Prospectus Summary
PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read the following summary together with the more detailed information appearing in this prospectus, especially the “Risk Factors” section beginning on page 8 and our consolidated financial statements and related notes, before deciding whether to purchase shares of our common stock.As used in this prospectus, unless the context otherwise requires, references to “we,” “us,” “our” and “Demandware” refer to the consolidated operations of Demandware, Inc. and its consolidated subsidiaries taken as a whole.
Demandware, Inc.
Overview
Demandware is a leading provider of software-as-a-service e-commerce solutions that enable companies to easily design, implement and manage their own customized e-commerce sites, including websites, mobile applications and other digital storefronts. Our customers use our highly scalable and integrated Demandware Commerce platform to create a seamless brand experience for consumers across all digital touch points worldwide. By simplifying access to the complex e-commerce functionality required for an effective and engaging consumer experience, we enable our customers to more easily launch and manage multiple e-commerce sites, initiate marketing campaigns more quickly and improve e-commerce site traffic, all of which can lead to increased revenue.
Through our on-demand software-as-a-service, or SaaS, platform, our customers run the latest version of our software and have access to a steady stream of new and innovative e-commerce functionality as soon as it becomes available. By using our platform, our customers avoid the need for a large upfront investment in on-premise hardware infrastructure and in customized software that is difficult and expensive to implement, upgrade and maintain. They also avoid the limitations of generic vendor-created e-commerce solutions that typically do not offer the flexibility and functionality necessary for merchants and retailers to create, manage and control their own customized online brand presence. Through our network of data centers, we continually monitor the environment in which our customers’ e-commerce sites operate for performance, availability and accuracy of content delivery.
From March 31, 2008 to March 31, 2011, the number of customers using our Demandware Commerce platform increased from 16 to 75, a 67.4% compound annual growth rate, or CAGR, and the number of e-commerce sites operating on our platform increased from 39 to 237, an 82.5% CAGR. Our customers include multinational corporations, large retailers and branded consumer product manufacturers, such as Barneys New York, Burton, Columbia Sportswear, Crocs, House of Fraser, Jewelry Television, Jones Apparel Group, Lifetime Brands, L’Oreal and neckermann.de. We have structured our customer contracts to align our interests with those of our customers by participating in a share of our customers’ gross revenue processed on our platform. We derive our subscription revenue from fees paid to us by our customers for their access to our e-commerce solutions during the term of our subscription contracts, which is typically three years and ranges from one year to seven years.
We generated revenue of $7.5 million, $21.4 million and $36.7 million in 2008, 2009 and 2010, respectively. We generated revenue of $11.6 million in the quarter ended March 31, 2011, an increase of 60.1% from our revenue of $7.2 million in the quarter ended March 31, 2010.
The Market
We believe our total addressable market is at the center of three large and growing industries: retail, e-commerce and SaaS. According to Euromonitor, the global retail industry in 2010 was $11.6 trillion, of which only 2.7% was conducted online. The overall global retail industry grew at a 4.8% CAGR from 2005 to 2010, while the global e-commerce market grew at a 17.3% CAGR over the same period to reach $316.5 billion in 2010 and is expected to grow to $653.0 billion in 2015, demonstrating the significant service shift from offline to online retail during this period and the increasing importance of e-commerce within the retail industry. In addition, the adoption of SaaS solutions has grown significantly, and, according to Gartner, estimated worldwide total software revenue for SaaS delivery within the enterprise applications software markets is expected to grow at a CAGR of 16.3% from $10.0 billion in 2010 to $21.3 billion in 2015.
While the e-commerce market is expanding, it is also becoming more complex, particularly for global multi-channel retailers and brands trying to reach consumers with consistent storefronts across multiple channels, geographies and digital touchpoints. Several trends are driving this increased complexity:
Traditionally, there have been two common solutions for the creation and management of an e-commerce business: on-premise enterprise software, which is built, customized and maintained by the merchant itself; and outsourcing, where the entire e-commerce platform for a retailer or brand is outsourced to a third-party provider. While traditional on-premise enterprise software solutions offer the benefits of in-house control and differentiation through custom development, they typically have relatively high upfront costs and are difficult to maintain, upgrade and scale. While outsourcing an e-commerce site offers the benefits of minimal required resources for internal infrastructure management and ongoing support, it typically offers limited customization and flexibility and may not tightly integrate with the customer’s other business processes.
A SaaS delivery model can combine the lower costs, speed of implementation and other operational benefits of outsourcing with the functionality, flexibility and customization capabilities of on-premise enterprise software solutions. As a result, the adoption of SaaS solutions across industries has grown significantly. We believe there is a significant opportunity in the e-commerce market for a company that can offer a comprehensive SaaS solution designed to address the increasingly complex requirements of retailers and brands seeking to attract and satisfy consumers in the digital world.
The Demandware Solution
Demandware Commerce combines enterprise-class e-commerce capabilities and functionality with a SaaS multi-tenant delivery model. We believe that our on-demand solutions provide the following benefits to our customers:
Our Strategy
Our mission is to extend our position as a leading provider of SaaS e-commerce solutions and become the global backbone for digital commerce between retailers or branded consumer product manufacturers and their consumers. Key elements of our strategy include:
Retaining and Expanding Business with Existing Customers
Growing Our Customer Base
Targeting New Markets
Continuing to Innovate and Add New Functionality to Our Platform
Risks That We Face
You should consider carefully the risks described under the “Risk Factors” section beginning on page 8 and elsewhere in this prospectus. These risks could materially and adversely impact our business, financial condition, operating results and cash flow, which could cause the trading price of our common stock to decline and could result in a partial or total loss of your investment.
Our Corporate Information
We were incorporated in Delaware in February 2004 as SSE Holdings, Inc., and changed our name to Demandware, Inc. in August 2004. Our executive offices are located at 5 Wall Street, Burlington, Massachusetts 01803 and our telephone number is (888) 552-9216. Our website address is www.demandware.com. The information on, or that can be accessed through, our website does not constitute part of this prospectus, and you should not rely on any such information in making the decision whether to purchase our common stock.