Digital River Invests In Fatfoogoo For In-Game Commerce Solution

By Alicia Ashby On April 8, 2009 · Leave a Comment

Digital River and fatfoogoo have partnered to offer game developers comprehensive in-game commerce support. This is a significant step forward for Digital River's plans to move from the world of physical e-commerce into in-game commerce and for fatfoogoo's plans to grow from an in-game commerce startup into a company with global reach.

The partnership allows Digital River to begin offering fatfoogoo's in-game commerce tools to clients in addition to all of the other technologies that Digital River can already provide. This includes traditional e-commerce and promotional technologies, online payment support for microtransactions through its NetGiro acquisition, community management tools provided by PlayXpert, and even subscription billing services through THINK Subscriptions. Fatfoogoo essentially provides the last piece of the in-game commerce puzzle for Digital River, namely the actual technology tools required to allow for in-game sales of virtual goods for real money.

Most companies in Digital River's position would've attempted to develop their own in-game commerce tools before making a move into the virtual goods commerce space, but instead the strategy of the Games group has been to make strategic partnerships and purchases of other companies that already have tools and expertise. Digital River's Senior Vice President of Games Jeff Hemenway is a big believer in outsourcing rather than the costly process of building from scratch.

"There's a lot of major companies in the MMO space that spent a lot of money to hire staff and build commerce solutions and are now finding it's very hard to maintain profitability with all that staff on board," said Hemenway. "Publishers and developers are good at building great games. To really maximize that revenue opportunity, our pipleline for prospective clients is very strong and a lot of clients that spent a lot of resources in the early 2000s to build revenue systems are now considering outsourcing."

Digital River wants into the virtual goods commerce space, in part, because it's already involved with gaming companies in the physical e-commerce space. Digital River runs the e-commerce storefront for publisher Electronic Arts and helps make sure the company's physical goods get into the hands of consumers. Still, if you buy a copy of Warhammer Online from EA, Digital River gets nothing from the subscription fee. If you buy BattleForge, they don't get a cut of the in-game microtransaction fees. If you play the free Battlefield Heroes, Digital River is left completely out of the loop. By moving into the in-game transactions market, Digital River is protecting its assets against a possible future where game distribution is wholly digital and consumers continue to purchase virtual goods in games long after they've made any initial purchase.

The advantage Digital River has in the virtual goods commerce field is one very few other companies in the space can claim: experience. Even the most successful companies in the space are often start-ups, sometimes less than five years old. They have the tools to monetize the emerging world of virtual goods, but they can't claim the kind of status that comes with Digital River's decade-long history as a publicly traded company.

For fatfoogoo, this made partnering with Digital River an attractive prospect. Fatfoogoo CEO Martin Herdina refers to this as a "1 + 1 = 7" situation, where a client of the combined Digital River/fatfoogoo solution gets much more than that client could obtain by partnering with either company individually.

"One key thing for us has been to find a really strong partner from a corporate perspective, someone who can really support us on a large scale," said Herdina. "We have been looking for someone who actually does have a lot of experience in merchandising and e-commerce… from an experience perspective this is something Digital River has done very well with EA."

It's important to remember that this partnership goes beyond a simple exchange of technology or money (although Digital River has made an equity investment in fatfoogoo). While the companies didn't disclose the full terms of their business, Herdina made it quite clear that he didn't view payments as fatfoogoo's business, but technology tools. Likewise, Digital River already owns NetGiro as far as payments go. This partnership is about access– specifically about fatfoogoo giving Digital River access to a world the company wants to become a player in.

“The game landscape continues to evolve as more games are being sold and delivered as services rather than products. As a result, traditional publishers today are looking for new ways to transform their game sales from one-time purchases to ongoing revenue models,” said Joel Ronning, Digital River’s CEO. “As a global leader in the e-commerce industry, we intend to be at the forefront in helping publishers make this transition. By working with fatfoogoo and combining its best of breed in-game commerce with our world class e-commerce platform, we can now offer publishers a truly comprehensive and seamless solution for monetizing games sales both in-store and in-game.”

While some behemoth companies like Electronic Arts are already
making the transiton independently, others like Activision are clearly
doing little more than sticking their toes in the water. And while fatfoogoo and Digital River can't make announcements about clients yet, their goal is clear: becoming the company that major players in the physical games publishing world turn to when it's time to start designing games that monetize through virtual goods or subscription services to social networks, virtual worlds, and MMORPGs where people primarily spend their time pursuing and trading virtual goods.