Classmates.com 2003 Annual Report Download - page 8

numerous patent applications relating to a variety of business methods and technologies. We generally enter into confidentiality or license
agreements with our employees, consultants and corporate partners, and generally control access to, and distribution of, our technologies,
documentation and other proprietary information.
Competition
Competition for Subscribers
Competition for subscribers of Internet access and email services is intense. We compete with established online service and content
providers such as AOL and MSN; independent national ISPs such as EarthLink; companies combining their resources to offer Internet services
in conjunction with other services such as Yahoo! and SBC Internet Services, and AOL and Walmart.com; national communications
companies and local exchange carriers such as AT&T WorldNet, Qwest Communications International, Inc. and Verizon; cable companies
such as Comcast Corporation, Cox Communications, Inc., Charter Communications, Inc. and Adelphia Communications Corporation; local
telephone companies; and regional and local commercial ISPs. We also compete against companies that offer services or products such as
personal computers, bundled with, or as promotions for, Internet access services. We believe that the primary competitive factors determining
success in the market for Internet access users include price, speed, a reputation for reliability of service, effective customer support, easy to
use and reliable software, geographic coverage and scope of services. Other important factors include the timing and introduction of new
products and services as well as general economic trends. While we believe that we compete favorably with respect to price and most of these
factors, many of our competitors have an advantage over us with respect to specific factors, particularly technical support and scope of services.
Our monthly pricing for our standard dial-up services is currently lower than the monthly pricing of the premium dial-up services of most
of our major competitors. Certain significant competitors,
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however, are engaging in more aggressive pricing of their dial-up services either under their primary brands or alternative brands, such as
AOL's CompuServe and Netscape brands and EarthLink's PeoplePC brand, and many of our competitors do not charge an additional monthly
fee for their accelerated dial-up service. In particular, AOL recently began offering services priced at $9.95 per month under its Netscape
Online brand that are designed to compete directly with our standard offering. A certain number of our new subscribers are subscribers
switching from the AOL premium dial-up service and the CompuServe and Netscape services may, in addition to being additional competition
in the value-priced market, adversely impact the number of subscribers switching from the AOL premium dial-up service to our services. In
addition, our competitors are engaging in a number of aggressive pricing plans, such as one or more free months of service or extended periods
of discounted pricing, which are less expensive than our current offerings. This increased competition may adversely impact our ability to
maintain or grow our pay subscriber base, particularly for our accelerated dial-up services. We cannot assure you that some or all of our
competitors will not further reduce their pricing on their primary or alternative brands or adopt other aggressive competitive strategies that may
adversely impact our ability to compete effectively.
A significant portion of our subscriber growth in 2003 was attributable to new subscribers to our accelerated access services. When we
began offering this service in early 2003, many of our competitors either did not offer a similar service or charged substantially more than we
charge for a similar service. Since that time, several competitors have either decreased their price for these services or have bundled these
services into their premium services with no additional fee. Certain competitors have either begun marketing these services, or have indicated
that they will market these services, as a feature of their value-priced services and these services may be offered at a price point similar to or
lower than our offering. In addition, several of our competitors have recently increased their emphasis on marketing these services. Increased
competition for subscribers to these services could adversely impact our ability to grow or maintain our accelerated access subscriber base, or
could cause us to lower or eliminate our pricing for these services, which would adversely impact our results of operations. We cannot assure
you that we will be able to continue to maintain or grow our accelerated subscriber base at current price levels, or at all.
Most of our major competitors also offer significantly greater technical support and scope of services than we currently offer. Some
competitors have made content a significant factor in their offerings, and we do not currently offer our own content. Our decision not to offer a
broader variety of services may adversely impact our ability to compete. Our ability to compete effectively for new subscribers could be
negatively impacted to the extent that our competitors develop additional features, functionality or services that we do not currently offer.
In addition, many of our competitors have significantly greater brand recognition than we do and spend significantly more on marketing
their services than we do. The success of our business model is predicated upon maintaining a marketing budget that is sufficient to grow our
revenues while increasing profitability. As a result, we have not participated as extensively as our major competitors in a variety of large
distribution channels, such as being pre-bundled on branded computers or being offered at retail outlets of many different major franchises,
where the marketing costs have historically been higher than we have previously been willing to spend. To the extent our competitors spend
significantly more than we do in these and other channels, or if we do not participate in channels that become the key channels for acquiring
new subscribers or selling additional subscription services, we may be at a competitive disadvantage. If we choose to participate more widely
in more costly distribution channels, our results of operations could be negatively impacted. If our marketing expenditures increase and are not
successful in increasing our revenues by increasing our subscriber base or by selling additional services, our results of operations would be
negatively impacted. Our competitors also routinely offer free trial periods, and if we choose to offer similar free trial periods on a significant
scale, it may adversely impact our results of operations. In addition, there is no assurance