The three tenets of our CashBox solution are 1) to increase customer acquisition, 2) maximize customer retention, and 3) enable operational excellence for online merchants that sell digital goods & services to consumers and small business (SMB).

Acquisition is straightforward – allow consumers to choose the right product / plan at the right price in the correct language and currency, and to pay in their payment method of choice.

Operational excellence around billing and customer information is also obvious – securely store all sensitive data while managing and nurturing the overall customer relationship (PCI DSS & SOX are methods of enforcing parts of this).

Where the waters get a bit murky for some folks is customer retention…

The concept is simple. If a transaction fails, try it again, and again, and again. However, retention involves multiple moving parts, so every little detail matters and the compound effect of many small tweaks can be quite large. Some factors that make an impact on retention include:

• Failure type
• System availability
• Transaction type (one-time, subscription, etc)
• Time since last billing
• Time between retries
• Number of retries
• Payment processor used
• Transaction routing (# of stops along the way)

Many of these factors are specific to the business model used (Time between billings, transaction type) and some are the result of merchant preference (time between retries, number of retries). Yet others are system related (payment processor, transaction routing, system availability). While the first two areas can experience continual improvement with testing and optimization, the system related issues are *somewhat*out of control of the merchant. The *somewhat* refers to the fact that merchants have a choice of business partners.

Let’s take a closer look at the three system-related factors listed and how we address them.

• System availability
  • The uptime of connections to the payment processor from the gateway, and the connection from the payment processor to the Interchange.
  • Vindicia: Part of our solution to this problem is a built-in gateway in order to eliminate uptime issues between the billing system and the payment processor. We also have hardware directly in the datacenters of certain partners with direct connections to further reduce any connectivity issues. As a final step, if the payment processor’s connection is down, we automatically queue the transactions for retry.

• Payment Processor
  • The payment processor responsible for your online transactions plays a huge role in the overall transaction success (initial & retry).
  • Vindicia: We gave a webinar on this topic a while ago (and wrote a white paper with one of our consulting partners [pdf]) to help merchants choose the best processor for their needs. The upside is that cost is only a small factor in the decision and service matters much more. To that end, we only work with the top processors with experience in online, digital commerce.

• Transaction Routing
  • The number of systems involved in submitting a transaction makes a big difference. The typical flow would involve:
    • Creating a transaction in the billing system
    • Passing the transaction to a gateway
    • Submitting the transaction to a payment processor
    • Receiving information from the card network interchange
    • Capturing the transaction (or other actions, depending on processor response)
  • Vindicia: As mentioned above, we have combined the billing system and gateway (first three steps above) for more control over the transaction flow and greater payment success rates. This also gives more control over the retry logic by directly interpreting error codes from the payment processors into different retry flows. Billing companies & in-house systems that have not directly integrated to payment processors cannot compete with our results.

I’ll save descriptions of the other factors for another post. Optimizing customer retention is goal with constantly moving goalposts. When embarking down the path, merchants have a choice of either becoming experts at payment networks and card retry logic or choosing a partner that is already an established leader in the space.

We’ve received great feedback on the topics we’ve handled with our best practice webinar series over the past couple of years (view the archives).  In addition, we constantly get new ideas from viewers on what they would like to hear about.  With that in mind, we’re happy to announce our Fall Webinar Series.  The four webinar topics delve into

• The pros and cons of the freemium business model, much in vogue these days
• The impact of Facebook Credits on your monetization strategy
• A deeper look into the whole payment ecosystem with updates on recent regulatory changes
• How to strategically manage your chargebacks

We invite you to register for these webinars and, as always, provide feedback on what you’d like to hear about.

Online businesses often ask us about the value of fighting chargebacks.  After all, it’s a relatively small percentage of total revenue (less than one percent if you’re following the rules).  There are, however, several reasons to put up a fight that may not be readily apparent.

There’s an old joke about two guys camping.  They hear a bear outside the tent.  One guy starts panicking, while the other calmly puts on his tennis shoes.  The first guys says “what are you thinking?  You can’t outrun a bear!”  The second guy replies “I don’t have to outrun the bear.  I just have to outrun you.”

Your site doesn’t have to be bullet proof, and you don’t want to make it impossible for someone to get their money back.  However, you do want to make your site a less attractive fraud target compared to your peers.  The web is littered with blog entries and Facebook postings of people telling how to scam a particular merchant.  If you are an easy target, people share that information, and others will victimize your business.  If you take a harder line, though, the fraudsters will look for an easier target.

Analysis of your credit card traffic will also show that you may benefit from educating the banks.  Most merchants see that a handful of banks may make up a reasonable percentage of their transactions.  Our analysis shows a drop in chargebacks received from some of these particular banks as merchants fight chargebacks over time.

