Classmates.com 2005 Annual Report Download - page 15

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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,
virus protection 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 are at a competitive disadvantage. In addition, during 2005, we decreased
our marketing expenditures for our access services and intend to further decrease these expenditures in the future. Decreased marketing of our
access services has adversely impacted our ability to obtain access subscribers and is likely to adversely impact our access subscriber base in the
future. We cannot assure you that the marketing resources we allocate to our access services will be sufficient for us to continue to compete
effectively with our major competitors, and we believe our base of access subscribers will continue to decline.
We expect competition for pay access accounts to continue to intensify and cannot assure you that we will be able to compete successfully.
As competition in the Internet access market continues to intensify, competitors may merge or form strategic alliances that would increase their
ability to compete with us. Our inability to compete effectively could require us to make significant revisions to our services and pricing
strategies, which could result in increased costs, decreased revenues and the loss of pay access accounts, all of which could materially and
adversely impact our financial condition, results of operations and cash flows.
Competition in the Online Relationships Market
Competition for subscribers in the online relationships market is intense and rapidly evolving. Classmates competes directly against a small
number of companies, including Reunion.com, Facebook.com and Monster.com’s Military.com service, offering similar online social-
networking services based on work, school and military communities. Classmates also competes directly with many schools, employers, Web
sites, and associations that maintain their own Internet-based alumni information services. In addition to this direct competition, Classmates
competes for subscribers with companies offering a wide variety of social-networking services including Web portals such as Yahoo!, MSN and
AOL that maintain chat rooms and are developing new Web community services such as Yahoo! 360, MSN Spaces and AOL People
Connection, and other community-based Web sites and personal networking communities such as Friendster and MySpace. Many of these
social-networking services offer more sophisticated features than ours, such as personalized Web pages, instant messaging and blogs. Many of
these companies also offer a wide variety of services in addition to their social-networking services, which provides them with an additional
competitive advantage in obtaining and retaining subscribers. Currently, Classmates is used primarily to locate and contact acquaintances from
school, work and military affiliations, and Classmates’ subscribers, in general, do not spend a significant amount of time on the site for other
purposes. Our strategy is to expand the features and functionality of the site, but there can be no assurance we will be commercially successful in
doing so.
Many consumers maintain simultaneous relationships with multiple communities, including Internet alumni networks and offline
associations, and can easily shift their interest or their spending from one online or offline provider to another. Competitors may be able to
launch new businesses serving various communities at relatively low cost. Competitors may be able to hold themselves out as specialists in
single communities, making them more appealing to consumers or giving them a perceived competitive advantage. In addition, many social-
networking services are free or only require payment if certain additional functionality is desired by the user. The continued prevalence of free
services could adversely
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