Classmates.com 2004 Annual Report Download - page 47

months of services in order to obtain and retain pay access accounts. Despite these measures, our growth in pay access accounts was limited
during the June and September 2004 quarters and our number of access accounts declined in the December 2004 quarter. We believe increased
competition, including pricing competition, has adversely impacted our ability to obtain new pay access accounts and to retain our existing
accounts, is likely to adversely impact our ability to maintain or grow our pay access account base in the future and may make it more difficult to
maintain the current pricing of our services.
Price competition is particularly relevant to our ability to maintain or grow our accelerator subscription base. A significant portion of our
growth in revenues and profitability since early 2003 has been attributable to new subscribers to our accelerator 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, most of our competitors have started offering a similar service, and several competitors have either
decreased their price for these services or have bundled these services into their premium services with no additional fee. Many competitors now
market these services as a feature of their value-priced services at no additional cost and these services are now offered, in certain cases, at a
price point similar to or lower than our standard price. In particular, Netscape recently began including accelerator functionality in their standard
$9.95 offering and PeoplePC has offered their accelerator service combined with their standard value-priced offering at $7.97 per month for
introductory periods of up to six months. Increased competition for subscribers to accelerated services could adversely impact our ability to grow
or maintain our accelerator subscription base, or could cause us to lower or eliminate our pricing for these services, which would adversely
impact our revenues and profits. The growth in the number of subscriptions to this service has been decreasing and is likely to continue to
decrease. We cannot assure you that we will be able to continue to maintain or grow our accelerator subscription base at current price levels, or
at all.
Premium-priced Internet access services, in general, include a much wider variety of features than are included in value-
priced services, and
providers of premium-priced services continue to enhance the features of their offerings in response to competition from broadband and value-
priced providers. In particular, many premium-services include at no additional charge telephone technical support, proprietary content, parental
controls, multiple accounts and email addresses, increased email storage, virus protection, firewalls, spyware protection and accelerated dial-up
functionality. Some providers of value-priced offerings are also incorporating certain of these features into their offerings either at no charge or
for an incremental fee. While we offer some additional features to users at no charge or for an incremental fee, we do not offer the range of
features included in premium-priced services and, in some cases, included in value-priced services. In particular, we do not offer our own
proprietary content. In addition, the incremental fees that we charge for certain features are, in some cases, higher than the incremental fee, if
any, charged by other value-priced providers for comparable features. Our decision not to offer a broader variety of features and our charges for
additional services or features, particularly accelerated functionality and telephone technical support, may adversely impact our ability to
compete and undermine our position as a value-priced provider.
Many of our competitors have significantly greater brand recognition than we do and spend significantly more on marketing their services
than we spend. 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. To the extent our competitors
spend significantly more than we do in these and other channels, we may be at a competitive disadvantage. We cannot assure you that our
marketing resources will be sufficient for us to continue to compete effectively with our major competitors.
We expect competition for pay access accounts to continue to intensify and cannot assure you that we will be able to compete successfully.
Our inability to compete effectively could require us to make significant revisions to our services and pricing strategies, which could result in
increased costs,
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