8x8 2005 Annual Report Download - page 31

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Additionally, we may also be required to collaborate with third parties to develop our products and may not be able
to do so on a timely and cost-effective basis, if at all. We have in the past experienced delays in the development of
new products and the enhancement of existing products, and such delays will likely occur in the future. If we are
unable, due to resource constraints or technological or other reasons, to develop and introduce new or enhanced
products in a timely manner, if such new or enhanced products do not achieve sufficient market acceptance, or if
such new product introductions decrease demand for existing products, our operating results would decline and our
business would not grow.
Decreasing telecommunications rates may diminish or eliminate our competitive pricing advantage.
Decreasing telecommunications rates may diminish or eliminate the competitive pricing advantage of our services.
International and domestic telecommunications rates have decreased significantly over the last few years in most of
the markets in which we operate, and we anticipate that rates will continue to be reduced in all of the markets in
which we do business or expect to do business. Users who select our services to take advantage of the current
pricing differential between traditional telecommunications rates and our rates may switch to traditional
telecommunications carriers as such pricing differentials diminish or disappear, and we will be unable to use such
pricing differentials to attract new customers in the future. In addition, our ability to market our services to other
service providers depends upon the existence of spreads between the rates offered by us and the rates offered by
traditional telecommunications carriers, as well as a spread between the retail and wholesale rates charged by the
carriers from which we obtain wholesale services. Continued rate decreases will require us to lower our rates to
remain competitive and will reduce or possibly eliminate any gross profit from our services. If telecommunications
rates continue to decline, we may lose subscribers for our services.
We are a small company with limited resources compared to some of our current and potential competitors
and we may not be able to compete effectively and increase market share.
Most of our current and potential competitors have longer operating histories, significantly greater resources and
name recognition and a larger base of customers than we have. As a result, these competitors may have greater
credibility with our existing and potential customers. They also may be able to adopt more aggressive pricing
policies and devote greater resources to the development, promotion and sale of their products than we can to ours.
Our competitors may also offer bundled service arrangements offering a more complete product despite the
technical merits or advantages of our products. These competitors include traditional telephone service providers,
such as AT&T, SBC and Verizon, cable television companies, such as Cablevision, Cox and Time Warner, and
other VoIP service providers such as Skype and Vonage. Competition could decrease our prices, reduce our sales,
lower our gross profits or decrease our market share.
Our success depends on third parties in our distribution channels.
We currently sell our products direct to consumers and through resellers, and are focusing efforts on increasing our
distribution channels. Our future revenue growth will depend in large part on sales of our products through reseller
and other distribution relationships. We may not be successful in developing additional distribution relationships.
Agreements with distribution partners generally provide for one-time and recurring commissions based on our list
prices, and do not require minimum purchases or restrict development or distribution of competitive products.
Therefore, entities that distribute our products may compete with us. In addition, distributors and resellers may not
dedicate sufficient resources or give sufficient priority to selling our products. Our failure to develop new
distribution channels, the loss of a distribution relationship or a decline in the efforts of a material reseller or
distributor could have a material adverse effect on our business, financial condition or results of operations.
We need to retain key personnel to support our products and ongoing operations.
The development and marketing of our VoIP products will continue to place a significant strain on our limited
personnel, management, and other resources. Our future success depends upon the continued services of our
executive officers and other key employees who have critical industry experience and relationships that we rely on
to implement our business plan. None of our officers or key employees are bound by employment agreements for
any specific term. The loss of the services of any of our officers or key employees could delay the development and
introduction of, and negatively impact our ability to sell our products which could adversely affect our financial
results and impair our growth. We currently do not maintain key person life insurance policies on any of our
employees.