Miva Merchant is among the most prominent ecommerce brands. The company was launched in 1995 as HTMLScript Corporation, and it’s one of the early day shopping cart providers. It rose, and then fell, with the first dotcom boom and bust. In 2005, the company sold to Findwhat.com, a publicly-traded, pioneering online advertising network, which then changed its name to Miva. The new Miva later sold the shopping cart division, called Miva Merchant, to private investors in 2007.
Observers of Miva Merchant have long believed that its business model, selling software licenses to hosting companies for as little as $50 apiece, is flawed. The model provided a small, one-time revenue injection, but left the company saddled with ongoing expenses, observers believed. Moreover, critics of Miva Merchant claim that its software required the use of third-party modules, but many of those modules conflict and do not function on all versions of the shopping cart.
Into all of this stepped Russ Carroll, who is now the CEO and majority owner of Miva Merchant. Carroll led the private investor group that purchased the company in August 2007. A seasoned, successful entrepreneur, Carroll is trained in astrophysics and space science and spent the early part of his career in that field. In time, he entered the business world and became the CEO of Providence Systems, a provider of training and coaching products. Rick Wilson, who had previously worked at Miva Merchant, headed-up sales at Providence Systems, and it was Wilson who persuaded Carroll to purchase Miva Merchant after Carroll had successfully sold his interest in Providence. Wilson is now executive vice president of Miva Merchant.
Carroll says he’s always known that Miva Merchant’s business model was broken. He says he first focused on improving both the software itself and customer service. The move to a recurring-revenue, software-as-a-service model happens on May 1, 2009. In conjunction with that switch, Carroll and Wilson visited with Practical eCommerce publisher Kerry Murdock.
Kerry Murdock: You’re announcing major changes to Miva Merchant. What are they?
Russ Carroll: “As of May 1st, we’re switching from a product-based license model to a distributed software-as-a-service model, or SAAS. That’s the first part. Let me ask Rick to explain in more detail.”
Rick Wilson: “Russ called it distributed SAAS or distributed software-as-a-service model. It will be more commonly known as recurring license model in the hosting industry. First of all, our products are already sold that way. The vast majority of the people who have our product get it as part of their hosting package where the host charges a premium for having Miva Merchant included in its hosting and sometimes it’s split out as a line item and sometimes it’s not.”
“Our previous cost structure was really broken, if you will. Out of all our active stores in any given month we might pick up 0.5 percent or 1 percent additional new licenses. Yet the vast majority of the money we spend as a company is on providing services for existing customers whom we’re no longer receiving any money from. We’re happy to be in the business of providing them services. We want to have happy customers, but we needed to fix the way we receive revenue so that we could continue offering that to them. For example, when Authorize.net changes its API in an unannounced fashion, as happened to us in February 2009, it impacted roughly 15,000 of our stores who use Authorize.Net. For those 15,000 stores, we had to stop everything we were doing on a dime and pay attention to them, which again we’re happy to do, but we had to fix our revenue model so that we could get paid to do that.”
Murdock: So, if a customer uses Miva via their hosting company, you would still provide support to that customer. The cost structure was upside down from that standpoint?
Wilson: “Yeah, it depends on the host and on the relationship to that host, as to what level of support we will provide to an end user. But let’s take the Authorize.net example. Authorize.net changed part of its API. Suddenly, every one of our stores using Authorize.net couldn’t process [credit cards].”
“We’ve got 10 people on the frontlines in the telephones. When Authorize.net goes down, that ends up all they are handling. Regardless of whether or not it’s supposed to be the host calling or not, people just start calling because they can’t get their credit cards processed. Plus, we have our entire development staff.”
“Now, some of the customers got the fix deployed by their hosts, some got it directly through us, but the kind of relevant piece here is that as an entire company we had to respond regardless of who was doing the actual support and that’s why we’re able to repair with the new business model.”
Carroll: “That’s a piece of it.”
Wilson: “Yeah, that’s just a piece of it, but that is one piece of it.”
Murdock: The point being, shifting the revenue model from the license model to the SAAS or the recurring license model helps with all that. It helps get your revenue in line with your costs, right?
