Digital rights management provider Reciprocal is poised to take advantage as the e-book market begins to mature. Though the company began by writing copyright-protection code for the music industry, it soon realized that stability and assurance were what the publishing world needed, and the company changed its focus to application services and DRM.
Founded in 1996 as a spinoff of SoftBank, which still has the largest piece of the investment pie, Reciprocal has $80 million in venture-capital financing (investors include Microsoft and FirstData). According to John Schwarz, president and CEO, the company was one day away from an IPO last spring when the bottom fell out of the tech stock market; the offering was postponed indefinitely, while the company seeks another round of private financing.
The company has 160 employees in three offices: Company Headquarters in Buffalo, N.Y.; a publisher-relations office in New York City; and a tech center in Raleigh, NC. As of this writing, more than 90 clients have signed annual service contracts, Schwarz told PW. Last year, Reciprocal processed more than two million transactions, up from 400,000 in 1999. Of these, three-quarters were digital downloads of music; the remainder were book and periodical texts. Though there were fewer book-related transactions, the texts accounted for half of all revenues, because the average price for a text is $5—$10, while music downloads average $2 each. "In fact," Schwarz claimed, "one educational publisher has produced more revenue than all our music transactions combined." This year the company expects to increase to four million transactions.
The models for these transactions are evolving as well. Syndication of content and affinity programs (which link content to traditional and nontraditional Web retailers), still new ideas to most publishers, are becoming important parts of the business, along with more familiar models such as subscriptions and site licenses. Although some publishers are still looking to sell a single page or image, and several DRM companies offer transaction processing for items costing less than 25¢ apiece, most publishers and retailers find it vastly more convenient to sell in bigger chunks, for example, through a monthly subscription fee.
Said Schwarz, "Convenience, peace of mind for clients and trust also answer the question, 'Why should publishers buy Reciprocal's services, instead of building their own?' Publishers would rather just be sure the transactions happen flawlessly than to develop all the hardware, software and expertise."
The company has reinvested all its revenues and capital in secure, multiple-redundant server systems, Schwarz said, to reassure publishers of its reliability. Last fall, Reciprocal signed an agreement with Akamai, the Net infrastructure company, to provide worldwide distributed storage and delivery, without overburdening publishers' sites. Thus, the transactions are guaranteed not to break down, even with heavy volumes, and the code will remain as secure as systems can make it. Publishers can concentrate on devising market strategies for their properties, instead of worrying about building and maintaining a complex technical infrastructure.
