Classmates.com 2003 Annual Report Download - page 34

operations and cash flows. We have experienced billing and support problems from time to time and may experience additional problems in the
future. The failure of our software vendors to provide software upgrades and technical support, the failure of the Portal, Remedy or internally
developed software to operate accurately, problems with our credit card processor or other billing and support vendors and any other failures or
errors in our billing and support systems could materially and adversely affect our business, financial position, results of operations and cash
flows.
We are dependent on third parties for technical support and customer service and our business may suffer if they are unable to
provide these services, cannot expand to meet our needs or terminate their relationships with us.
Our business and financial results depend, in part, on the availability and quality of our customer support services. We outsource a
majority of the live technical and billing support functions to ClientLogic Corporation pursuant to an agreement that terminates in June 2005.
As a result, we maintain only a small number of internal customer service personnel. We are not equipped to provide the necessary range of
customer service functions in the event that ClientLogic becomes unable or unwilling to offer these services to us. At times, users seeking live
customer support have experienced lengthy waiting periods to reach support personnel who are trained to provide the technical or billing
support they require. ClientLogic has also experienced outages in the past where they were unable to support our users. Maintaining desired
customer support levels may require significantly more support personnel than are currently available to us, or significantly greater expense
than we choose to incur. If ClientLogic does not provide us with quality services, or if our relationship with ClientLogic terminates and we are
unable to transition such services in-house or to a replacement vendor in an orderly,
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cost-effective and timely manner, our business, financial position, results of operations and cash flows would suffer. In addition, we prepay
significant amounts in advance to ClientLogic under our agreement with them, and any failure by them to perform the services for which we
have prepaid would negatively impact our business. We use technical support staff in India in part for supporting our customers via email. If
technical problems are encountered with communication to India, it may impair our ability to provide email support.
If our software or hardware contains errors, or if we encounter difficulties integrating our systems and technologies, our business
could be seriously harmed.
The software and hardware used to operate and provide our services are complex and may contain undetected errors or failures. We have
in the past encountered, and may in the future encounter, errors in the software or hardware used to operate our business and provide our
services. This has resulted in, and may in the future result in, a number of adverse consequences, which have included or may include:
• users being disconnected from our services or being unable to access our services;
• loss of data or revenue;
• injury to reputation; and
• diversion of development resources.
We have experienced some technical and customer support issues associated with our services and software releases. These issues have
resulted in users discontinuing their service and have adversely impacted our revenues. A number of our material technologies and systems,
including the software clients and ad-serving technologies for NetZero, Juno and BlueLight Internet, are based on different platforms. To the
extent we attempt to integrate these technologies and systems, we may experience a number of difficulties, errors, failures and unanticipated
costs. In addition, our business relies on third-party software including, without limitation, software licensed from Oracle for our internal
operations, software licensed from Portal and Remedy for billing and customer support, and software licensed from SlipStream Data Inc. for
our accelerated dial-up services. Any significant failure of this software could materially and adversely affect our business, financial position,
results of operations and cash flows. We cannot assure you that we will not experience significant problems in the future.
A security breach or inappropriate use of our network or services could expose us to claims.
The future success of our business will depend on the security of our network and, in part, on the security of the network infrastructures of
our third-party telecommunications service providers, providers of customer support services and other vendors. Unauthorized or inappropriate
access to, or use of, our network, computer systems and services could potentially jeopardize the security of confidential information, including
credit card information, of our users and of third parties. Third parties have in the past used our network, services and brand names to
perpetrate crimes, such as identity theft or credit card theft, and may do so in the future. Users or third parties may assert claims of liability
against us as a result of any failure by us to prevent these activities. Although we use security measures, which we believe to be industry
standard, we cannot assure you that the measures we take will be successfully implemented or will be effective in preventing these activities.
We also cannot assure you that the security measures of our third-party network providers, providers of customer and billing support services
or other vendors will be adequate. In addition to potential legal liability, these activities may adversely impact our reputation and may interfere
with our ability to provide our services, all of which could have a material adverse effect on our business, financial position, results of
operations and cash flows.