Shutterfly 2012 Annual Report Download - page 25

If either facility where our computer and communications hardware is located fails or if any of our production
facilities 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 computer hardware necessary to operate our websites is located at one
third-party hosting facility in Santa Clara, California, and our production facilities are located in Charlotte,
North Carolina and Phoenix, Arizona. Our systems and operations could suffer damage or interruption
from human error, fire, flood, power loss, insufficient power availability, telecommunications failure,
break-ins, terrorist attacks, acts of war and similar events. In addition, Santa Clara is located near a major
fault line increasing our susceptibility to the risk that an earthquake could significantly harm the operations
of these facilities. We maintain business interruption insurance; however, this insurance may be insufficient
to compensate us for losses that may occur, particularly from interruption due to an earthquake which is
not covered under our current policy. We do not presently have redundant systems in multiple locations. In
addition, the impact of any of these disasters on our business may be exacerbated by the fact that we are
still in the process of developing our formal disaster recovery plan and we do not have a final plan in place.
Capacity constraints and system failures could prevent access to our websites, 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 websites. As our operations grow in size and scope, we continually need to improve
and upgrade our computer systems and network infrastructure to ensure reliable access to our websites, 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 websites 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 4x6 prints. In August 2012, we
23