Miva Merchant President on Acquisitions, SaaS Moves

Miva Merchant launched its shopping cart in the late 1990s and the company’s evolution continues. An independent investor group acquired Miva Merchant in 2007, and executives there have since been evolving that product to a hosted platform, enhancing the company’s revenue, and generally ensuring its long-term survival. We recently spoke about Miva’s changes with Rick Wilson, the company’s president and chief operating officer.

Practical eCommerce: You’ve just acquired Hostasaurus, one of Miva Merchant’s largest licensed hosting providers. Why did you do that?

Rick Wilson “The first reason is we see a steady change in the marketplace to SaaS-based ecommerce for your typical ecommerce provider, especially anyone doing below $10 million a year in sales.

“Secondly, Hostasaurus was our hosting partner. Over the last 18 months, they had been a minority owner in our hosting business. They ran the network architecture and managed the servers for us and we did everything else, and it worked exceptionally well for both sides. A little after our one year anniversary of being business partners, I said, ‘This has been going very well. I believe it’s time for us to get married.’ It took about four months from that conversation to get the deal closed.

“The overriding reason is we can provide the best possible customer service experience, the best possible hosting experience, and in general, a best-of-breed experience to our customers this way. We feel that this is a huge move in addressing what could be a challenging issue, depending on the quality of host you’re on.”

PEC: Is Miva going to buy other hosts?

Wilson “We actually purchased Hostasaurus outright and merged the companies, and now they are a wholly owned subsidiary. We are not looking to acquire other hosts in that sense. However, we do believe we will announce other client acquisitions very, very shortly where other hosts in the Miva space have decided that they would prefer to sell us their Miva client base. We do anticipate having a fair number of those over the next six to twelve months.”

PEC: What will the future hold for hosting companies that have been built on acquiring Miva Merchant licenses?

Wilson “That really depends on their business model. We have roughly 200 active hosting partners on our recurring revenue plan and there’s a wide variety, [from large to small]. I’m not sure that it would impact mass-market hosts much at all because their clients are coming to them due to their advertising and marketing campaigns. Let’s take Earthlink as an example; I’m certainly not going to out-market Earthlink any time soon.

“Then you have another whole set of boutique hosts, which from a sheer numbers standpoint is our larger set. By boutique I mean they’re actually doing a full service offering — including hosting and building the sites — really a full service ecommerce agency, if you will. They’ve got a decision to make. They may want to decide to bring those clients over to become an affiliate of ours, since their primary business is services, and let us take care of the expensive hosting. Then they will be covered by our PCI certification that we’re currently undertaking in the hosting site.

“Then there are a handful of hosts who effectively were middlemen, where their business model wasn’t professional services and it wasn’t a value-added business model. They were really filling a gap in the market that we had left unfilled for far too long. It’s ultimately up to them if they want to compete with us, and they’re certainly welcome to.

“We’re not eliminating our hosting channel. However, as a businessman, I’m not entirely sure how successful of a model that is. I would argue that, if you’re playing the role of middleman anywhere, it can be a difficult business to maintain over a long term, and that’s also true at Miva.”

PEC: How has the business been going since 2007 when you and Russ Carroll and your team acquired Miva?

Wilson “It’s going very, very well. 2010 was far and away the most successful year in the history of this company by virtually any measure. We were very profitable. Our business was very stable.

“A lot of the changes that we had started sowing in 2008 and 2009 have really come to harvest or fruition, so 2010 was a fantastic year for us and the business has been growing all around. It took about 22 months from where we had taken over to really turn the business around and get to a profitable place, and the first 12 months we made a couple wrong turns. It took some learning, but all in all it’s going very well.

“As of today we have about 45 employees here. We don’t give exact revenue numbers, but they are more than double the revenue numbers we referenced to you last year [“3 to $5 million,” for 2009.] So, we are crossing into the world of eight digits [$10 million] and growing rapidly.”

PEC: How many customers do you have on your platform?

Wilson “This is tricky because, from the marketing game, we like to talk about our 300,000 licenses sold and we suspect there are somewhere between 50,000 and 60,000 stores out there in some form or another. But, when it comes to what we have paying us money every month, there are around 20,000 stores.”

PEC: Why should a merchant pick the Miva Merchant platform?

Wilson “There are something like 600 hosted ecommerce platforms out there and there are about four or five we take very, very seriously. But around 550 of them have a very small user base. So, we try to focus on the ones that we think are making a difference or have something to offer. Sometimes that is great marketing, sometimes it’s great product, sometimes it’s all of the above, and we look at that.

