Classmates.com 2009 Annual Report Download - page 35

Table of Contents
ADDITIONAL RISKS RELATING TO OUR CLASSMATES MEDIA SEGMENT
We expect to face increasing competition that could result in a loss of members, reduced revenues and decreased profitability.
Our online social networking services compete with a wide variety of social networking Web sites, including broad social networking Web
sites such as Facebook; a number of specialty niche Web sites, including LinkedIn and MyLife.com, that offer online social networking services
focused on particular affiliations such as 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 online services designed to locate individuals such as White
Pages and US Search, Internet search engines that have the ability to locate individuals, including by finding individuals through their profiles on
social networking Web sites, and Web portals such as Yahoo!, MSN and AOL. 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 and important memories from school. However, as the membership bases of broad social networking Web sites
continue to grow, users may be able to locate individuals from their past, free of charge in certain cases, without having to use a niche Web site
or other online search service. 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 online social networking services are broadening their service offerings to compete with our services.
The market for online 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 online loyalty marketing service faces competition for members from several
other online loyalty marketing programs as well as 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 and
retaining members, our ability to maintain a large and growing member 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 online social networking services. Competition could
have a material adverse effect on our subscription revenues from online social networking services, as well as on advertising revenues from our
online social networking and online loyalty marketing services. More intense competition could also require us to increase our marketing or
other expenditures. As a result of competition, our number of members, revenues, cash flows, and profitability could be adversely affected.
Failure to increase or maintain the number of pay accounts for our online social networking services could cause our business and
financial results to suffer.
Pay accounts are critical to our business model. Only a small percentage of users initially registering for our online social networking
services sign up for a paid subscription at the time of registration. As a result, our ability to generate subscription revenue is highly dependent on
our ability to attract users to our Web sites and register them as free members, to encourage them to return to our Web sites, and to convince
them to become pay accounts in order to access the pay features of our
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