Spolsky says:

When you release 1.0, you might want to actually keep it kind of quiet.

This is somewhat the approach I am taking with my new product Pretty Good MahJongg. It was released last October, so it is only 8 months old. Still an infant. It's only at version 1.1, so it is still only a fraction of what I have plans for it to be. As such, I don't necessarily want everybody to know about it. Some people might try it out and decide that it isn't good enough, and then never look at it again. But Pretty Good MahJongg is really an investment for 2005 and beyond, when it should really come into it's own. Of course, that's not to say it isn't a good game, which I think it is, it just is in the early stages of its development.

Spolsky again:

Anyway, getting good software over the course of 10 years assumes that for at least 8 of those years, you're getting good feedback from your customers, and good innovations from your competitors that you can copy, and good ideas from all the people that come to work for you because they believe that your version 1.0 is promising. You have to release early, incomplete versions -- but don't overhype them or advertise them on the Super Bowl, because they're just not that good, no matter how smart you are.

Version 1.0 serves just to get the application out there. In version 2.0, you start getting the features that didn't make 1.0 in, plus some of the early customer feedback. It's only in version 3.0 that it starts getting good. It's a common joke that Microsoft doesn't get their software right until version 3.0, but the reality is that no one else does either.

Then, when you've reached 10 years, you run into a new problem.  As Spolsky says:

So, it takes a long time to write a good program, but when it's done, it's done. Oh sure, you can crank out a new version every year or two, trying to get the upgrade revenues, but eventually people will ask: "why fix what ain't broken?"

You run into the problem of what new things can you put in.  This is the problem that I will face with Pretty Good Solitaire. While I still have some ideas left, at a certain point there will come a time when there won't be anything left to add. What happens then? This is, of course, why Pretty Good MahJongg, and maybe some other future games, exist. If you are a one product company, you will eventually get to the point where the product is done. You then need some other products to keep the growth going.

My approach (which wasn't exactly planned, but it worked out this way) was to concentrate on one major product for years, building it up. Then as the revenue from it increases, use the money to fund development for a second major product. Then when the first product tops out, there will be a second product coming up to fuel growth. Then, as the shampoo bottle says, repeat.

Great shareware takes time. 

Links of the Day

Today I am adding two local Springfield Illinois blogs to the blogroll:

Disarranging Mine

Iggy Uncensored

How Many Sales Does a Shareware Game Get?

Note: This was originally posted on the old site on June 21, 2003.

Somebody got to this site last week by searching for "how many sales does a shareware game get". Also, another person searched for "how much does shareware games sell". Both of these people probably left without an answer. But in the interest of giving people what they want, I'll answer the question for future searchers.

The answer is 42. 

OK, seriously, the answer is somewhere between zero and several million, with the most likely answer being something close to the zero. So 42 is as reasonable an answer as any.

There are basically two myths about shareware game sales. The first myth is that all you have to do is copy a successful game and you'll make millions. That just doesn't happen. Copies don't sell well. I imagine that the vast majority of all the shareware Tetris clones out there have sold fewer than 42 copies each (and maybe all of them together have sold 42 copies). Best selling games always do something differently, they generally aren't clones.

The second myth is that nobody makes any money selling shareware games. This isn't true either. While the vast majority of shareware games sell only a few copies, there are quite a few successful shareware game developers.

What you need is some perspective on how many copies most games of any kind sell. Most retail games don't sell many copies either. As Brad Wardell says in his article On Being an Independent Game Developer, a successful PC game sells between 30,000 and 50,000 copies. That's retail. Hit games may sell 100,000, and it's only the really big hits like The Sims that go into the millions. Most games of all types don't sell many copies, so it isn't surprising that most shareware games don't either.

So a shareware game that sells a few thousand copies is a successful one. But there are some very successful ones. While Brad Wardell's article is a good one, he does make a false statement:

I’m not aware of any games that are available exclusively electronically that have sold more than 5,000 units.

Well, I guess it's actually a true statement, it's just that he must not be very aware of the shareware game market. I have several games that have sold much more than that, and I know of quite of few others who must be selling much more than that (else they wouldn't be making a living or affording to pay their employees). PopCap claims to have sold over a million copies. It's not impossible to sell this many, it's just highly unlikely.

Shareware games are a hit driven business. The hit games make almost all the sales and most games fail. However, many of the games that fail don't have to. While a lot of games fail because they are just bad games, a lot of games fail because their developers don't know enough about marketing. You have to realize that a good, well programmed game is only step 1. It gets you nowhere except into the field. A game needs to have good marketing as well.