8x8 2012 Annual Report Download - page 15

13
Our physical infrastructure is concentrated in a few facilities and any failure in our physical infrastructure or services
could lead to significant costs and disruptions and could reduce our revenue, harm our business reputation and have a
material adverse effect on our financial results.
Our leased network and data centers are subject to various points of failure. Problems with cooling equipment, generators,
uninterruptible power supply, routers, switches, or other equipment, whether or not within our control, could result in service
interruptions for our customers as well as equipment damage. Because our services do not require geographic proximity of our
data centers to our customers, our infrastructure is consolidated into a few large facilities. Any failure or downtime in one of
our data center facilities could affect a significant percentage of our customers. The total destruction or severe impairment of
any of our data center facilities could result in significant downtime of our services and the loss of customer data. Because our
ability to attract and retain customers depends on our ability to provide customers with highly reliable service, even minor
interruptions in our service could harm our reputation. Additionally, in connection with the expansion or consolidation of our
existing data center facilities from time to time, there is an increased risk that service interruptions may occur as a result of
server relocation or other unforeseen construction-related issues.
We have experienced interruptions in service in the past. While we have not experienced a material increase in customer
attrition following these events, the harm to our reputation is difficult to assess. We have taken and continue to take steps to
improve our infrastructure to prevent service interruptions, including upgrading our electrical and mechanical infrastructure.
However, service interruptions continue to be a significant risk for us and could materially impact our business.
Any future service interruptions could:
• Cause our customers to seek damages for losses incurred;
• Require us to replace existing equipment or add redundant facilities;
• Affect our reputation as a reliable provider of hosting services;
• Cause existing customers to cancel or elect to not renew their contracts; or
• Make it more difficult for us to attract new customers.
Any of these events could materially increase our expenses or reduce our revenue, which would have a material adverse effect
on our operating results.
Increased energy costs, power outages, and limited availability of electrical resources may adversely affect our
operating results.
Our data centers are susceptible to increased costs of power and to electrical power outages. Our customer contracts do not
contain provisions that would allow us to pass on any increased costs of energy to our customers, which could affect our
operating margins. Any increases in the price of our services to recoup these costs could not be implemented until the end of a
customer contract term. Further, power requirements at our data centers are increasing as a result of the increasing power
demands of today’ s servers. Increases in our power costs could impact our operating results and financial condition. Since we
rely on third parties to provide our data centers with power sufficient to meet our needs, our data centers could have a limited
or inadequate amount of electrical resources necessary to meet our customer requirements. We attempt to limit exposure to
system downtime due to power outages by using backup generators and power supplies. However, these protections may not
limit our exposure to power shortages or outages entirely. Any system downtime resulting from insufficient power resources or
power outages could damage our reputation and lead us to lose current and potential customers, which would harm our
operating results and financial condition.
Increased Internet bandwidth costs and network failures may adversely affect our operating results.
Our success depends in part upon the capacity, reliability, and performance of our network infrastructure, including the
capacity leased from our Internet bandwidth suppliers. We depend on these companies to provide uninterrupted and error-free
service through their telecommunications networks. Some of these providers are also our competitors. We exercise little
control over these providers, which increases our vulnerability to problems with the services they provide. We have
experienced and expect to continue to experience interruptions or delays in network service. Any failure on our part or the part
of our third-party suppliers to achieve or maintain high data transmission capacity, reliability or performance could
significantly reduce customer demand for our services and damage our business.