The 1M1M Deal Radar 2010: Plimus ,Fremont, California

Deal Radar continues its comprehensive coverage of e-commerce solutions with Plimus, a hosted e-business platform that clients use to market, sell, and distribute digital goods online. It comprises a hosted e-commerce application, which the company believes is particularly suited to enabling independent companies to quickly get their products and services available for purchase online across the globe; and a newly launched e-commerce application programming interface API (Buy Anyware) that enables clients to embed e-commerce into any Internet-connected application, eliminating the need for a virtual storefront.

Daniel Kleinberg and Tomer Herzog founded the Fremont, California–based business while living in San Diego in 2001. They originally were focused on building a sophisticated, dynamic digital rights management (DRM) system, and their anchor clients pointed out that in order to manage the rights for products, they should probably also take charge of selling it in the first place. As the business grew, it became clear the market wasn’t ready for dynamic licensing but was hungry for an easier way to get e-commerce up and running. The current CEO, Hagai Tal, is a serial entrepreneur who has experience in the online dating service industry, where he led the growth for Spark Networks (home of JDate.com and many other brands).

The total market for digital e-commerce is difficult to calculate because of its dynamic nature: An increasing number of items, from boxed software to physical gaming items (such as a CD for the Wii) are being delivered electronically. Plimus tries to size specific subsegments; for instance, it estimates the current market size for casual games at $4 billion and for downloadable software at $5 billion. As Plimus expands into other subsegments, it adds to its market sizing to determine investment levels. Ultimately, its market sizing activities are driven by the acquisition of a critical mass of clients in a segment.

For sellers, the platform’s main features are its range of payment methods, including direct deposit, PayPal, fax, and more; managed affiliate and merchandising programs that give vendors control over the invitation and approval process; sales tools, including product bundling, promotions, subscription management, and a customer newsletter system; a checkout process in nineteen currencies and more than a dozen languages, sales confirmation, and tax management; file distribution and DRM; and reporting and analysis with real-time sales, affiliate, and revenue reports, among other features. Sellers can join Plimus free, and there are no maintenance fees. The company makes money by taking a commission on transactions made through its platform. This commission ranges from 75 cents for transactions of $0.00 to $4.99 to 8% on transactions from $60.00 to $79.99 to 4.5% on transactions above $280. Many competitors have similar rates, but some charge for setup and maintenance.

Today, Plimus’s leading seller segments are casual games, utility software and, increasingly, SaaS and online services. The initial stake in the ground was shareware. There were dedicated developers who spent every spare hour building great utilities and didn’t have time to build an e-commerce platform. Downloadable casual games were the company’s beachhead, and it is starting to make inroads in powering sales of virtual goods and currency for embedded games on the social Web (for example, Product Madness, publisher of the leading Facebook blackjack game). It sees significant growth in dynamic subscriptions, largely owing to the social media and Web 2.0 phenomena, and is changing business models across many vertical industries. Plimus believes that by the end of 2011, these dynamic pricing models will penetrate deeply many industries, and it plans to be there with the necessary functions and features. It also sees a unique opportunity in what it calls e-commerce 3.0, which is the blurring of social Web 2.0 functionality and traditional e-commerce. Plimus believes this is leading to a redefinition of the virtual storefront and that its recently released API Buy Anyware, which can embed e-commerce into any non-e-commerce application, will help it to grow and target new segments.

At the outset, competition was limited in the independent space: Then, as now, Plimus’s largest competitor, Digital River (DR), provides a broad array of services in the enterprise space, but independents have limited options. Plimus’s growth was driven by word of mouth and relationships within the shareware world, where it competed on the depth and breadth of its offering. Today, the company is number two in the segment overall and is generally regarded as the most flexible service provider: While DR continues to provide extensive services in the mega-enterprise (e.g., Microsoft, Electronic Arts) space, Plimus aims to deliver more innovative solutions at a lower cost that smaller companies can manage more easily. The company says that it is attracting the attention of larger firms (e.g., Autodesk, Dolby, Namco) while maintaining a strong presence among its core audience of independent vendors.

Plimus was 100% bootstrapped through 2008. In June 2008, Susquehanna Growth Equity purchased a sizable position in the company, allowing the founders to bring in the current management team. Since that time, the business has more than doubled in all meaningful statistical ways. Plimus remains open to investment opportunities but is not actively seeking them out, though it’s approached by investors on a regular basis. The business is designed to be self-financing in order for Plimus to have the option to take the “right money” and not require financial aid.

The company has been profitable pretty much since inception. In 2010, it expects to sell in excess of $200 million worth of goods from clients and will earn an EBITDA in the low millions with revenue of above $1 million. It will make this year’s San Francisco Fast 100 Top Growing Independent companies through sales growth figures of $63 million in 2007, $96 million in 2008, $137 million in 2009, and the expected sales of over $200 million in 2010, or approximately 4 million individual sales. Plimus has 5,000 seller clients (i.e., those who own something they want to sell) and over 50,000 affiliate clients (i.e., those who market others’ goods in return for a revenue share on each sale).

The company says that it’s almost impossible to run a sustainable business with too great a focus on an exit strategy, especially during a period when entering the public market is so unpredictable a proposition. “Without being trite,” says vice president of marketing Charlie Born, “we are proceeding as though there will be no exit, while maintaining a willingness to discuss with any potential exit partner opportunities that bring real value to our shareholders and employees.”

Recommended Reading
Deal Radar 2010: BigCommerce
Child Entrepreneur Kevin Sproles: CEO Of Volusion
A recently updated BBB review of Plimus

This segment is a part in the series : The 1M1M Deal Radar 2010