Classmates.com 2008 Annual Report Download - page 19

Table of Contents
of their floral purchases to these channels. We expect the sales volumes at supermarkets and other mass market retailers to continue to increase,
and other nationwide floral marketers will continue to increase their competition with us. In particular, the nature of the Internet as a marketplace
facilitates competitive entry and comparative shopping, and we have experienced increased competition based on price. Some of our competitors
may have significant competitive advantages over us, may devote significantly greater resources to marketing campaigns or other aspects of their
business or may respond more quickly and effectively than we can to new or changing opportunities or customer requirements.
We expect competition in the floral network services market to continue to increase as well. We believe we will continue to experience
increasing competition from the other floral network services providers. In addition, we expect our customers, the retail florists, likely will
continue to lose sales to supermarkets and other nationwide floral marketers, which likely will result in a continuing decrease in their revenues
and in the number of retail florists. As the number of retail florists and their revenues decrease, competition for the remaining retail florists and
their business will intensify.
Increased competition in the consumer market or the floral network services market may result in lower revenues, reduced gross margins,
loss of market share, and increased marketing expenditures.
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, price of the service, 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 Facebook and MySpace; a number of specialty Web sites, including LinkedIn and Reunion.com, that offer online social networking
services based on school or work communities; and 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, online services designed to
locate individuals such as White Pages and US Search, and Internet search engines that have the ability to locate individuals, including by
finding individuals through their profiles on social networking Web sites. We believe that there are currently only a small number of competitive
online social networking services that are focused specifically on our niche of the market, which is to help people find and reconnect with
enduring relationships from school. As a result of the growth of the social networking market and minimal barriers to entry, a number of
companies have entered or are attempting to enter our market, either directly or indirectly, some of which may become significant competitors in
the future. In addition, many existing social networking services are broadening their service offerings to compete with our services. As we
evolve our services and provide more opportunities for our members to meet new people with similar interests or affiliations, we may compete
with the increasing number of social networking Web sites for special niches and areas of interest.
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