Over the first year of fighting chargebacks, Vindicia clients see up to a 1/3 reduction in the total chargeback volume they receive.  While some might opt to only fight specific types of chargebacks, we have repeatedly shown that our merchants benefit from aggressively fighting chargebacks across the board.

On Tuesday, Inc. Magazine revealed their 4th annual list of the 5000 fastest growing private companies based on three-year sales growth. Vindicia was recognized as #1068 with a growth rate of 282% over the last three years. We are very honored to have been selected and our growth is a testament to not only the strength of our team and products, but the growing need for consumer billing around digital goods and services. We can’t wait to share the growth rate next year!

Our profile on the list can be found here and many of our neighbors and customers can be found on the San Francisco or San Jose lists.

There was some interesting data in the official press release about the overall makeup, geography & revenues of the list as well.

The Hottest Regions for Fast-Growing Companies

California continues to rule the roost by number of companies on the Inc. 500, with 92, up from 84 last year and 78 in 2008. The Golden State is followed by Texas (52), Virginia (46), New York (36), and Florida (29). These five states place in the same order as last year, and each of them has more companies on the 500 than last year. They now account for more than half of the companies on the list.

The New York City and Washington, D.C., metropolitan areas both gain companies this year, and New York has catches up with Washington, with each of them boasting 48 Inc. 500 companies. (Washington had 42 last year; New York had 36.) San Francisco moves up from fifth to third place, with 29 companies (up nine from last year) Los Angeles drops from third to fourth place, with 27 companies (down nine from last year); and Dallas joins the top five, with 23 companies. Chicago drops out of the top five.

The Inc. 500 at a Glance

Computer Hardware is by far the fastest-growing industry on this year’s Inc. 500, with a total growth rate of 7,194 percent. (That’s thanks to the fact that the category contains just two very fast-growing companies.) Logistics & Transportation is second, with a rate of 2,783 percent, and Security is third, with a rate of 2,299 percent.

In total, the companies on the Inc. 500 employ more than 45,000 people. Government Services is the top employer, with 7,011 jobs, followed by Business Products & Services  (5,289), Consumer Products & Services (4,804), IT Services (4,355), and Advertising & Marketing (3,533).

Advertising & Marketing has the most companies on this year’s Inc. 500 list, with 60, followed by Government Services (59), Business Products & Services (45), IT Services (41), and Software (36).

The top woman-run company is Lexicon Consulting (No. 4 overall), based in El Cajon, California. Lexicon creates mock Iraqi and Afghan villages used to train military personnel. The firm, founded by Jamie Arundell-Latshaw in 2005, recorded revenue of $17.9 million in 2009 and a three-year growth rate of 14,018 percent. The top minority-run company is WDFA Marketing (No. 5 overall), a San Francisco–based firm that specializes in guerrilla, grass-roots, and micro-marketing. WDFA, founded by Raj Prasad, posted revenue of $38.4 million in 2009 and a three-year growth rate of 13,350 percent.

The Inc. 500 posted aggregate revenue of $11.3 billion, down 39 percent from last year. Median three-year growth is 1,231 percent, up almost 40 percent over last year. The top five industries by total revenue are Consumer Products & Services ($1.9 billion), Government Services ($1.4 billion), Advertising & Marketing ($1 billion), Business Products & Services ($872 million), and Energy ($661 million).

I received an interesting email from Visa recently, and it bears wider dissemmination.  The crux of the message was a reminder that it violates Visa regulations to share card numbers between merchants.  This is probably obvious in some contexts (i.e. if you sell your customer list to another company, you better not pass along their card numbers).  In other cases, though, folks may not realize they’re breaking the rules.

Assume you run an online video service.  You have an affiliate that sells pizza.  They allow someone to buy their pizza, then ask the pizza-buyer if they’d also like to rent a movie online.  If so, they route the user to your site.

So far, so good… but this is also where people get into trouble.  If the affiliate passes in basic information (their affiliate ID, the genre of movie in the advertisement, etc.) that’s OK.  However, the affiliate is explicitly prohibited from passing along the payment information.  Would it be more convenient for the customer if the payment info passed in?  Probably.  However, it’s against the Visa regulations.  It’s also a violation of rules with the FTC, unless you have explicit permission to do so from the customer.

