Classmates.com 2004 Annual Report Download - page 15

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from one online or offline provider to another. Competitors may be able to launch new businesses serving various communities at relatively low
cost. Competitors may be able to hold themselves out as specialists in single communities, making them more appealing to consumers or giving
them a perceived competitive advantage. In addition, many social networking services are free or only require payment if certain additional
functionality is desired by the user. The continued prevalence of free services could adversely impact our ability to market both our free and pay
services.
We believe that the primary competitive factors determining success in the online relationships market include price; the size and
demographics of the user base; the ability to attract users who will be of interest to other users; the availability, type and scope of user-generated
content on the Web site; scope of services offered; the ease with which users can identify and communicate with other users with particular
interests or backgrounds; and a company's ability to dedicate significant resources to market its services. We believe that we compete favorably
with respect to most of these factors.
Many competitors in this market have longer operating histories, larger customer bases, greater brand recognition and significantly greater
financial, marketing and other resources than we do. In addition, Classmates has relied extensively on Internet advertising through portals and
other Internet service providers, including AOL, MSN and Yahoo!, to grow its base of free and pay accounts. A number of these companies are
competitors of United Online with respect to Internet access and other services, and they may not be willing to retain the same advertising
relationship going forward. To the extent we are not able to maintain advertising relationships with these companies, our ability to obtain new
Classmates' pay and free accounts would be adversely impacted.
Competition in Additional Service Markets
One element of our strategy is to offer a variety of subscription services in addition to Internet access and community-based networking
services. We currently offer Web-hosting and domain registration services, as well as standalone premium email services, a broadband
accelerator product and prepackaged premium content offering. While these services do not generate a significant portion of our revenues, we
are actively investing substantial resources in certain of these services. Competition for users of premium email services is intense. The
companies we compete with for Internet access subscribers also compete with us for subscribers to email services. In addition, a number of
companies, including Yahoo!, MSN and Google, offer premium email services, in certain cases, for free. The market for premium email services
is evolving at a rapid pace and we cannot assure you that our offerings will be competitive or commercially viable. While the personal Web-
hosting business is fragmented, a number of significant companies, including Yahoo!, currently compete actively for these users. In addition, the
personal Web-hosting industry is very application specific, with many of the competitors focusing on specific applications, such as photo
sharing, to generate additional users. We cannot assure you that our premium email offerings or our Web-hosting offerings will be competitive
or will generate growth in pay accounts.
In addition, we have evaluated, and expect to continue to evaluate, the development or acquisition of new subscription services. New
services may subject us to competition from companies that have more experience with such services, more established brands, and greater
financial, marketing and other resources to devote to such services. For example, we intend to develop a new consumer VoIP telephony service.
The market for consumer telephone services is extremely competitive and the emergence of VoIP based services will result in increased
competition. If we were to offer a VoIP service, our competitors would include established telecommunications and cable companies as well as a
number of new companies that offer VoIP based services as their primary business. We cannot assure you that our new services will be
competitive or will generate growth in pay accounts.
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