Classmates.com 2004 Annual Report Download - page 9

in developing or acquiring new service offerings, or that any new offerings acquired or developed will be commercially successful.
SOURCES OF REVENUE
We generate revenue from billable services and advertising and commerce transactions.
Billable Services Revenues
In general, we charge our pay accounts in advance of providing a service, which results in the deferral of billable services revenue to the
period in which the services are provided. We have experimented with a variety of pricing plans, both in connection with offers extended to
some of our existing accounts and through external marketing channels. We may continue testing a variety of pricing plans in the future to
determine their impact on profitability, pay account acquisition, conversion rates of free accounts to pay accounts and retention rates. We intend
to regularly evaluate the desirability and effectiveness of our pricing plans and may, in the future, make changes to these plans. We may also
offer additional fee-based products and services as well as a wide range of discounted metered plans and promotions, such as one or more free
months of service or discounted rates for an initial period or an extended commitment.
Advertising and Commerce Revenues
We are able to designate the initial Web site displayed to users of our access services during an Internet session. This Web site, or "start
page," displays sponsored links to a variety of content, products and services, including Internet search. In addition, a significant portion of the
Web pages for our free community-based networking and consumer Web-hosting services are dedicated to advertising partners. We also display
a toolbar on access users' screens throughout their online access sessions that is always visible regardless of the particular Web site they visit.
The toolbar contains Internet search functionality and a variety of buttons, icons and drop-down menus. On our free access services, the toolbar
is larger than on our pay access services and also contains banner advertisements. We generate revenues from the start page and the toolbar by
displaying, or users clicking on, banner, text-link and other advertisements that are linked to advertisers' and sponsors' Web sites, or by users
utilizing functionality offerings such as Internet search services.
We also generate advertising and commerce revenues by users clicking on, or by displaying, rich media advertisements in a small window
on the computer screens of certain access users while they initially make a dial-
up Internet connection and immediately prior to terminating their
connection; by delivering email messages on behalf of advertisers or by users clicking on such messages and being referred to sponsors' Web
sites; by enabling customer registrations for partners; and by providing third parties with data analysis capabilities and other market research
services, such as surveys and questionnaires.
MARKETING AND NEW ACCOUNT ACQUISITION
Our marketing efforts are focused primarily on attracting free and pay accounts, building our brands and up-selling existing free accounts
and pay accounts to new and additional pay services. These efforts include television, Internet, sponsorships, radio, print and outdoor advertising
as well as a variety of distribution initiatives with partners including retailers, personal computer manufacturers and software providers. We also
devote a significant portion of our own advertising inventory to up-sell and cross-sell our pay services. Our internal marketing resources consist
of marketing management, media, creative services, Web development, strategic alliance and business development personnel. We produce a
significant amount of our marketing materials in-house, using state-of-the-art design computers and graphics program techniques.
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