Just a friendly reminder to be careful about passing this sort of information between affiliates.

http://www.paymentsnews.com/2010/04/visa-prohibits-web-merchants-from-passing-along-cardholder-info.html

and

http://www.retailing.org/advanced_consent_marketing_guidelines

The first half of 2010 has been amazing for Vindicia. We are growing new customer GAAP revenue more than 250% year over year while exceeding our new bookings targets by an average of 80%. We’ve secured wins with some of the largest companies in technology, publishing, and media, and in doing so have shown that online billing is increasingly relevant across all industry segments, not just the early adopters. We look forward to telling everyone more about the world renowned companies who, over the last few months, have chosen Vindicia CashBox to replace their existing subscription system or to roll out new, industry changing offerings as those new projects come to market.

What I’m even more excited about is what we have in store for the second half of 2010.

• Bookings have gotten off to a great start since July 1st, with wins in each of our key business segments in what had historically been a slow quarter.
• We continue to innovate on the R&D front. We ended the tension between marketing optimization of the checkout process and responsibility for PCI compliance with our release of HOA in the first half. Going forward, look for us to support a greater set of use cases for subscription and microtransaction billing and expect even further expansion of our payment method support as our client and demographic base takes us to all parts of the world. Most importantly, we’re adding additional technology to enable our best practices that support the entire lifecycle of our clients’ online business and allow us to improve our already industry leading customer retention system.
• With our record growth, we’re hiring and ramping the teams in all areas of the companies to keep up – if you’re interested in joining one of the fastest growing SaaS companies, please take a look at our careers page. We’ve entered that growth stage when I return from a business trip and meet brand new employees, and maybe you can be one of those new faces.

We started Vindicia because we believe that content and services can be sold online. We’re excited to see the market responding to that message and we’re proud of the new services and even categories we’re enabling. The switch to an “as-a-Service” business model across content, gaming, and software is creating vast new opportunities and unheard of cool new products. We at Vindicia get an early look at what is in store for everyone on the Internet and I can tell you that we’re feeling like kids on the night before Christmas. We’re helping build online revenue so our clients can build the online games, tools, and entertainment for the next 100 years.

New companies are being formed every day – here in Silicon Valley, we see a lot of activity and buzz around all of the companies that are creating the next big thing. This is always exciting to follow, but for us here at Vindicia, it is doubly interesting. We take note of the business models and the target markets for these startups as we’ve built our business on meeting the needs of companies selling digital goods online to consumers. One trend we’ve been seeing lately is a sharp growth in the number of consumer-focused startups. This is great, but as many players are new to accepting direct payments from consumers, considerable thought should be given to the business strategies and how to be successful both near- and long-term.

While many discussions exist on the pros and cons of the different business models (microtransactions versus freemium versus subscriptions), one element has been mostly overlooked – ownership of customer data. Companies that publish their content exclusively on social networks and mobile platforms have limited access to communicate with and upgrade their own customer base. This applies to anyone, even independent sites, that rely on a 3^rd party system to handle purchases. Let’s walk through a few common scenarios to highlight this problem.

• Example #1 – iPhone app: Company X builds a fun, engaging app and launches it in the iTunes App Store. They then build buzz and excitement via marketing campaigns and manage to achieve a high ranking inside the app store that allows their game to easily be found.  Great initial success funds continued development and more marketing. In a few months however, Company X wants to release an new version. The app store doesn’t allow direct communications or discounted upgrade pricing with existing customers. Each customer will have to purchase the new version again at full price. In addition, if a new version of the same app is offered, the existing version will be temporarily unavailable while under Apple review. Also, since Apple doesn’t allow purchases of “virtual currency” to be used in applications, developers are restricted to designing games around the episodic content model to keep their users engaged in the application. If possible, developers should try to create a direct relationship with their customers via a controlled channel like a destination website.
• Example #2 – Freemium Service: Company Y creates a free hosted storage site for consumers with additional storage and tools if a premium monthly membership is purchased. To offload the difficulties of building a billing system and PCI DSS compliance, Company Y chooses a hosted payment page run through a popular gateway. After a lot of hard work and customer success, they are outgrowing their service and want to move to a system that can handle their scale and optimize their customer retention while providing better rates. Unfortunately, the gateway they’ve been using informs them that there is no way to get the data out of the system (and Company Y couldn’t create a backup of the data due to security concerns). This leaves Company Y in a tough spot – existing customers will have to re-enter their payment information in order to be billed on the new system. This leads to a sizeable (but one-time) increase in passive opt-outs as customers re-evaluate the value proposition of the storage service.

No matter what your company size or type, ownership of customer information will always remain critical. Owning customer information lets companies control their own destiny instead of relying on 3^rd parties to act in their best interest.  Many companies find out the hard way that 3^rd parties can restrict growth and involve a painful migration down the road. Either way, as your new startup (or product line) looks to directly monetize consumers, make sure that you are asking “who owns this data and how hard is it to change providers?”

If I had a dollar every time I’ve heard “We have to get the project rolling right now.  We’re going to want to go live in <insert irrationally small number here> days,” I would have my own private island.

