Classmates.com 2007 Annual Report Download - page 14

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to take advantage of changes in the online advertising market. These activities and strategies can cause our advertising expenses to vary
significantly from period to period.
Our traditional marketing activities for our Internet access services are designed to drive prospective accounts to call our toll free numbers
to purchase our services, or to visit our main Web sites and download our software. We have also entered into a variety of distribution
relationships for our Internet access services including the preloading of our Internet access software on personal computers and partner CDs,
distribution of our Internet access software on CDs at retail locations, and links to our services on partner Web sites. In most cases, we pay a per-
pay account acquisition fee to these distributors.
Sales of Advertising Inventory
We have internal sales organizations dedicated to selling our Internet advertising products and services. One organization is dedicated to
our loyalty marketing service, and the other organization is dedicated to our Communications and Classmates Online properties. These groups
work with internal media operations personnel dedicated to serving and monitoring the performance of our advertising initiatives. While we
derive a significant portion of our advertising revenues from transactions entered into directly with advertisers and their agencies, we also sell a
portion of our advertising inventory through third-party advertising resellers. We also have an agreement with Yahoo! to place search boxes and
links to its search services on certain of our Web properties, and substantially all of our search revenues are derived from this agreement.
Competition
The industries in which we offer services are highly competitive. 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. A summary of
competitive factors is set forth below. For more information on competition, see "Item 1A.—Risk Factors."
Online Social Networking
The social networking market is highly competitive and is characterized by numerous companies offering varying online services. This
market is rapidly evolving to respond to growing consumer demand for compelling social networking services and functionality. As this market
continues to evolve, we believe that demand will be met by a number of large social networking companies. In addition, we believe a large
number of social networking users generally will register with and frequent more than one social networking service. We believe the factors that
drive long-term success are the ability to build a large and active user base and the ability to monetize that user base through subscriptions or
advertising. We believe the principal competitive factors in this market are the size of the user base, volume and quality of user-generated
content, and the scope and quality of features. We believe that we compete favorably in each of these areas, although certain of our competitors
have an advantage over us in some or all of these areas.
Our social networking services compete with a wide variety of social networking Web sites, including broad social networking Web sites
such as MySpace and Facebook; a number of specialty Web sites, including LinkedIn, Reunion.com and Monster.com's Military.com service,
that offer online social networking services based on school, work or military communities; and an increasing number of schools, employers and
associations that maintain their own Internet-based alumni information services. We also compete with a wide variety of Web sites that provide
users with alternative networks and ways of locating and interacting with acquaintances from various affiliations, including Web portals such as
Yahoo!, MSN and AOL, and online services designed to locate individuals such as White Pages and US Search. As Internet search engines
continue to improve their technology and their ability to locate
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