Enom 2011 Annual Report Download - page 22

exchange rates, establishing management systems and infrastructures, reduced protection for intellectual property rights in some countries, changes in foreign
political and economic conditions, and potentially adverse tax consequences. Our inability to expand and market our products and services internationally
may have a negative effect on our business, revenue, financial condition and results of operations.
Risks Relating to our Registrar Service Offering
We face significant competition to our Registrar service offering, which we expect will continue to intensify. We may not be able to maintain or improve
our competitive position or market share.
We face significant competition from existing registrars and from new registrars that continue to enter the market. ICANN currently has
approximately 1,000 registrars to register domain names in one or more of the generic top level domains, or gTLDs, that it oversees. There are relatively few
barriers to entry in this market, so as this market continues to develop we expect the number of competitors to increase. The continued entry into the domain
name registration market of competitive registrars and unaccredited entities that act as resellers for registrars, and the rapid growth of some competitive
registrars and resellers that have already entered the market, may make it difficult for us to maintain our current market share.
The anticipated introduction of new gTLDs by ICANN could substantially change the domain name industry in unexpected ways. If we do not
properly manage our response to the change in business environment, it could adversely impact our competitive position or market share.
The market for domain name registration and other related web-based services is intensely competitive and rapidly evolving. We expect
competition to increase from existing competitors as well as from new market entrants. Most of our existing competitors are expanding the variety of services
that they offer. These competitors include, among others, domain name registrars, website design firms, website hosting companies, Internet service
providers, Internet portals and search engine companies, including GoDaddy, Network Solutions, Tucows, Microsoft and Yahoo!. Some of these competitors
have greater resources, more brand recognition and consumer awareness, greater international scope, larger customer bases and larger bases of existing
customers than we do. As a result, we may not be able to compete successfully against them in future periods.
In addition, these and other large competitors, in an attempt to gain market share, may offer aggressive price discounts on the services they offer.
These pricing pressures may require us to match these discounts in order to remain competitive, which would reduce our margins, or cause us to lose
customers who decide to purchase the discounted service offerings of our competitors. As a result of these factors, in the future it may become increasingly
difficult for us to compete successfully.
If our customers do not renew their domain name registrations or if they transfer their existing registrations to our competitors and we fail to replace
their business, our business would be adversely affected.
Our success depends in large part on our customers’ renewals of their domain name registrations. Registrar revenue, which is closely tied to domain
name registrations represented approximately 40% and 37% of total revenue in the year ended December 31, 2010 and 2011 , respectively. Our customer
renewal rate for expiring domain name registrations was approximately 71% and 74% in the year ended December 31, 2010 and 2011 , respectively. If we are
unable to maintain or increase our overall renewal rates for domain name registrations or if any decrease in our renewal rates, including due to transfers, is not
offset by increases in new customer growth rates, our customer base and our revenue would likely decrease. This would also reduce the number of domain
name registration customers to whom we could market our other higher-margin services, thereby further potentially impacting our revenue and profitability,
driving up our customer acquisition costs and harming our operating results. Since our strategy is to expand the number of services we provide to our
customers, any decline in renewals of domain name registrations not offset by new domain name registrations would likely have an adverse effect on our
business, revenue, financial condition and results of operations.
Regulation could reduce the value of Internet domain names or negatively impact the Internet domain name acquisition process, which could
significantly impair the value attributable to our acquisitions of Internet domain names.
The acquisition of expiring domain names for development, undeveloped website commercialization, sale or other uses, involves the registration of
thousands of Internet domain names, both with registries in the United States and internationally. We have and intend to continue to acquire previously-owned
Internet domain names that have expired and that, following the period of permitted redemption by their prior owners, have been made available for
registration. The acquisition of Internet domain names generally is governed by regulatory bodies. The regulation of Internet domain names in the United
States and in foreign countries is subject to change. Regulatory bodies could establish additional requirements for previously-owned Internet domain names or
modify the requirements for holding Internet domain names. As a result, we might not acquire
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