Incredimail 2014 Annual Report Download - page 23

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Advertisers typically do not have long-
term advertising commitments with search providers or advertisement networks. A decrease in
overall advertising may adversely affect our results of operations.
In addition, the rates advertisers pay for each click on a sponsored link on a cost-per-
click (CPC) basis or for each time an
advertisement is displayed on a cost-per-
thousand impressions (CPM) basis are negotiated between the search providers or advertisement
networks and advertisers and depend on a number of factors over which we have no control. If search providers or advertisement networks
decrease the rates charged to advertisers, this would decrease the advertising revenues they share with us. In such an event, there could be no
assurance that we would be able to adjust the fees that we pay to publishers in order to acquire users in order to maintain the current levels of
profitability.
The online advertising market is very concentrated, with search in general, and Google in particular, playing a substantial role in that
market, limiting our flexibility to operate in this market.
In 2014, online advertising continued to grow globally and particularly in the United States. Advertising through search accounted for
the largest
portion of online advertising and in the United States accounted for approximately 40% (based on IAB reports) of all money spent
on online advertising. Google as an advertising publisher accounted for most U.S. online search-
generated revenues, and Microsoft and Yahoo
accounted for substantially the rest of search generated revenues. In addition, a small number of social network companies, and Facebook in
particular are seizing a growing portion of the advertising market. This high
market concentration causes us to be subject to unilateral changes
set by Google and some of the other large participants, with limited ability to respond to and adjust for those changes. Although we utilize other
methods of advertising and partnering with other companies, these are currently not as lucrative as search advertising in general and affiliation
with Google in particular. Continued unilateral changes could adversely affect our revenues and performance.
Our business, and in particular the portion of our business devoted to search-
monetization, is significantly reliant on the North
American market. Any material adverse change in that market could have a material adverse effect on our results of operations.
Our revenues have historically been concentrated within the North American market, accounting for approximately 78% of our search-
monetization based revenues for 2014. A significant reduction in the revenues generated by such market, whether as a result of a recession that
causes a reduction in advertising expenditures generally or otherwise, which causes a decrease in our Microsoft North American revenues could
have a material adverse effect on our results of operations.
The browser extension is susceptible to obsolescence with the continued advent of alternative Internet-
based innovations which may
become more attractive to users.
The development of new products and services in response to the evolving trends and technologies of the Internet, as well as the
identification of new business opportunities in this dynamic environment, requires significant time and resources. We may not be able to adapt
quickly enough (and/or in a cost-
effective manner) to these changes, appropriately time the introduction to the market of new applications and
features for our platform or for other products and services or identify new business opportunities in a timely manner. Also, these changes could
require us to modify related infrastructures and the failure to do so could render our, or those of our partners, existing websites, applications,
services and proprietary technologies obsolete. The failure to respond to any of these changes appropriately (and/or in a cost effective manner)
could adversely affect us, our financial condition and our results of operations.
In the case of certain of the applications available via our platform, third parties have introduced (and continue to introduce) new or
updated technologies, applications and policies that may interfere with the ability of our publishers or end users to access or utilize these
applications generally or otherwise make publishers or users less likely to use our services (such as through the introduction of features and/or
processes that disproportionately and adversely impact the ability of publishers or end users to access and use these applications relative to those
of competitors). For example, third parties continue to introduce technologies and applications (including new and enhanced web browsers and
operating systems) that may limit or prevent certain types of applications from being installed and/or have features and policies that significantly
lower the likelihood that end users will install the applications generated from the platform or that previously-
installed applications will remain
in active use. In addition, there are technologies and applications that interfere with the functionality of (or settings changes made by) toolbar
and/or platform applications. For example, there are technologies and applications that interfere with search boxes embedded within our toolbars
and the maintenance of home page and web browser search settings previously selected by end users of the toolbar or some of our other
products. These technologies, applications and policies adversely impact the ability of users to generate search queries through our applications,
which in turn adversely impacts revenues. Technologies have also been introduced that can block the display of advertisements on web pages
and that provide users with the ability to opt out of our advertising products. Our failure to successfully modify our toolbars and related
applications in a cost-
effective manner in response to the introduction and adoption of these new technologies and applications could adversely
affect our business, financial condition and our results of operations.
19