8x8 2015 Annual Report Download - page 19

costs. Our failure to maintain adequate research and development resources, to compete effectively with the research and development programs
of our competitors and to successfully monetize our research and development efforts could materially and adversely affect our business and
results of operations.
We may not be able to scale our business quickly enough to meet our customers' growing needs and if we are not able to grow
efficiently, our operating results could be harmed.
As usage of our communications and collaboration services by mid-market and larger distributed enterprises expands and as customers continue
to integrate our services across their enterprises, we will need to devote additional resources to improving our application architecture,
integrating our products and applications across our technology platform, integrating with third-party systems, and maintaining infrastructure
performance. As our customers gain more experience with our services, the number of users and transactions managed by our services, the
amount of data transferred, processed and stored by us, the number of locations where our service is being accessed, and the volume of
communications managed by our services have in some cases, and may in the future, expand rapidly. In addition, we will need to appropriately
scale our internal business systems and our services organization, including customer support and services, to serve our growing customer base.
Any failure of or delay in these efforts could cause impaired system performance and reduced customer satisfaction. These issues could reduce
the attractiveness of our cloud communications and collaboration services to customers, resulting in decreased sales to new customers, lower
renewal rates by existing customers, the issuance of service credits, or requested refunds, which could hurt our revenue growth and our
reputation. Even if we are able to upgrade our systems and expand our staff, any such expansion will be expensive and complex, requiring
management time and attention and increasing our operating expenses. We could also face inefficiencies or operational failures as a result of our
efforts to scale our infrastructure. Moreover, there are inherent risks associated with upgrading, improving and expanding our information
technology systems. We cannot be sure that the expansion and improvements to our infrastructure and systems will be fully or effectively
implemented on a timely basis, if at all. These efforts may reduce revenue and our margins and adversely impact our financial results.
To provide our services, we rely on third parties for all of our network connectivity and co-location facilities.
We currently use the infrastructure of third-party network service providers, including the services of Equinix, Inc., and Level 3
Communications, Inc., to provide all of our cloud services over their networks rather than deploying our own networks.
We also rely on third-party network service providers to originate and terminate substantially all of the PTSN calls using our cloud-based
services. We leverage the infrastructure of third party network service providers to provide telephone numbers, PSTN call termination and
origination services, and local number portability for our customers rather than deploying our own network throughout the United States. This
decision has resulted in lower capital and operating costs for our business in the short-term, but has reduced our operating flexibility and ability
to make timely service changes. If any of these network service providers cease operations or otherwise terminate the services that we depend
on, the delay in switching our technology to another network service provider, if available, and qualifying this new service provider could have a
material adverse effect on our business, financial condition or operating results. The rates we pay to our network service providers may also
increase, which may reduce our profitability and increase the retail price of our service.
While we believe that relations with our current service providers are good, and we have contracts in place, there can be no assurance that these
service providers will be able or willing to supply cost-effective services to us in the future or that we will be successful in signing up alternative
or additional providers. Although we believe that we could replace our current providers, if necessary, our ability to provide service to our
subscribers could be impacted during this any such transition, which could have an adverse effect on our business, financial condition or results
of operations. The loss of access to, or requirement to change, the telephone numbers we provide to our customers also could have a material
adverse effect on our business, financial condition or operating results.
Due to our reliance on these service providers, when problems occur in a network, it may be difficult to identify the source of the problem. The
occurrence of hardware and software errors, whether caused by our service or products or those of another vendor, may result in the delay or loss
of market acceptance of our products and any necessary revisions may force us to incur significant expenses. The occurrence of some of these
types of problems may seriously harm our business, financial condition or operating results.
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