Carbonite 2011 Annual Report Download - page 13

Table of Contents
timing and amount of expenditures related to the development of technologies and solutions and to defend intellectual property infringement and other
claims. In addition, as a public company, we incur significant legal, accounting and other expenses, including increased costs for director and officer
liability insurance that we did not incur as a private company. We may also incur increased losses and negative cash flow in the future for a number of
reasons, and we may encounter unforeseen expenses, difficulties, complications, delays, and other unknown events. For these reasons, we expect to
continue to record net losses for the next several years and we may not be able to achieve or maintain positive cash flow from operations or profitability.
Any significant disruption in our service or loss or misuse of our customers
’ data could damage our reputation and harm our business and
operating results.
Our brand, reputation, and ability to attract, retain, and serve our customers are dependent upon the reliable performance of our service and our
customers’ ability to readily access their stored files. Our customers rely on our online backup service to store digital copies of their valuable data files,
including financial records, business information, photos, and other personally meaningful content. Our data centers are vulnerable to damage or
interruption from human error, intentional bad acts, computer viruses or hackers, earthquakes, hurricanes, floods, fires, war, terrorist attacks, power
losses, hardware failures, systems failures, telecommunications failures, and similar events, any of which could limit our customers’ ability to access
their files and could prevent us from being able to continuously back up our customers’ files. Prolonged delays or unforeseen difficulties in connection
with adding storage capacity or upgrading our network architecture when required may cause our service quality to suffer. A breach of our network
security and systems could also cause the loss or public disclosure of, or access by third parties to, our customers’ stored files. Any event that
significantly disrupts our service or exposes our customers’ stored files to misuse could damage our reputation and harm our business and operating
results, including reducing our revenue, causing us to issue credits to customers, subjecting us to potential liability, harming our renewal rates, or
increasing our cost of acquiring new customers.
The market for online backup solutions is competitive, and if we do not compete effectively, our operating results could be harmed.
We compete with both online backup providers and providers of traditional hardware-based backup systems. The market for online backup
solutions is competitive and rapidly changing. We directly compete with Prosoftnet, CrashPlan, Mozy (a division of VMWare), Norton Online Backup
(provided by Symantec), McAfee Online Backup, SOS Online Backup, and others. Certain of our features, including our remote access service, also
compete with current or potential services offered by Apple, Google, Microsoft, Amazon, and others. Certain of our planned features, including the
ability to share data with third parties, also compete with current or potential services offered by DropBox, Mozy, SugarSync, and others. With the
introduction of new technologies and market entrants, we expect competition to intensify in the future. Many of our actual and potential competitors
benefit from competitive advantages over us, such as greater name recognition, longer operating histories, more varied services, larger marketing
budgets, established marketing relationships, access to larger customer bases, major distribution agreements with computer manufacturers, internet
service providers and resellers, and greater financial, technical, and other resources. Some of our competitors may make acquisitions or enter into
strategic relationships to offer a more comprehensive service than we do. These combinations may make it more difficult for us to compete effectively.
We expect these trends to continue as competitors attempt to strengthen or maintain their market positions.
Demand for our online backup solutions is sensitive to price. Many factors, including our advertising, customer acquisition and technology costs,
and our current and future competitors’ pricing and marketing strategies, can significantly affect our pricing strategies. Certain of our competitors offer,
or may in the future offer, lower-priced or free products or services that compete with our solutions. Similarly, certain competitors may use internet-
based marketing strategies that enable them to acquire customers at a lower cost than us. There can be no assurance that we will not be forced to engage
in price-cutting initiatives, or to increase our advertising
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