Classmates.com 2004 Annual Report Download - page 10

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In addition to our traditional marketing activities, we view our free services as an effective component of our pay account acquisition
strategy. While we have not spent significant marketing resources on our free access services since the Merger and have experienced a decrease
both in our active free access account base and in the number of people signing up for free access services, our free access account base
continues to be a significant source of new pay access accounts. Our active free access account base and the number of users who convert from
our free access services to our pay access services may continue to decrease, particularly if we do not actively promote our free access services
or if we impose additional limitations on our free access services in the future.
We also view our free community-based networking and consumer Web-hosting services as important sources of pay subscribers. We seek
to up-sell the free account bases of these services to pay versions of each service, as well as to Internet access and other pay services. Our
marketing efforts to date for community-based networking and consumer Web hosting have been comprised almost entirely of Internet
advertising and paid search.
We use a variety of marketing channels to promote our pay access services. Prospective users can obtain the software necessary to run our
access services by either downloading it from the Internet or by using a compact disc ("CD") to install it on their computers. Our traditional
marketing activities are designed to drive prospective accounts to either visit our main Web sites and download our software, to call our toll free
numbers to purchase our services or order a CD containing our access software.
We have also entered into a variety of distribution relationships where third parties assist in the marketing of our software and services.
Such arrangements include distribution of our Internet access software on CDs at retail locations, the preloading of our software on personal
computers and partner CDs, and links to our services on partner Web sites. In most cases we pay a per pay account acquisition fee to these
distributors. We intend to continue to evaluate and engage in a variety of distribution channels to enable us to make our services better known
and available to a large population of potential users.
SALES OF ADVERTISING INVENTORY
We have an internal sales force dedicated to selling our Internet advertising products and services. While we derive a significant portion of
our advertising revenues from transactions directly with advertising customers, we also sell a portion of our advertising inventory through
wholesale resellers. We have an agreement with Yahoo's Overture subsidiary to place search boxes and links to their search services on certain
of our Web properties, and substantially all of our search revenues are derived from this agreement. We have an advertising operations group
that works with our sales force to serve and monitor the performance of all of our advertising inventory. In addition, we allocate a portion of our
advertising inventory for the purpose of marketing and selling our own services.
BILLING
The vast majority of our pay accounts pay for our services in advance with a credit card. Other payment options for some of our pay
services include electronic check payment, or "ACH", personal check or money order, or via their local telephone bill. Pay access accounts that
elect to pay with a personal check or money order are not provisioned until their payment is received and they are required to sign-up for one of
our prepaid multi-month billing plans. Fees charged to accounts for live telephone technical support are generally billed to a credit card and are
charged on a per-minute basis.
We utilize a combination of third-party and internally developed software applications for customer billing. Customer billing is a complex
process and our billing systems must efficiently interface with third-parties' systems, such as our credit card, ACH and telephone bill processors'
systems. Our ability to accurately and efficiently bill and collect payment from our accounts is dependent on the successful
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