Classmates.com 2005 Annual Report Download - page 14

access accounts. Despite these measures, our pay access base has declined and the rate of decline has been increasing. We experienced a net
decline of approximately 125,000 pay access accounts in the December 2005 quarter. We expect that we will continue to experience declines in
our pay access account base in the future, and the rate of decline may continue to accelerate. We believe increased competition, including pricing
competition, has adversely impacted our ability to obtain new pay access accounts and to retain our existing accounts, will adversely impact our
ability to minimize the decline in 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, especially at our $14.95
standard monthly price. Maintaining this price point is critical to our profitability. 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 monthly price. In particular, Netscape has previously marketed their accelerator service as part of their standard $9.95 offering and
currently markets this service at a $9.95 price point with a 12-month commitment. PeoplePC currently offers their accelerator service combined
with their standard value-priced offering at $7.47 per month for an introductory period of three months or $10.95 per month with a 12-month
commitment. In addition, price competition for broadband services has been growing and several providers, such as AT&T Yahoo! and Verizon
Yahoo!, have offered bundled broadband services at promotional prices similar to, or lower than, the prices of our accelerated access services.
We cannot assure you that broadband providers will not continue to offer promotional pricing for broadband services similar to or lower than the
price of our accelerated access services. Increased competition for subscribers to accelerated access services and broadband 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. We recently began offering our NetZero accelerator service at a $9.95 price
point with a 12-month commitment. We are also offering additional features without additional charge as part of our accelerated dial-up service,
including enhanced email and anti-virus features, and we may incorporate additional features in the future. Adding additional features would
likely increase our cost of providing the service which would make the service less profitable, although there is no assurance that additional
features will make the service more attractive to consumers or will enable us to maintain its $14.95 standard monthly price. The number of users
paying us the standard monthly price for our accelerated service has been decreasing and it is likely that we will experience decreases in both the
number of subscriptions to these services as well as the average price we receive for these services in the future.
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-priced 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. In addition, certain providers of premium-priced services occasionally offer promotional pricing that is similar
to the pricing of value-priced offerings. For example, EarthLink has offered its premium-priced services at $9.95 per month for an introductory
period of six months. 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
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