June 1997 ESD-An Idea Whose Time has Come

It's an idea that seems so simple &endash; selling computer software online. Those in the business know it as electronic software distribution (ESD).

But other than instant gratification, what are the advantages to purchasing software online?

That was the subject during one of the sessions at the Internet Commerce Expo held recently in Atlanta.

William McKiernan is president and CEO of CyberSource, a company that markets and sells software over the internet. Currently, CyberSource has approximately 20,000 stock keeping units (SKUs) available online, many of which come from Lotus, IBM and Microsoft. Those 20,000 SKUs, said McKiernan, account for 60 percent of CyberSource's sales.

When the company first began selling software electronically, McKiernan said the focus was on the corporate user. "That's where the high speed, high activity was," he said. "But I think what will eventually happen is that over time, high speed, high connectivity will find its way into the home through satellite delivery." And that makes the folks at CyberSource very happy.

More users mean more business.

And with more than 20,000 products available, online consumers can have their pick of the litter. But a wide variety of products isn't the only incentive to shop for software online. According to McKiernan, the following are also reasons to purchase software electronically:

• free software trials,
• online product information,
• interactive online customer forums,
• products are constantly in stock, and
• competitive prices.

According to McKiernan, prices at CyberSource are typically 10 percent or $10 less than the physical product.

But consumers aren't the only ones benefiting from online software sales. Vendors can see savings in terms of no cost of goods sold, zero inventory and scrap goods, expanded distribution, enhanced customer information tracking and reduced costs in both sales and marketing.

While it seems like a win-win situation for both parties involved, it does not come without taking some necessary, critical steps. Some might argue that publishers would now be free to eliminate the "middle man" or retailer altogether, but McKiernan said most larger publishers want to continue to leverage their existing relationships for marketing and support reasons.

McKiernan explained several different methods for doing electronic business.

They included:

• the direct model approach, whereby the publisher/manufacturer deals exclusively with the end user eliminating the middle man or reseller;
• the one-tier approach, where the publisher/manufacturer uses a reseller who communicates with the end user;
• the two-tier approach, where the publisher/manufacturer communicates through both a distributor and then a reseller who, in turn, deals with the end user.

McKiernan said most large manufacturers will continue to use the two-tier model, while smaller manufacturers will use the one-tier approach.

In addition to these three approaches, McKiernan explained the clearinghouse approach which takes the software being sold and encrypts it in a secure electronic container which can only be deciphered using a key. The reseller goes to the clearinghouse, which in turn issues a key.

The clearinghouse then reports to the software publisher how many keys were issued and to whom.

While this method may seem cumbersome, it allows the software publisher to maintain its relationship with the reseller and ensures that every transaction is accounted and paid for.

With all of its advantages and benefits, the act of selling software online does come with its challenges. They include: real-time transaction processing (which also involves security issues) and the risk of fraud.

"We learned the hard way that when you distribute products electronically to an IP address, the anonymity can create real problems," said McKiernan.

CyberSource has an artificial intelligence screen that carefully inspects every purchase making sure each transaction is legitimate.

To ensure the ultimate in customer satisfaction, CyberSource archives every piece of software a customer purchases so that, if necessary, he or she may come back at any time and download it again.