Shutterfly 2014 Annual Report Download - page 22

such products. In addition, if we experience difficulties integrating our mobile applications into mobile
devices or if problems arise with our relationships with providers of mobile operating systems or mobile
application download stores, such as Apple or Google, if our applications receive unfavorable treatment
compared to the promotion and placement of competing applications, such as the order of our products in
the Apple AppStore or Google Play, or if we face increased costs to distribute our mobile applications, our
future growth and our results of operations could suffer.
Interruptions to our websites, mobile applications, information technology systems, print production processes or
customer service operations could damage our reputation and brands and substantially harm our business and
results of operations.
The satisfactory performance, reliability and availability of our websites and mobile applications,
information technology systems, printing production processes and customer service operations are critical
to our reputation, and our ability to attract and retain customers and maintain adequate customer
satisfaction. Any interruptions that result in the unavailability of our websites or mobile applications,
reduced order fulfillment performance, or the unavailability of our customer service operations could
result in negative publicity, damage our reputation and brands, and cause our business and results of
operations to suffer. This risk is heightened in the fourth quarter, as we experience significantly increased
traffic to our websites during the holiday season. Any interruption that occurs during such time would have
a disproportionately negative impact than if it occurred during a different quarter. For example, during the
fourth quarter of 2013, a software bug caused a minority of orders from our Tiny Prints brand to go
unfulfilled. Once the bug was identified and corrected, many of those orders were not received by
customers within the expected time frame. As a result, we refunded many of those orders which reduced
net revenue, and we recognized excess costs related to expedited shipping upgrades and increased
customer service costs which impacted our gross margin and our brand.
We depend in part on third parties to implement and maintain certain aspects of our Internet and
communications infrastructure and printing systems. Therefore many of the causes of system interruptions
or interruptions in the production process may be outside of our control. As a result, we may not be able to
remedy such interruptions in a timely manner, or at all. Our business interruption insurance policies do not
address all potential causes of business interruptions that we may experience, and any proceeds we may
receive from these policies in the event of a business interruption may not fully compensate us for the
revenues we may lose.
We may have difficulty managing our growth and expanding our operations successfully.
We have website operations, offices and customer support centers in Redwood City, California, Santa
Clara, California, and Tempe, Arizona and production facilities in Fort Mill, South Carolina, Phoenix,
Arizona, and Shakopee, Minnesota and a new facility in Tempe, Arizona that is expected to be operational
in mid-2015. Our growth has placed, and will continue to place, a strain on our administrative and
operational infrastructure. Our ability to manage our operations and growth will require us to continue to
refine our operational, financial and management controls, human resource policies and reporting systems.
If we are unable to manage future expansion, we may not be able to implement improvements to our
controls, policies and systems in an efficient or timely manner and may discover deficiencies in existing
systems and controls. Our ability to provide a high-quality customer experience could be compromised,
which would damage our reputation and brands and substantially harm our business and results of
operations.
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