Classmates.com 2004 Annual Report Download - page 49

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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.
Competition for Advertising Customers
We are dependent upon advertising revenues for a significant portion of our revenues and profits. We compete for advertising revenues with
major ISPs, content providers, large Web publishers, Web search engine and portal companies, Internet advertising providers, content
aggregation companies, social networking Web sites, and various other companies that facilitate Internet advertising. Many of our competitors
have longer operating histories, greater name recognition, larger user bases and significantly greater financial, technical and sales and marketing
resources than we do. This may allow them to devote greater resources to the development, promotion and sale of their products and services.
These competitors may also engage in more extensive research and development, undertake more far-reaching marketing campaigns and adopt
more aggressive pricing policies. We also compete with television, radio, cable and print media for a share of advertisers' total advertising
budgets. In certain instances, we generate advertising revenues from companies who are also our competitors. In particular, we generate
significant advertising revenues from Overture. Overture is a subsidiary of Yahoo! and we compete directly with Yahoo! for Internet access,
email and Web-hosting subscribers and indirectly for subscribers to our social networking services. To the extent competitors who are also
sources of significant advertising revenue cease to do business with us, our revenues and profits could suffer.
We may be unable to grow our revenues.
Our ability to grow our revenues is primarily dependent upon our ability to increase our number of pay subscriptions, our number of pay
accounts and our average monthly revenue per pay account ("ARPU"). Increasing our pay subscriptions involves three components: converting
free accounts to pay subscriptions, cross-marketing additional subscriptions to pay accounts, and gaining pay accounts from new subscribers
who have not previously used our services. The number of free accounts for certain of our services has been decreasing and may continue to
decrease in the future. The number of free accounts converting to pay accounts has, from time to time, decreased and may decrease in the future,
and we may not be successful in converting free accounts to pay accounts, particularly if our number of free accounts continues to decline or if
consumers do not perceive adequate value in our pay services. The number of pay access accounts declined in the December 2004 quarter and
the growth in new subscriptions to our accelerated access services has been declining. The number of pay accounts on our Classmates services
declined in 2004. Subscriptions to our Web-hosting services have grown modestly since we acquired these services in April 2004. While we
have grown subscriptions to our premium email services over the last few quarters, a significant portion of this growth is attributable to changes
in our free email services during the December 2004 quarter and we do not anticipate similar growth during future periods. We do not know if
we will be able to maintain or grow the number of pay subscriptions to any of these services, and subscriptions to some or all of these services
may decrease in future periods.
Our ability to grow or maintain our number of pay subscriptions may also be dependent on our success in commercializing new services
that we either acquire or develop in the future. To the extent we are unable to successfully market our existing services to new users, successfully
cross-market additional subscriptions to existing users or successfully acquire or develop and commercialize new
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