It’s natural that when companies sign a contract, the exec sponsors want to get things moving quickly.  The decision has been made, and it’s time to get on to reaping the benefits of the best SaaS platform on the market.  Looking across all of our clients, it’s easy to see who will get their implementation up and running first.  The funny thing is, it is actually independent of the size of the client, or how “process oriented” they are.  It comes down to three simple things.

1)       Defined Scope

Clients who get live quickly do so in part because they define a scope and stick to it.  There’s always a new feature to add, something that will make it even more cool, but if you want to get live, you make the conscious choice to save that new feature to phase II.

2)      Focused Resources

If your deployment team is also responsible for the corporate LAN, the CEO’s laptop support, resetting passwords for wayward users, and refilling the coffee pot, well, they’re going to have a hard time focusing on getting the work done.  (OK, a full pot of coffee probably helps, but the CEO is going to have to find the printer on his own!)

3)      Make Decisions Quickly

Even the smallest organizations can get bogged down if they debate simple questions endlessly.  Businesses don’t fail because the background on the offer page was the wrong color.  On the other hand, businesses do fail if you don’t get to market and start generating revenue.  Nominate someone from each of the key functional areas, and give them the authority to make the call.

If you adhere to these simple precepts, the implementation of a best-in-class billing system takes less time than you would imagine.

I am often asked about how Vindicia is able to retain more paying users than other systems – internal or competing solutions. The question is fair, what secret sauce does Vindicia possess that separates us from our competitors? The answer is a bit complicated, but in short, we have internal logic and payments experts that determine the optimal frequency and number of retries for each product in a client’s catalog and reason code returned from the payment processors.

The next question is – how well does it work? That’s easier to answer. We constantly analyze the number of transactions recovered per merchant and per industry segment and we recover between 1% – 5%  of overall transactions each month for our clients. Of course, if the transactions recovered represents a saved subscribers, the true value of our retry logic is the subscription amount times the number of billing periods that would have otherwise been lost.

The savvy online merchant might then ask – what are my industry peers acheiving? The interesting takeaway is that retention numbers and retry logic success depend more on similar business models and customer demographics than they do by industry. A facebook application offering subscriptions and targeting 25-35yo professionals would probably have more in common with Symantec or Zendough than with MouseHunt.

Finally, the question comes to  – couldn’t I build my own retry logic? Absolutely, there is nothing stopping a company from building their own internal retry logic. In fact, many successful online businesses have done just that. However, when they built their internal systems, there was no SaaS billing vendor that they could turn to. For a company to build their own system, they need to be prepared to spend large amounts of money (millions) and develop internal payments experts. That’s what our founders did at eMusic.com before they started Vindicia, and that’s the situation a lot of large online businesses find themselves in today. But I would highly recommend talking to a few companies that have built their own system before embarking down that path. The answer you’re most likely to get is – what do you want to be experts in? Your product or billing and payments infrastructure?

As a final point, as you look at other billing systems, dig in deeper to find out how they handle retention. Most of the solutions that claim to increase retention are just blindly sending the same transaction through multiple times without any adjustments or understanding of the reasons for decline. This is an area where real world results count for a lot – don’t be afraid to ask for them.

The social developer summit, hosted by the Inside Facebook network, is in full swing in San Francisco today. The constant events and news around social applications underline the importance and future of the industry. Social applications are leading the charge and are driving the evolution of online technology and digital commerce. However, they are still new and correspondingly, the ways in which they monetizeare all over the map. Matters are further complicated by the impending restrictions on the social platforms – the most prominent example being Facebook Credits. This makes it tough for developers to optimize or simplify their business models as they’re constantly scrambling to stay in sync with Facebook.

For a developer to bring an app to market and successfully monetize, several things must occur.

1. Find a market
2. Deliver value
3. Charge for value provided
4. Analyze & iterate product to meet demands
5. Reinforce customer relationships

Facebook credits simplify the ability to charge users as they offload all of the operational logistics of processing payments and storing customer’s payment information. However, they are more expensive than they first appear. In addition to the hidden costs, they also hamper the ability to control the customer relationship, analyze customer trends and choose the right business models.

The trend that we are seeing in response to Facebook’s moves is for developers to hedge their bets by developing external sites and their own relationship with users. Also, several networks are aiming to be the alternative platform and focusing on segments like social gaming. This trend should only accelerate as the industry matures and the platforms move to take even more control. In the meantime, feel free to ping us with monetization ideas – we’d be happy to give our outlook and suggest best practices. In fact, if you’re heading up to Seattle in a few weeks for Casual Connect, we’d be happy to sit down and talk through any payment or billing issues.