Incredimail 2011 Annual Report Download - page 11

The market for email software products and services is declining, as web based solutions are gaining in their popularity.
One of our major products competes in the market for email software products and services that aim to offer a customized personal, productive and
entertaining email experience for consumers. Our main competitors are those providing a web-
based email solution, which does not require the user to download
software, and thus provides a very mobile and accessible email tool. Some of these competitors provide (or will provide) a downloadable email client as well. While
there are advantages and disadvantages to each method and system and the markets for each of them remain large, the market for web based systems is growing at the
expense of downloadable email clients. In addition, many of our competitors providing a web-
based solution have more established brands, products and customer
relationships than we do, which could inhibit our market penetration efforts even if they may not offer features similar to IncrediMail
®
.
For example, consumers may
choose to receive an extensive package of Internet and email services from a more dominant and recognized company, such as Google (Gmail), Microsoft Corporation
(HotMail), Facebook, or Yahoo! (Yahoo Mail).
Should this trend accelerate faster than the company’
s ability to provide differentiating advantages to its downloadable solution, this could result in fewer
downloads of our product and our ability to offer search services, less use of our product, fewer purchases of our products and services and loss of market share. See
"Item 4.B Business Overview — Competition" for additional discussion of our competitive market.
We rely significantly on our ability to advertise through the Google Adwords network for marketing and acquiring new users for our products. Should
Google make substantial changes to this network or if it becomes substantially more expensive, it would be more difficult and expensive to acquire new
customers and would negatively affect our revenues.
As the ability to market our products via "viral growth" methods declines, we are becoming increasingly reliant on advertising for acquiring new
customers. One of the main venues for advertising our products is Google’
s Adwords network. Google sets the standards for using this network as well as being the
market-
maker for establishing the pricing in its network. Although there are alternative networks and markets for advertising, none are currently as popular as
Google. Should Google change the rules for using this network and the way distributers of downloadable software products interact with it, or the cost of advertising
our products increases dramatically, our ability to distribute our products would be limited which would negatively affect our revenues.
We have and intend to continue and use a substantial portion of our invested resources to acquire unspecified businesses. These acquisitions divert a
substantial part of our resources and management attention, could cause dilution to our shareholders and adversely affect our financial results.
We recently used a substantial portion of our invested resources to acquire Smilebox Inc. and intend to continue to acquire complementary products,
technologies or businesses. Prior to this acquisition our management had no experience together as a team in making acquisitions or integrating acquired businesses.
Although we believe we have been successful in this acquisition so far, the continued integration of this newly-
acquired business, as well as negotiating potential
additional acquisitions to a certain extent diverts our management’s attention from other business concerns, is expensive and time-
consuming. New acquisitions could
expose our business to unforeseen liabilities or risks associated with the business or assets acquired or with entering new markets. In addition, while this has not been
the case so far with Smilebox, we might lose key employees while integrating new organizations and we might not effectively integrate any other acquired products,
technologies or businesses. With regard to the Smilebox acquisition, less than a year has passed since the acquisition, and we might yet lose key employees and not
effectively complete full integration, nor achieve anticipated revenues or cost benefits, from this acquisition and similar risks exist for other acquisitions which may
occur in the future. Future acquisitions could result in customer dissatisfaction, performance problems with an acquired product, technology or company, the
incurrence of debt or issuances of equity securities that cause dilution to our existing shareholders. Furthermore, a substantial portion of the cost of these acquisitions
is for intangible assets. We may incur contingent liabilities, amortization expenses related to intangible assets, or possible impairment charges related to goodwill or
other intangible assets or other unanticipated events or circumstances relating to the acquisition, and we may not have, or may not be able to enforce, adequate
remedies in order to protect our Company. If any of these or similar risks relating to acquiring products, technologies or businesses should occur in the future on a
scale that is larger than the effect of the acquisition described above, our business could be materially harmed.
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