Classmates.com 2005 Annual Report Download - page 8

3.2 million by 2013. Population relocation could also contribute to consumer demand for community-based networks like Classmates.com and it
is estimated that 41 million people in the U.S. relocate each year.
We believe that the online social networking 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. During 2005, competitive factors caused our access revenues to decrease and we expect this trend to continue. While we intend
to attempt to minimize the decline in 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 further diversified our business by acquiring PhotoSite, an online digital
photo-sharing business, in 2005. 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 through the United Online Media Group.
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 delivered over the Internet and which feature recurring
subscription revenue, although we may pursue opportunities that do not involve these characteristics such as advertising-supported business
models.
Voice Over Internet Protocol Telephony Service
In November, 2005, we launched NetZero Voice, a value-priced VoIP telephony service. VoIP enables analog phone calls to be converted
to data packets and transmitted over the Internet, allowing users to save money on long distance phone calls. NetZero Voice works well over
virtually any Internet connection, broadband or dial-up. While analyst estimates vary greatly, VoIP adoption is expected to increase dramatically
in the U.S. and worldwide over the next several years. Vonage currently leads the residential U.S. VoIP subscriber market, but VoIP services
offered by Cablevision, Time Warner Cable and others are cutting into their market share. eBay, which acquired Skype in 2005, Microsoft,
AOL, Yahoo! and Google are also marketing VoIP services, making competition intense while raising VoIP’s profile in the media.
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 intend to 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
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