Classmates.com 2008 Annual Report Download - page 36

Table of Contents
social networking members from being able to contact these members, which is a key reason why members use our social networking services.
From time to time, Internet service providers block bulk email transmissions or otherwise experience technical difficulties that result in our
inability to successfully deliver emails to our members. Third-parties may also block, impose restrictions on, or start to charge for, the delivery
of emails through their email systems. Due to the importance of email to our businesses, any disruption or restriction on the distribution of
emails or increase in the associated costs could materially and adversely affect our revenues and profitability.
ADDITIONAL RISKS RELATING TO OUR COMMUNICATIONS SEGMENT
Our business will suffer if we are unable to compete successfully.
We compete with numerous other dial-up Internet access providers as well as providers of broadband services. Our key dial-up Internet
access competitors include established online service and content providers, such as AOL and MSN, and independent national Internet service
providers, such as EarthLink and its PeoplePC subsidiary. Dial-up Internet access services do not compete favorably with broadband services
with respect to connection speed and do not have a significant, if any, price advantage over certain broadband services. Many broadband
providers, including cable companies and local exchange carriers, bundle their offerings with telephone, entertainment or other services, which
may result in lower prices than stand-alone services. In addition to competition from broadband providers, competition among dial-up Internet
access service providers is intense and neither our pricing nor our features provides us with a significant competitive advantage, if any, over
certain of our dial-up Internet access competitors. We expect that competition, particularly with respect to price, both for broadband as well as
dial-up Internet access services, will continue, and that our dial-up Internet access subscriber base will continue to decrease, potentially at an
increasing rate, and that our broadband services will not experience significant growth.
In order to compete effectively, we may have to make significant revisions to our services, pricing and marketing strategies, and business
model. For example, we may have to lower our introductory rates, offer additional free periods of service, offer additional features at little or no
additional cost to the consumer, or reduce the standard pricing of our services. Measures such as these could decrease our revenues and our
average revenue per dial-up Internet access pay account. We may also have to allocate more marketing resources toward our dial-up Internet
access services than we anticipate. All of the foregoing could adversely affect the profitability of our dial-
up Internet access services which could
materially and adversely impact our financial position, results of operations and cash flows.
Revenues and profitability of our Communications segment are expected to decrease.
Most of our Communications revenues and profits come from our dial-up Internet access services. As a result of expected continued
decreases in our dial-up Internet access pay accounts and, potentially, the average monthly revenue per pay account, we expect that our
Communications services revenues, advertising revenues, and the profitability of this segment will continue to decline over time. The number of
dial-up Internet access pay accounts has been adversely impacted by both a decrease in the number of new pay accounts signing up for our
services as well as the impact of subscribers cancelling their accounts, which, for the Communications segment, we refer to as "churn". Churn
has increased from time to time and may increase in the future. The rate of decline in Communications services revenues has accelerated in some
periods and may continue to accelerate. We also expect that our Communications advertising revenues will continue to decline. Continued
declines, particularly if such declines accelerate, in Communications revenues will materially and adversely impact the profitability of this
segment.
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