Carroll: “That’s it. When we bought this company in middle 2007, we knew that we had a lot of repair work to do, which we have now done. The very last significant thing that we had to repair was the business model itself, which has never worked from day one going all the way back to the origin of this company. It’s never had a viable financial model for success. It just doesn’t work.”
Murdock: Who pays the recurring fee under the new model that you are announcing today? Does the host pay it? How does that work?
Wilson: “So, for the vast majority of our clients, call it 99.5 percent, who receive their license from their host, we’re going to bill the host this fee. Some hosts will choose to pass the fee on and some will not and that depends on how much margin they have, but it also depends on various things with the various hosts. There are Miva specialty hosts who all they do is Miva Merchant hosting and who are really known for very high quality, high touch Miva Merchant hosting. I would bet that those hosts would all pass the fee on because their customers will be happy to pay it.”
“They’re getting a very high quality experience. There are other hosts who have been more in the gym membership game, so to speak, where they’ve tried to sell as many clients as they can and they don’t really care if anyone uses the product. Well, those hosts may choose to just absorb the cost to not bother their client base.”
Murdock: You say there are sizeable, tangible benefits to merchants with this new model. Could you describe those to us?
Carroll: “There are several very positive changes that this change is going to mean to stores. The first one is that historically, companies like ours or product companies essentially try and bundle a bunch of features together, try and entice their clients into a new upgrade and then shift onto a new product and that’s how they get their ongoing revenue. Well, our product is a mission critical product and that is a very, very bad model for us to pursue because it’s disruptive. We are in the critical path of people’s lifeblood, the revenue that they generate from their stores.”
“So, instead of building a new house every couple of years that we try and get our clients to move out of their old ones into the new ones, we’ll instead be producing a steady stream of upgrades. So, brick by brick we will be adding features in a non-disruptive way to our stores so that the technology, the underlying technology. that they are using can improve without major disruptions. So, to me as a storeowner, that is a huge part of the relationship going forward that we have with our clients. It really started early on in our purchase of the company when we released version 5.5.”
Wilson: “What Russ is really saying is there’s not going to be a Miva Merchant 6, at least not on our roadmap. Miva Merchant 5.5 is both a version number, but it’s also the brand. We learned a lot when we had tens of thousands of active merchants on Miva Merchant 4 and we really built that platform as far as it could go and we had to start from the ground up with Miva Merchant 5. There’s still tens of thousands of active Miva Merchant 4 stores out there. This new architecture is crafted — it’s not even new anymore, but the architecture of our platform now is crafted in such a way that we can keep adding on to it, as Russ said, without having to go through any insurmountable updates or difficult updates. The other thing that’s big for merchants here is that July 1, 2010 is a more important date for most merchants than they realize because Visa has mandated PA-DSS requirements for shopping cart vendors as of that date.”
Murdock: Tell us what that is.
Wilson: “Sure. PA-DSS stands for Payment Application Digital Security Standards, and what it means is Visa has a set of rules that they believe that any software or device that accepts credits has to play by. It involves how you review your code and have you taken a class on what’s security and do you have proper firewall set up, stuff that your average merchant never really gets involved with, but at the end of the day what it really requires is it requires those of us in the software world to follow these standards in order to keep providing software that can accept Visa and MasterCard going forward.”
“There are a number of issues here. For commercial companies like Miva Merchant, we had to make a decision about what to do with Miva Merchant 4. Do we certify that platform or do we try to encourage people to go to 5 or 5.5? One of the other things we’re accomplishing here is we decided to create a Miva Merchant 4.25 that will be PA-DSS compliant for Visa standards. So, for someone who is on Miva Merchant 4 and they have a highly customized store, they have modules that don’t work on the 5 platform and, you know, the old adage of it it’s not broke, don’t fix it. Those customers, instead of having to jump all the way to 5, as long as their host is on this program, will be able to get 4.25 for free as an upgrade and then at any point in the future if they want to upgrade to 5.x to 5.5, there are no future upgrade fees for them. Any hosts who are on this platform, those costs are all built into the monthly maintenance fee.”