“The number one reason why someone would choose our platform is security. We have been doing this longer and processed more dollars and transactions than just about anyone in the market. We estimate somewhere between $5 and $10 billion a year in annual sales from our merchant base currently. Over the life of the company, there’s been about $100 billion in sales on the Miva Merchant platform.

“Our customers go to bed at night and don’t worry about their platforms. If you follow the Twitter feeds on some of our competitors you’ll notice that a lot of the SaaS platforms, either on a drive to save money or in poor architecture, have things like downtime. Those things just don’t impact us, and there are a number of reasons for that.

“One is we have an excellent hosting architecture. Two is every store on our world is a silo. So, we have what we consider our best-of-both-worlds platform where we can push out updates in a SaaS-like manner and we can update someone’s store without breaking it, including all their customizations.

“If some hackers launch a security attack at your store, it’s not going to impact our store. I’m not going to have a single point of failure that brings down all my stores, unlike some of our very big competitors in the SaaS base that have recently suffered multiple multi-hour outages. For instance, Yahoo! was down for roughly six hours on the Saturday after Thanksgiving, and there have been many more since then amongst our competitors. That is not a problem they’re going to see here. Our platform is bullet-proof.”

PEC: You mentioned competitors. What do you think of Magento Go, the new SaaS offering from that company?

Wilson “We take Magento very seriously. They’ve done a very impressive thing. As a company Magento stepped into a collapsing open source ecommerce market around osCommerce, and to some extent Zen Cart. Four or five years ago they were the dominant open source players, and now they hardly exist as far as the lexicon goes. You still see the stores, but Magento almost jumped into a collapsing star in the open source ecommerce world and single-handedly re-inflated around itself. If nothing else, Roy Rubin and the Magento team deserve an incredible amount of praise for that because they have provided a lifeline for all those merchants, and it’s hard to do.

“As far as Magento Go, I don’t know much about it yet because it actually just went live last week and so I haven’t personally had a chance to play with it. The first thing I thought about when I saw they were live was that it was both a logical move and something that strikes me that they’re playing against their strengths, open source and PHP. There’s a huge world of PHP developers out there who are willing to give Magento a try because they can get in there and play with the source code and they understand how it thinks. Magento Go, from the little I know, doesn’t really play to that. It’s a multi-tenant SaaS iteration.

“It’s actually a fourth iteration of their platform. There is the free version, the professional version for $4,000 a year, the enterprise version for around $15,000 a year, and now you have this fourth platform that doesn’t have access to the underlying code like the PHP coders have. So, I don’t know.

“We’re going to watch Magento Go very closely. I am 100 percent sure they will get a huge number of people playing with it because of the free trial they’re offering. It will be interesting to see if they can actually parlay their success from the open source PHP world into this. It may be harder than they suspect, regardless of having access to enormous resources.”

PEC: In the future, will there be any Miva Merchant platforms that aren’t on your SaaS platform?

Wilson “The short answer is yes. If someone wants to put Miva Merchant on Rackspace or to put it in their own data center, we’re not going to stop them.

“Go forward two years and you may see that 80 to 85 percent of our customers are hosted with us, but we do not plan on actually splitting the platform like I was talking about with Magento. If you host with us and outgrow us for some reason, or you become a public company and you need to control your data center, there’s going to be a path for you that doesn’t involve rebuilding your store. So, we do not foresee a day when it’s pure SaaS.”

PEC: Many observers have said that your company’s changes to the Miva Merchant platform were painful, but necessary, decisions. What do you say to that?

Wilson “We would agree. Some of the decisions were very obvious. Some decisions maybe we should have come to sooner, such as the hosting decision.

“For better or worse, we actually made a valiant attempt to preserve the third party hosting model to the best of our ability and not compete with those hosts. Eventually you realize you’re the only one running that race and everyone else is running the SaaS-based race, and it’s hard to ignore the market. So, we would generally agree that they were very difficult decisions and they were long overdue.

“We had a huge reliance on third party developers and we’ve made great strides at reducing that reliance. However, that doesn’t, from our perspective, mean that third party developers and integrations are going away. In fact, when it comes to a lot of the products out there, we see a lot of exciting integrations. But, if someone used to be forced to buy a third party module to make our product work correctly, those days are numbered.”