Incredimail 2011 Annual Report Download - page 34

A. OPERATING RESULTS
Overview
We design and market a suite of downloadable consumer products that are simple safe and useful. These include, customized and entertaining email software
products, software for sharing digital photo creations, a photo discovery tool and PC optimization software. We believe we are unique in addressing our demographic
market of second wave adopters. We believe that the user experience we have created has been successful in attracting a unique underserved demographic, seeking
software application that make their life a little simpler and more enjoyable.
In the last quarter of 2011, we recorded an average of approximately 2.1 million registered downloads each month. As of December 31, 2011, we had an
installed base of approximately 12.3 million, and 402,000 users of our premium products. In the last quarter of 2011, our email users sent over 369 million
IncrediMail® emails and our Smilebox users shared 2.3 million creations each month. Included in our “installed base”
are users who have our software installed on
their computer on the measurement date. Our users use our products for as long as six years, based on current statistics (this estimate has been adjusted upwards over
the past three years). However, the length of use varies dramatically based on the product, whether it’
s the free version or paid for, when the product was downloaded
and other factors. We believe our historical track record of our users accepting and utilizing the search properties we offer, as well as converting registered users to
purchasing customers, represents a convincing validation of our business strategy.
Prices and license fees for our products vary based on market, length of license period and whether the products are offered together. Our prices and fees
range from less than $5 to about $60. These prices are subject to market conditions and can vary in currencies, other than the US dollar. Because a significant portion
of our revenues come through other aggregators, it is difficult for us to know whether and to what extent inflation or a fluctuation in foreign currency exchange rates
have had a material effect on our revenues and therefore there is little we can do to address these issues.
Revenues
We generate our revenues primarily from three major sources: (i) search generated revenues and other services, (ii) sale of premium software products and
solutions, and (iii) advertising and other. The following table shows our revenues by category (in thousands of US Dollars):
Cost of Revenues
Cost of revenues consists primarily of salaries and related expenses, license fees, amortization of acquired technology, amortization of capitalized research
and development costs and payments for content and server maintenance, all related to our product revenues and communicating with our users. The direct cost
relating to search and advertising revenues are immaterial.
Research and Development Expenses
, net
Our research and development expenses consist primarily of salaries and other personnel-
related expenses for employees primarily engaged in research and
development activities. We expect our research and development expenditures, which in 2011 increased compared to last year, primarily due to the acquisition of
Smilebox Inc. and its product development effort, although decreasing as percentage of sales, to continue and increase at a moderate rate, while decreasing as a
percentage of sales. The nominal increase will enable us to continue to enrich our product pipeline going forward.
Year Ended December 31,
2009
2010
2011
Search
$
20,011
$
22,792
$
25,466
Products
6,717
5,404
7,191
Other
467
1,301
2,816
Total revenues
$
27,195
$
29,497
$
35,473
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