Shutterfly 2013 Annual Report Download - page 24

If we are unable to attract customers in a cost-effective manner, or if we were to become subject to e-mail blacklisting,
traffic to our websites would be reduced and our business and results of operations would be harmed.
Our success depends on our ability to attract customers in a cost-effective manner. We rely on a variety
of methods to bring visitors to our websites and promote our products, including paying fees to third
parties who drive new customers to our websites, purchasing search results from online search engines,
e-mail and direct mail. We pay providers of online services, search engines, directories and other websites
and e-commerce businesses to provide content, advertising banners and other links that direct customers
to our websites. We also use e-mail and direct mail to offer free products and services to attract customers,
and we offer substantial pricing discounts to encourage repeat purchases. Our methods of attracting
customers, including acquiring customer lists from third parties, such as our acquisitions of customer lists
from Kodak, Fuji, American Greetings, Sony and Yahoo!, can involve substantial costs, regardless of
whether we acquire new customers. Even if we are successful in acquiring and retaining customers, the cost
involved in these efforts impacts our results of operations. Customer lists are typically recorded as
intangible assets and may be subject to impairment charges if the fair value of that list exceeds its carrying
value. These potential impairment charges could harm our results from operations. If we are unable to
enhance or maintain the methods we use to reach consumers, if the costs of attracting customers using
these methods significantly increase, or if we are unable to develop new cost-effective means to obtain
customers, our ability to attract new customers would be harmed, traffic to our websites would be reduced
and our business and results of operations would be harmed.
In addition, various private entities attempt to regulate the use of e-mail for commercial solicitation.
These entities often advocate standards of conduct or practice that significantly exceed current legal
requirements and classify certain e-mail solicitations that comply with current legal requirements as
unsolicited bulk e-mails, or ‘‘spam.’’ Some of these entities maintain blacklists of companies and
individuals, and the websites, Internet service providers and Internet protocol addresses associated with
those entities or individuals that do not adhere to what the blacklisting entity believes are appropriate
standards of conduct or practices for commercial e-mail solicitations. If a company’s Internet protocol
addresses are listed by a blacklisting entity, e-mails sent from those addresses may be blocked if they are
sent to any Internet domain or Internet address that subscribes to the blacklisting entity’s service or
purchases its blacklist. From time to time we are blacklisted, sometimes without our knowledge, which
could impair our ability to market our products and services, communicate with our customers and
otherwise operate our business. In addition, we have noted that unauthorized ‘‘spammers’’ utilize our
domain name to solicit spam, which increases the frequency and likelihood that we may be blacklisted.
Our business could be negatively affected by changes in search engine algorithms and dynamics, or search engine
disintermediation.
We rely on Internet search engines such as Google, Bing and Yahoo!, including through the purchase
of keywords related to photo-based products, to generate traffic to our websites. We obtain a significant
amount of traffic via search engines and, therefore, utilize techniques such as search engine optimization
and search engine marketing to improve our placement in relevant search queries. Search engines,
including Google, Bing and Yahoo!, frequently update and change the logic that determines the placement
and display of results of a user’s search, such that the purchased or algorithmic placement of links to our
websites can be negatively affected. Moreover, a search engine could, for competitive or other purposes,
alter its search algorithms or results causing our websites to place lower in search query results. If a major
search engine changes its algorithms in a manner that negatively affects our paid or unpaid search ranking,
or if competitive dynamics impact the effectiveness of search engine optimization or search engine
marketing in a negative manner, our business and financial performance would be adversely affected,
potentially to a material extent.
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