Shutterfly 2009 Annual Report Download - page 32

Capacity constraints and system failures could prevent access to our website, which could harm our reputation and negatively affect our net
revenues.
Our business requires that we have adequate capacity in our computer systems to cope with the high volume of visits to our website. As our
operations grow in size and scope, we will need to improve and upgrade our computer systems and network infrastructure to ensure reliable
access to our website, in order to offer customers enhanced and new products, services, capacity, features and functionality. The expansion of
our systems and infrastructure may require us to commit substantial financial, operational and technical resources before the volume of our
business increases, with no assurance that our net revenues will increase.
Our ability to provide high-
quality products and service depends on the efficient and uninterrupted operation of our computer and
communications systems. If our systems cannot be expanded in a timely manner to cope with increased website traffic, we could experience
disruptions in service, slower response times, lower customer satisfaction, and delays in the introduction of new products and services. Any of
these problems could harm our reputation and cause our net revenues to decline.
Our technology, infrastructure and processes may contain undetected errors or design faults that could result in decreased production,
limited capacity or reduced demand.
Our technology, infrastructure and processes may contain undetected errors or design faults. These errors or design faults may cause our
website to fail and result in loss of, or delay in, market acceptance of our products and services. If we experience a delay in a website release that
results in customer dissatisfaction during the period required to correct errors and design faults, we would lose revenue. In the future, we may
encounter scalability limitations, in current or future technology releases, or delays in the commercial release of any future version of our
technology, infrastructure and processes that could seriously harm our business.
We currently depend on third party suppliers for our photographic print paper, printing machines and other supplies, which expose us to
risks if these suppliers fail to perform under our agreements with them.
We have historically relied on an exclusive supply relationship with Fuji Photo Film U.S.A. to supply all of our photographic paper for
silver halide print production, such as 4×6 prints. We have an agreement with Fuji that expires in April 2010. If that agreement is not renewed
before it expires, or if Fuji fails to perform in accordance with the terms of our agreement and if we are unable to secure a paper supply from a
different source in a timely manner, we would likely fail to meet customer expectations, which could result in negative publicity, damage our
reputation and brand and harm our business and results of operations. We purchase other photo-
based supplies from third parties on a purchase
order basis, and, as a result, these parties could increase their prices, reallocate supply to others, including our competitors, or choose to
terminate their relationship with us. In addition, we purchase or rent the machines used to produce certain of our photo-
based products from
Hewlett-
Packard, which is one of our primary competitors in the area of online digital photography services. This competition may influence
their willingness to provide us with additional products or services. If we were required to switch vendors of machines for photo-
based products,
we may incur delays and incremental costs, which could harm our operating results.
We currently outsource some of our production of photo-
based products to third parties, which exposes us to risks if these parties fail to
perform under our agreements with them.
We currently outsource the production of some of our print and photo-
based products to third parties. If these parties fail to perform in
accordance with the terms of our agreements and if we are unable to secure another outsource partner in a timely manner, we would likely fail to
meet customer expectations, which could result in negative publicity, damage our reputation and brand and harm our business and results of
operations.
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