Classmates.com 2004 Annual Report Download - page 8

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Online Relationships Market
Classmates is part of the "online relationships market," which is based on user-
generated content and includes personals, dating services and
community-based networks. The online relationships market serves consumers who are seeking to create and strengthen relationships with
friends, relatives, and acquaintances with common interests or past experiences, and potential romantic partners, or advance their careers through
business networking. A recent survey estimated that one-third of Internet users have expressed a strong interest in social and business
networking, and we believe that Classmates' business effectively serves a segment of these interests. It is estimated that the online relationships
market represented a $537 million market in 2003.
We believe that consumer interest in the online relationships market will be fueled by a number of factors, including increased willingness
of consumers to purchase online content, increased consumer awareness of the types of services offered within the online relationships market,
and a continued influx of new potential subscribers. There are several trends that we believe could indicate growth opportunities for the segment
of the online relationships market in which Classmates participates, including a continual stream of graduates from high schools and colleges.
The number of high school students graduating annually in the U.S. is expected to increase from 2.9 million in 2001 to 3.2 million by 2013.
Population relocation could also contribute to consumer demand for community-based networks like Classmates. It is estimated that 2.6 million
businesses and 41 million people relocate annually within the U.S. and that Americans change jobs an average of eleven times during their lives.
We believe that the online relationships market presents an attractive growth opportunity, both domestically and internationally, and that the
addition of Classmates to our family of consumer Internet services positions United Online to capitalize on that opportunity.
Consumer Internet Services Strategy
Through 2003, virtually all of United Online's operations were focused on providing value-priced dial-up Internet access services in the
U.S. and Canada. While we believe that value-priced access will continue to be a growth segment of the domestic Internet market, competitive
factors have recently impacted our ability to grow our revenues in this segment. While we intend to continue to focus our efforts on attempting to
grow our Internet access business, we also believe that non-access consumer Internet services present new opportunities to expand our business.
As such, during 2004 we began to diversify our business beyond dial-up access through the acquisition of a Web-hosting business and through
the acquisition of Classmates. We also developed and launched other new non-access services, including our premium email and premium
content services. Additionally, with the recent recovery and growth of Internet advertising, we have begun to focus additional resources toward
addressing the online advertising market.
We believe our assets and core competencies, including our brands, consumer and advertiser relationships, customer billing relationships,
technologies, database capabilities, internal network infrastructure and personnel, can be leveraged to develop or acquire, market and grow a
variety of non-access related services. As such, we actively review a variety of businesses, product lines and technologies which we believe may
provide us with the opportunity to leverage our assets and core competencies or which may otherwise be complementary to our existing
businesses. In general, we have focused our attention on consumer offerings that are billed and delivered over the Internet and which are
recurring subscriptions, although we may pursue opportunities that do not involve these characteristics such as advertising-supported business
models. We recently announced our intention to offer a voice over Internet protocol ("VoIP") telephony service by the end of 2005. While we
believe that expanding our business into additional non-access Internet services will effectively utilize our existing resources and broaden our
market opportunity, we cannot assure you that we will be successful
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