Murdock: Russ referred earlier to ongoing improvements to your platform. How will those improvements get to the merchant?
Wilson: “So, in the entire Miva Merchant 5 product line, but specifically in 5.5, when you log into your admin of your store, there’s a box there that tells you if there’s any updates available. If you click on that box, it tells you what the updates are and asks if you want to install them. It’s not all that different than what we’ve all gotten used to either via Windows or Mac update where once a month or once a quarter there are updates available for your computer and you can install them. It works on a similar concept. So, updates are pushed out to our stores and they can see what the updates are and they can install them. Once they are installed though, the very modular architecture of our product means that that feature is turned off until you go turn it on.”
“So, let’s say we come out with a new digital downloads module that we push into the core software. Well, if someone’s already using digital downloads thru a third party module, it doesn’t impact that at all. We don’t break what other people have already have going, we just now have added it to the core software for people who want to enable it going forward.”
Murdock: You’re shifting to something approaching software as a service model. Why do you need hosting companies now?
Wilson: “I think you could make a very strong argument about our product, that the single greatest thing we’ve ever done is not treat all stores like they’re the same and give people very powerful tools that give them maximum flexibility. I think having a distributed platform falls tightly under that umbrella. So, there are a few things. One is the Conficker virus, for example. If it decides to unleash a denial of service attack on Yahoo!, Yahoo! merchants can be impacted. If the Conficker virus decided to attack someone’s Miva store, only that one Miva store would ever be impacted. So, getting away from a distributed model I think would be a dangerous thing for a merchant because right now one of the huge benefits of ours, or any product that they control, is that there’s no single point of failure in that sense.”
“Also, different hosts specialize in different things and we’ve seen that all along. We have a host who specializes in the very sensitive, very high touch and it’s great service. We have some hosts who specialize in doing merchant of record end-to-end for their customers. It’s always been the case that we’ve never been good at guessing all the interesting permutations that are going to come out of our client base. So, regardless of whether or not we may suddenly offer a hosted version of Miva Merchant, I can’t imagine us limiting its distribution.”
Murdock: Critics of Miva Merchant might say something like this. They might say that you’ve sold cheap licenses in the past to hosting companies in such a way that not only is that a one-time, non-recurring revenue for you, but you don’t have a direct relationship with your customers; it’s the hosts that have that relationship. That’s number one. Number two, those critics might say that the software requires the use of third party modules, but frequently those modules don’t necessarily communicate with each other or they don’t work with all versions of Miva. Lastly, critics say that the software itself is complicated so that the average merchant can’t really make changes to it without hiring a developer. So, those are three things there, cheap licenses, modules that conflict sometimes, and the necessity of a developer. Are those criticisms fair?
Wilson: “I understand how those criticisms exist, but let’s kind of work through them one at a time. It would be interesting to know who the critics were in this particular case. I know we’re speaking kind of in theory.”
Wilson: “If the criticism is coming from a competitor of ours, well, that’s not surprising. A competitor would specifically focus and try to harp on those things to bring people over to their platform. But at the other side, depending on which competitor was talking about any one of those three items, you know, some of our biggest competition in the market is from open source products, which are free by their very nature. So, I don’t think licensing cost created an undue market. The broken licensing model that we have struggled with is something that really bore out of the original dotcom boom. We were competing back 10 years ago with people who had hundreds of million dollars in venture financing and the thought of them having to make a profit ever was not on their radar. So we really responded to that market and our broken license model stems out of not adjusting to new market realities after the dotcom crash in 2001. By the time the current owners, Russ and myself included, bought the company back in 2007, the business had some other issues that needed to be addressed first. We needed to take our tech support to the best in the business. We needed to fix bugs. We needed to improve our products. We needed to rebuild the relationships with hosts and developers. We did all these things.”
