Shutterfly 2007 Annual Report Download - page 25

Table of Contents
Internet and communication infrastructure providers. For example, some of our products, such as select photo-based
merchandise, are produced and shipped to customers by our third-party vendors, and we rely on these vendors to
properly inspect and ship these products. In addition, we rely on third-party shippers, including the U.S. Postal
Service and United Parcel Service, to deliver our products to customers. Strikes or other service interruptions
affecting these shippers could impair our ability to deliver merchandise on a timely basis. Our products are also
subject to damage during delivery and handling by our third-party shippers. Our failure to provide customers with
high-quality products in a timely manner for any reason could substantially harm our reputation and our efforts to
develop Shutterfly as a trusted brand. The failure of our brand promotion activities could adversely affect our ability
to attract new customers and maintain customer relationships, and, as a result, substantially harm our business and
results of operations.
The success of our business depends on continued consumer adoption of digital photography.
Our growth is highly dependent upon the continued adoption by consumers of digital photography. The digital
photography market is rapidly evolving, characterized by changing technologies, intense price competition,
additional competitors, evolving industry standards, frequent new service announcements and changing consumer
demands and behaviors. To the extent that consumer adoption of digital photography does not continue to grow as
expected, our revenue growth would likely suffer. Moreover, we face significant risks that, if the market for digital
photography evolves in ways that we are not able to address due to changing technologies or consumer behaviors,
pricing pressures, or otherwise, our current products and services may become unattractive, which would likely result
in the loss of customers and a decline in net revenues and/or increased expenses.
Purchasers of digital photography products and services may not choose to shop online, which would harm our
net revenues and results of operations.
The online market for digital photography products and services is less developed than the online market for
other consumer products. If this market does not gain widespread acceptance, our business may suffer. Our success
will depend in part on our ability to attract customers who have historically used traditional retail photography
services or who have produced photographs and other products using self-service alternatives, such as printing at
home. Furthermore, we may have to incur significantly higher and more sustained advertising and promotional
expenditures or reduce the prices of our products and services in order to attract additional online consumers to our
website and convert them into purchasing customers. Specific factors that could prevent prospective customers from
purchasing from us include:
If purchasers of digital photography products and services do not choose to shop online, our net revenues and results
of operations would be harmed.
If affordable broadband access does not become widely available to consumers, our revenue growth will likely
suffer.
Because our business currently involves consumers uploading and downloading large data files, we are highly
dependent upon the availability of affordable broadband access to consumers. Many areas of the country still do not
have broadband access, and the cost of broadband access may be too expensive for many potential customers. To the
extent that broadband access is not available or not adopted by consumers due to cost, our revenue growth would
likely suffer.
If the single facility where substantially all of our computer and communications hardware is located fails or if
our production facility fails, our business and results of operations would be harmed.
Our ability to successfully receive and fulfill orders and to provide high-
quality customer service depends in part
on the efficient and uninterrupted operation of our computer and communications systems. Substantially all of the
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the inability to physically handle and examine product samples;
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delivery time associated with Internet orders;
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concerns about the security of online transactions and the privacy of personal information;
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delayed shipments or shipments of incorrect or damaged products; and
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inconvenience associated with returning or exchanging purchased items.