Classmates.com 2006 Annual Report Download - page 15

driven by fees paid by advertisers and direct marketers based on specific actions taken by our members. If we are unable to induce existing and
new members to actively participate in our programs, our business may be harmed. If the perceived value of our points decreases, we may be
required to offer more points to generate the same revenue, which could adversely affect our results of operations relating to these services. A
significant portion of the revenues from our loyalty marketing business is generated from the activity of a small percentage of our members, and
we cannot assure you that the number of active members will increase. Data security and privacy concerns may cause consumers not to sign up
for our program or cause our members to stop using the service or resist providing the personal data necessary to support our program’
s profiling
capability. In addition, we acquire a significant number of our new members through a few acquisition channels, and the loss of any of these
channels or a decrease in the number of new members acquired through these channels could have an adverse affect our business. Although our
membership has grown in prior periods, there are no assurances that our membership growth will continue or increase in the future. We have
limited experience in this market and cannot assure you that we will be able to compete effectively.
Competition for Advertising Customers.
We are dependent upon advertising revenues for a significant portion of our revenues and profits.
We compete for advertising revenues with major ISPs, content providers, large Web publishers, Web search engine and portal companies,
Internet advertising providers, content aggregation companies, social-networking Web sites, direct marketing businesses, and various other
companies that facilitate Internet advertising. Many of our competitors have longer operating histories, greater name recognition, larger user
bases and significantly greater financial, technical and sales and marketing resources than we do. This may allow them to devote greater
resources to the development, promotion and sale of their products and services. These competitors may also engage in more extensive research
and development, offer more sophisticated or compelling products and services, undertake more far-reaching marketing campaigns and adopt
more aggressive pricing policies. We also compete with television, radio, cable and print media for a share of advertisers’ total advertising
budgets. In certain instances, we generate advertising revenues from companies who are also our competitors. To the extent competitors who are
also sources of significant advertising revenue cease to do business with us, our revenues and profits could suffer.
Revenues and profitability of our Communications segment are expected to decrease.
Substantially all of our Communications revenues and profits come from our access services. As a result of expected continued decreases in
our pay access accounts and, potentially, the average monthly revenue per pay account, we expect that our Communications billable services
revenues and the profitability of this segment will decline over time. The rate of decline in billable services revenues has accelerated in some
periods and may continue to accelerate. Our Communications advertising revenues may decline as well due to decreases in our access accounts.
Continued declines, particularly if such declines accelerate, in Communications revenues may materially and adversely impact the profitability
of this segment and the Company as a whole.
Revenues and profitability of our Content & Media segment may not increase.
A key element of our strategy involves the diversification from the declining access business to businesses with growth opportunities. We
view the Content & Media segment as a growth opportunity. Both billable services revenues and advertising revenues are key components in the
profitability of this segment. We derive substantially all of this segment’s billable services revenues from pay accounts relating to our social-
networking services. We derive significant advertising revenues from both our social-networking as well as our loyalty marketing services. We
have experienced periods where our advertising revenues and billable services revenues have declined. There can be no assurance that we will be
successful in increasing Content & Media advertising revenues or billable services revenues in the future. If we are
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