“As far as modules go, there are two sides to this. There are modules that were widely distributed for version 4 and do not work in version 5 and 5.5, that is true. But its just like if older versions of Microsoft Office were run on Vista today. That’s a pretty standard part of the software world and we’re actually addressing it now long-term by our switch, by the fact that we’ve announced we’re going to maintain this platform from both the technology and module standpoint for the unending future at this point. So, while there is an issue that people could say, “Hey, I built this entire store in 4 and I bought $1,000 for the modules and now I’ve got to buy them again,” that’s a legitimate critique. But I would also say that when you buy a thing, there is a shelf life on them. If I built my house in 1995, at some point I have to redecorate and rebuild my house, and that is true in our world as well. If you equate it to a physical store, real storeowners have to redecorate and update their façade probably far more often than we require people to update their modules.”
“As far as most merchants being unable to make change without using a developer that I would define as to what changes you’re talking about. In terms of adding a category or adding some products or changing pricing, that’s just patently untrue. The day-to-day management of a store through our administrative interface is very, very easy. Sure, in older versions, when we were a less mature platform, it was a little more cumbersome, but with 5.5, it’s incredibly simple and straightforward with a heavy focus in the philosophy of how we built it on user interface and user interface design. The other side of that, it was actually building a professional quality store.”
Carroll: “You know, in a small business or a medium-sized business, you wouldn’t expect the person who owned or operated the store to know a Dreamweaver, for example.”
Wilson: “Or Photoshop.”
Carroll: “Yeah. These are professional tools. Ours is a professional tool that is simple enough that a lot of nonprofessionals can use it. However, many or most of our stores are industrial grades, so to speak. They are professional stores that people make their living off of and as a result, it’s natural to have either on-staff or contract people to do things like your visual look and feel as well as deployment of a store’s complexes, the ones that we see routinely in our communities.”
Murdock: That makes sense.
Wilson: “The last thing I want to add is we’ve always had an interesting philosophy here at Miva Merchant that was somewhat at odds with competitors we saw in the marketplace, which is we’ve always firmly believed no two stores are alike. We’ve never pretended to know every possible permutation or use of our software. We do have a module store, so we get to see what modules people are buying. It gives us incredible intelligence as to what’s going on out there. The vast majority of those modules are bought by well less than 5 or 10 percent of our user base as opposed to a significant large percentage and I think it’s much more important for us structurally to focus on pushing the state-of-the-art upgrades forward in ways that can help everybody. For example, we have an upcoming release this summer that will add payment-processing functions directly into the admin for 5.5. So, if you get a phone order, you can take that order without having to walk through your own website, which would allow it to be faster if you know all your own SKUs.”
Murdock: How many modules are there?
Wilson: “In total, there is about 400, but actively sold there’s a top 20 list that once you get over the top 20, it falls off the cliff.”
Murdock: How many merchants use Miva these days?
Wilson: “It’s approximately 50,000. It’s a hard number for us to gauge exactly, but we have a license check-in mechanism that’s helps us count the number of users. We have a reason to believe that there are about 50,000 active stores out there.”
Murdock: Of those 50,000, how many do you directly communicate with in the course of the year?
Wilson: “If you were talking in any capacity, I would say essentially 100 percent of them. There are really three or four ways we communicate. The most broadly deployed way is that we put messages into the admin. So, when they log into their store, there are a couple different message centers. There’s a little headline message center at the top and there are two more detailed messages in the middle of the login page. Now, granted, people can choose to not read it, but we have at least put the headlines in front of them. On top of that, we probably send out between five and ten emails a month to a subset our customer base. I think it is about 28,000 to 29,000 people that we email to. In addition, we have a monthly newsletter that provides some in-depth information and then we have our community forums. For version 4, there’s something similar. We have a message center, but there’s also an old module that was out there that we control called Launch Pad where we can put messaging into their admins that way.”
Murdock: I realize you’re privately held, but can you tell us approximate gross revenue in 2008 and can you tell us if the company was profitable?
Carroll: “This year, in 2009, we’ll be in the $3 to $5 million range in terms of top line sales. That’s significant growth from last year, but I would not focus this in terms of our profitability and what we’ve done. When we bought the company, we knew we had some remediation to do. My focus has not been on bottom line during the last 18 months that we have been working here. It has been on taking advantage of opportunities presented to us to improve our company and product and put it upright again. For example, Jon Burchmore, who was the chief architect of the product, when he became available to us, that was at a great expense. We didn’t hesitate to bring Jon back as our chief technical officer because of the benefit that he would provide to our customers.”
