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Software.net aims for dual IPOs

The pioneering Internet software store has split into two companies, hoping it might end up with two, not just one, initial public offerings.

It's two IPOs in one.

Software.net, one of the pioneering Internet software stores, has split into two companies, hoping it might end up with two, not just one, initial public offerings.

Software.net runs its own software store, as well as ones for clients such as Netscape and Computer Currents Interactive. Its former parent, CyberSource, offers e-commerce services including credit card processing, fraud control, and export control, to other suppliers of digital goods.

Although the split was completed quietly at year's end, CyberSource and software.net don't plan to announce the change until a chief executive search is completed for software.net. Bill McKiernan, cofounder of both firms, then would become chairman of software.net and remain CEO of CyberSource. Of the two, software.net is likely to be the first to go public.

Software.net is perhaps the largest online software reseller, with 1997 revenues of about $17 million. The privately held company has said it expects 1998 revenues of $40 million to $60 million. Its recent three-year, $21 million deal to be the exclusive seller of downloadable software on America Online could push that figure even higher.

"We have two somewhat different businesses," said John Pettit, chief technology officer for both companies and cofounder of both firms with McKiernan. "CyberSource is an outsourcer, pure and simple. We take the pain out of doing business on the Net by providing back-office support."

CyberSource services include a fraud control to screen credit card purchases in real-time, a license clearinghouse, electronic data interchange (EDI), fulfillment (both online and shipping boxes), sales tax services, territory management, export control for software with strong encryption, and SmartCert, its easy-to-download offering for distributing software via the Net.

CyberSource positions itself as offering services not only for software sales, but eventually also for audio and video--its commerce engine, for example, is built into Real Network's commercial server software. Among the 200 customers that contract for e-commerce services are Playboy, Symantec, and Programmers Paradise. CyberSource also offers payment processing in 26 currencies.

CyberSource's customers include other Internet software storefronts. That's one reason for the split--to avoid suspicions that a competitor's data might be shared with software.net.

The two companies also have different revenue models.

"CyberSource's [strategy is to] invest in the equipment and make it up on transactions," Petitt said. "Software.net is a margin business."

In addition to running its own storefront, software.net now runs cobranded stores with Netscape (for non-Netscape software) and operates standalone stores for Qualcomm and others.

Investors in the two companies include Paul Allen's Vulcan Ventures, Global Retail Partners, and Unterberg Harris Capital Management.

Paul Allen is also an investor in CNET: The Computer Network.