Rosetta Stone 2012 Annual Report Download - page 16

Table of Contents
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Our success depends on our ability to attract online consumers to our websites and convert them into customers in a cost-effective manner. We
depend, in part, on search engines and other online sources for our website traffic. We are included in search results as a result of both paid search
listings, where we purchase specific search terms that will result in the inclusion of our listing, and algorithmic searches that depend upon the searchable
content on our sites. Search engines and other online sources revise their algorithms from time to time in an attempt to optimize their search results.
If one or more of the search engines or other online sources on which we rely for website traffic were to modify its general methodology for how
it displays our websites, resulting in fewer consumers clicking through to our websites, our sales could suffer. If any free search engine on which we
rely begins charging fees for listing or placement, or if one or more of the search engines or other online sources on which we rely for purchased
listings, modifies or terminates its relationship with us, our expenses could rise, we could lose customers and traffic to our websites could decrease.
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Our business strategy contemplates stabilizing the losses we have experienced in international markets in order to prepare for future growth and
expansion into international markets. We are currently augmenting and optimizing certain of our website direct sales channels in Europe, Asia and Latin
America. In addition, we are continuing to selectively expand and optimize our indirect sales channels in Europe, Asia and Latin America through
retailer and distributor arrangements with third parties. If we are unable to stabilize losses in our international operations successfully and in a timely
manner, our ability to subsequently pursue our growth strategy will be impaired. Such stabilization and expansion may be more difficult or take longer
than we anticipate, and we may not be able to successfully market, sell, deliver and support our products and services internationally to the extent we
expect.
Our international operations and our efforts to increase sales in international markets are subject to a number of risks that are in addition to or
different than those affecting our U.S. operations, including:
•difficulty in staffing and managing geographically dispersed operations and culturally diverse work forces and increased travel,
infrastructure and legal compliance costs associated with multiple international locations;
•difficulty in establishing and maintaining financial and other internal controls over geographically dispersed operations;
•competition from local foreign language software providers and preferences for local products in some regions;
•expenses associated with customizing products, support services and websites for foreign countries;
•inability to identify an effective and efficient level of advertising, marketing and promotional expenditures in order to maintain acceptable
customer acquisition costs;
•inability to drive traffic to our websites, call centers, kiosks and distribution channels;
•inability to register domain names for "Rosetta Stone" in Country Code Top Level Domains in order to operate country specific websites
to permit consumers to easily locate our products in other countries due in large part to cybersquatting;
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