Wilson: “Jon left Miva originally in 2005 when the entire original senior management team left and he was working at a different company when we bought the company back in 2007. We had maintained a friendship with Jon, but he had been otherwise predisposed until six months ago.”
Carroll: “Let me give you another example. When we bought the company, tech support had been shifted to an India-based call center. There was about 20+ Indian engineers that were handling support for the company and it was really hurting the company. It was not a model that was working at all if you talk to clients that were being serviced by it. Within a week of our ownership, we had restarted the internal support from previous Miva engineers that came back to the company and that was expensive. Rebuilding that cost money. So, we’ve done an awful lot of rebuilding and remediation, which has been my main focus. It hasn’t been on bottom line profits at all. We will always be working on improving our business, but we are through the expensive patchwork that was really required when we bought this firm. So, again, the last piece of the equation now is making sure that we’re a financially viable company and we’ve earned it now. I couldn’t have stood in front of this community August of 2007 and said, “We need your help,” because the company frankly didn’t deserve it at that point. I really believe that we have demonstrated that we are trustworthy with the resources that we’re now asking for.”
Murdock: What has been the response from the hosting community regarding the change you are announcing today?
Wilson: “The hosting community response has been interesting. I would say pretty much universally they all understand what we’re doing. Any time you unleash a business model change on a series of partners, the net impact is that it’s going to cost them more money on a monthly basis. That’s a lot of work and a big change. Probably the most common negative feedback is they are fine with it, they just wanted more time to do it and our perspective is that all of the time in the world really would have still have a hard wall. There would have still been people buying the one-time licenses up until that point. So, therefore, we did it quick. We made the announcement. We announced at the conference this year the end of February that it was coming, we got the details out on April 1st and then made the switch May 1st. While there are some short-term pain in there for us and for the hosts to get through this, I think the faster we can get back on to having a successful business model all around, the sooner all these benefits that the merchants are going to get will start playing into the hand there.”
Murdock: Any feedback from merchants yet?
Wilson: “The merchant feedback has been overwhelmingly positive. You have two different perspectives here. From a merchant perspective, now, I will grant you we only talk to merchants who have “real businesses,” but for a merchant, I don’t care if they’re doing $10,000 a year or $20 million a year in online sales, for someone who is in those shoes to find out that for a small fee in the neighborhood of $100 a year that they’re not only guaranteed that all of their payment gateways and shipping modules are going to keep working, but that they’re going to get constant improvements, they’re going to stay certified with Visa and MasterCard and all those other things. To them, it’s a real easy sell and going back to your earlier question, your kind of negative question so to speak, if we had a direct relationship with the merchants, I think this would have been an incredibly easy switchover. We would have articulated the change and we would have made the change directly to them.”
“It’s the host in the middle, the host benefits regardless if a person has a real store or not. As long as someone is paying the hosting bills, the host benefits and they don’t care one way or another if the person actually is generating a profit. So, the hosts have a slightly different problem that they have to solve and for the hosts that are working with us, we are going out of our way to identify real stores and only bill them for that.”
Murdock: Anything else on your mind today for our readers as it relates to Miva Merchant or the switch you’re announcing?
Carroll: “The most important thing I want our employees to focus on is taking care of our customers. That is the single most important thing to me. If you look at what we’re doing and what we have done over the last 18 months, you’ll see that that’s not just talk. That is how we approach this business. How do we best take care of our clients? For example on version 4, we could have just abandoned that community. I mean that practically was obsolete years ago, but we didn’t want to put our clients in a position where they either had a product that was going to break unannounced or put a hard wall up right now and potentially a difficult move just to have a PA-DSS certified platform. So, we said, “Okay, let’s bite the bullet, and for those that are having a tough time moving right now because of the economy, we’ll certify the platform and we’ll extend the life of the product.” Every part of my entrepreneurial bones tells me that the best way that we are going to succeed as a company is to do the very best we can to take care of our storeowners.”