Classmates.com 2008 Annual Report Download - page 34

Table of Contents
During peak periods, we utilize temporary employees and outsourced staff, who may not be as well trained or committed to our
customers as our permanent employees, and their failure to provide our customers with high-quality customer service may cause our
customers not to return, which could have a material adverse effect on our business, financial condition, results of operations, and cash
flows.
During peak periods, we utilize and rely on a significant number of temporary employees and outsourced staff in addition to our permanent
employees, to take orders and respond to customer inquiries. These temporary employees and outsourced staff may not have the same level of
commitment to our customers or be as well trained as our permanent employees. In addition, we may not hire enough temporary employees and
outsourced staff to adequately handle the increased volume of telephone calls we receive during peak periods. If our customers are dissatisfied
with the quality of the customer service they receive, they may not place orders with us again, which could have a material adverse effect on our
business, financial condition, results of operations and cash flows.
ADDITIONAL RISKS RELATING TO OUR CLASSMATES MEDIA SEGMENT
We expect to face increasing competition that could result in a loss of users and reduced revenues and decreased profitability.
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.
The market for loyalty marketing services is highly competitive, and we expect competition to significantly increase in the future as loyalty
marketing programs grow in popularity. Our MyPoints loyalty marketing business faces competition for members from several other online
loyalty marketing programs. We also face competition from offline loyalty marketing programs that have a significant online presence, such as
those operated by credit card, airline and hotel companies.
Some of our competitors have longer operating histories, greater name and brand recognition, larger user bases, significantly greater
financial, technical, sales, and marketing resources, and engage in more extensive research and development than we do. Some of our
competitors also have lower customer acquisition costs than we do, offer a wider variety of services, have more compelling Web sites with more
extensive user-generated content or offer their services free to their users. If our competitors are more successful than we are in attracting users,
our ability to maintain a large and growing user base will be adversely affected. If our social networking competitors provide similar services for
free, we may not be able to continue to charge for any of our services. Competition could have a material adverse effect on our subscription
revenues from social networking services, as well as on advertising revenues from our social networking and loyalty marketing services. More
intense
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