8x8 2016 Annual Report Download - page 21

Failure of our information technology systems to function properly could result in significant business disruption.
We rely on IT systems to manage numerous functions of our internal operations. Our third party ERP software is not operating on the vendor's most updated
version of the software. Furthermore, we have internally developed IT systems that are not integrated with our ERP system. These IT systems require specialized
knowledge for which we have to train new personnel, and if we were to experience an unusual increase in attrition of our IT personnel, we may not be adequately
equipped to respond to an IT system failure. Although we have never experienced significant disruption of our IT systems based on the current infrastructure, any
failure of our IT systems could result in a significant business disruption.
We are in the process of transitioning to a new ERP software provider, and we face risks relating to this transition. For example, we may incur greater costs than
we anticipate to train our personnel on the new system; we may experience more errors in our records during the transition; and we may be delayed in meeting our
various reporting obligations. To the extent any of these risks or events impact our customer service, we may experience an increase in customer attrition, which
could have a material adverse impact on our results of operations.
We may incur significant costs to meet the commitments under our service level agreements, and our failure to meet these commitments could result in a
loss of customers and expected revenue.
We offer some of our customers an "end-to-end" service level agreement (SLA) with commitments as to levels of service availability and voice quality for calls
transmitted over the public Internet that are among the most stringent in our industry. These SLAs typically provides a commitment of at least 99.99% uptime and
a mean opinion score of at least 3.0 for at least 98% of all calls carried over the network. All of our SLAs further require rapid response times in order to resolve
issues. We may incur significant network support and maintenance costs in order to meet these commitments.
We have in the past and may in the future experience network failures, software bugs or other problems that interrupt service or impair call quality. If these
problems are severe enough in duration or frequency, we may not satisfy our service level commitments under our SLAs, as a result of which our customers could
be entitled to credits against future amounts due under contract, early termination rights or other remedies against us. If a sufficient number of customers exercise
these remedies, the resulting reduction in revenue could have a material adverse effect on our results of operations.
We depend on third-party vendors for IP phones and software endpoints, and any delay or interruption in supply by these vendors would result in
delayed or reduced shipments to our customers and may harm our business.
We rely on third-party vendors for IP phones and software endpoints required to utilize our service. We currently do not have long-term supply contracts with any
of these vendors. As a result, most of these third-party vendors are not obligated to provide products or services to us for any specific period, in any specific
quantities or at any specific price, except as may be provided in a particular purchase order. The inability of these third-party vendors to deliver IP phones of
acceptable quality and in a timely manner, particularly the sole source vendors, could adversely affect our operating results or cause them to fluctuate more than
anticipated. Additionally, some of our products may require specialized or high-performance component parts that may not be available in quantities or in time
frames that meet our requirements.
We currently purchase most of our IP phones from Polycom. On April 15, 2016, Polycom announced that it had entered into a definitive merger agreement with
Mitel pursuant to which Mitel would acquire control over Polycom. Because Mitel is a competitor of ours, its acquisition of Polycom would pose a number of risks
to our business if we continue to purchase IP phones from Polycom, including risks relating to our sharing of confidential information around potential sales
opportunities.
If we do not or cannot maintain the compatibility of our communications and collaboration software with third-party applications and mobile platforms
that our customers use in their businesses, our revenue will decline.
The functionality and popularity of our cloud software solutions depends, in part, on our ability to integrate our services with third-party applications and
platforms, including enterprise resource planning, customer relations management, human capital management and other proprietary application suites. Third-party
providers of applications and application programmable interfaces, or APIs, may change the features of their applications and platforms, restrict our access to their
applications and platforms or alter the terms governing use of their applications and APIs and access to those applications and platforms in an adverse manner.
Such changes could functionally limit or terminate our ability to use these third-party applications and platforms in conjunction with our services, which could
negatively impact our offerings and harm our business. If we fail to integrate our software with new third-party back-end enterprise applications and platforms used
by our customers, we may not be able to offer the functionality that our customers need, which would negatively impact our ability to generate revenue and
adversely impact our business.
Our services also allow our customers to use and manage our cloud software solutions on smartphones, tablets and other mobile devices. As new smart devices and
operating systems are released, we may encounter difficulties supporting these devices and services, and we may need to devote significant resources to the
creation, support, and maintenance of our mobile applications. In addition, if we experience difficulties in the future integrating our mobile applications into
smartphones, tablets or other mobile devices or if problems arise with our relationships with providers of mobile operating systems, such as those of Apple Inc. or
Google Inc., our future growth and our results of operations could suffer.
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