Classmates.com 2003 Annual Report Download - page 31

Our future financial results may suffer if we are unable to maintain or grow our accelerator dial-up subscriber base, or if we are
unable to maintain the pricing for these services.
At December 31, 2003, subscribers to our accelerated dial-up services comprised approximately 22% of our pay subscriber base. The
percentage of our marketing resources dedicated to promoting these services has continued to increase. These services have been instrumental
in increasing our average revenue per subscriber and decreasing our cost of billable services as a percentage of billable services revenues. Since
we commenced offering these services in early 2003, competition for users of these services has increased and we expect competition to
continue to increase. Also, these services are relatively new and there can be no assurance that consumers will continue to find these services
attractive at current price levels, if at all. We have experienced a higher level of churn with respect to these services than we have experienced
with our standard pay services and this trend could continue or increase. In addition, because the provision of these services is technologically
complex and we license portions of the underlying technology for these services from a single source, any technological problems or problems
with our vendor could adversely impact our ability to effectively provide these services to our users. There can be no assurance that we will be
able to continue to attract subscribers to these services, that we will not continue to experience higher churn with respect to these services or
that we will be successful in maintaining the pricing for these services.
We may not be able to grow or retain our user base if we are unsuccessful in maintaining our brands and marketing our services.
If we are unsuccessful in marketing our brands, we may not be able to grow or retain our user base. Promotion of our brands will depend
on, among other things, our success in providing high-quality Internet services. If our users and advertisers do not perceive our existing
services as high quality, or if we introduce new services or enter into new business ventures that are not favorably received by our users and
advertisers, then we may be unsuccessful in building brand recognition and brand loyalty in the marketplace.
Our marketing activities may be insufficient to increase or maintain the size of our pay subscriber base and may be insufficient to develop
or maintain awareness of our services. We could be required to incur significant marketing expenses to maintain or grow our user base or sell
additional services to our user base, potentially resulting in increased costs without a commensurate increase in revenues. If our marketing
campaigns fail to generate sufficient new users or sell additional services to our users, or if capital limitations or other factors prevent us from
implementing marketing campaigns, or if marketing campaigns undertaken by competitors cause attrition in our user base, our business,
financial position, results of operations and cash flows could be adversely affected.
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We may not successfully develop and market new products in a timely or cost-effective manner; consumers or advertisers may not
accept our new products, including our accelerated dial-up services.
We may not be able to compete effectively if we are not able to adapt to changes in technology and industry standards or develop and
introduce new and enhanced products and services. New products may be dependent on our obtaining needed technology or services from third
parties. We also believe that our ability to compete successfully will depend upon the continued compatibility of our services with products
offered by various vendors.
We have expended, and may in the future expend, significant resources developing and implementing new products. Product development
involves a number of uncertainties, including unanticipated delays and expenses. New products may have technological problems or may not
be accepted by our users or advertisers. Several of the new products we have offered, or intend to offer, are intended to generate additional
revenues for us. We cannot assure you that such products will provide us with any meaningful revenue.
Our accelerated dial-up services combine our standard dial-up services with compression, caching and other technologies that reduce the
average time for certain Web pages to download to users' computers when compared to standard dial-up services. We have devoted significant
resources to the development of these services, including the integration of technologies licensed from a third party with our technologies, and
we intend to continue to devote significant resources to the development, marketing and provisioning of these services. While these services
result in faster Web surfing over a dial-up connection, these services do not provide the same benefits as broadband services, such as a
continuous connection or faster downloads of music and video files. In addition, the technologies underlying the services are complex and we
have encountered, and may in the future continue to encounter, issues with the operation, provisioning or the performance of these services.
Problems with these services could adversely affect our business in a number of ways, including increased account cancellations and refunds.
We cannot assure you that we will continue to be successful in delivering these services, or that the quality of these services will continue to be
competitive.
Seasonal trends in Internet usage and advertising sales may cause fluctuations in our results of operations.
Seasonal trends could affect revenues, operating expenses and the rate at which users sign up for our services. Decreased usage during
seasonal periods could decrease advertising inventory and adversely impact advertising revenue. While increased usage due to seasonality may
positively impact advertising revenue, it would also result in increased telecommunications costs for such period. We have experienced higher
usage in the March quarter and this trend may continue. We also have experienced a lower rate of people signing up for our services during the
spring and summer months when compared to the fall and winter months, and this trend may continue. Because our operating history is limited,