8x8 2009 Annual Report Download - page 26

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We have experienced losses due to subscriber fraud and theft of service.
Subscribers have obtained access to the 8x8 service without paying for monthly service and international toll calls by
unlawfully using our authorization codes or by submitting fraudulent credit card information. To date, such losses from
unauthorized credit card transactions and theft of service have not been significant. We have implemented anti-fraud
procedures in order to control losses relating to these practices, but these procedures may not be adequate to effectively limit
all of our exposure in the future from fraud. If our procedures are not effective, consumer fraud and theft of service could
significantly decrease our revenue and have a material adverse effect on our business, financial condition and operating results.
A higher rate of customer terminations would negatively affect our business by reducing our revenue or requiring us to
spend more money to grow our customer base.
Our rate of customer terminations, or average monthly customer churn, was 3.6% for the fiscal year ended March 31, 2009.
Our churn rate could increase in the future if customers are not satisfied with our service. Other factors, including increased
competition from other VoIP providers, alternative technologies, and adverse business conditions also influence our churn rate.
Because of churn, we have to acquire new customers on an ongoing basis just to maintain our existing level of customers and
revenues. As a result, marketing expenditures are an ongoing requirement of our business. If our churn rate increases, we will
have to acquire even more new customers in order to maintain our existing revenues. We incur significant costs to acquire new
customers, and those costs are an important factor in determining our net profitability. Therefore, if we are unsuccessful in
retaining customers or are required to spend significant amounts to acquire new customers beyond those budgeted, our revenue
could decrease and our net income could decrease.
Our success also depends on third parties in our distribution channels.
We currently sell our products directly to consumers and through third party resellers and retailers, such as Office Depot.
Agreements with distribution partners generally provide for one-time or 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 operating results.
Our future operating results may vary substantially from period to period and may be difficult to predict.
Our historical operating results have fluctuated significantly and will likely continue to fluctuate in the future, and a decline in
our operating results could cause our stock price to fall. On an annual and a quarterly basis, there are a number of factors that
may affect our operating results, many of which are outside our control. These include, but are not limited to:
• changes in market demand;
• the timing of customer orders;
• customer cancellations;
• competitive market conditions;
• lengthy sales cycles and/or regulatory approval cycles;
• new product introductions by us or our competitors;
• market acceptance of new or existing products;
• the cost and availability of components;
• the mix of our customer base and sales channels;
• the mix of products sold;