Enom 2013 Annual Report Download - page 22

We have limited experience operating a gTLD registry and providing back-end infrastructure services to new or existing registries. If we are
unsuccessful in operating a gTLD registry or providing back-end infrastructure services, our business, future growth, financial condition
and results of operations would be adversely affected.
In addition to pursuing the right to operate our own gTLD registries, a subsidiary of ours has been selected to provide technical back-end
infrastructure services for new gTLD operator rights acquired by Donuts (collectively, our “gTLD Initiative”). We have limited experience as an
operator of domain name registries for gTLD strings and limited experience providing technical back-end infrastructure services to registries.
We may not be successful in implementing the businesses associated with our gTLD Initiative. If we are unsuccessful in implementing our
gTLD Initiative, we may lose some of our current and future investment in our gTLD Initiative and the return on investment in our gTLD
Initiative may not meet our current expectations justifying such investment. The loss of some of our investment or lower than expected return on
investment in our gTLD Initiative could adversely affect our future growth, financial condition and results of operations.
We expect to face significant competition to our registry services business and we may not be able to develop or maintain significant market
share.
Prior to the launch of the New gTLD Program, there were over 20 gTLD registries and over 290 ccTLD registries. We expect to face
competition in the domain name registry space from other established and more experienced operators in these service offerings, including
existing gTLD and ccTLD registries, as well as new entrants into the domain name industry, some of which have greater financial, marketing
and other resources. In particular, we expect to face direct competition with other new gTLD registries offering gTLDs in similar verticals to our
offerings. For example, we may offer the ability to register .dentist domain names, while a competitor may offer the ability to register .dental
domain names.
Other registries with more experience or with greater resources than us may launch marketing campaigns for new or existing TLDs, which
result in registrars or their resellers giving other TLDs greater prominence on their websites, advertising or marketing materials. In addition, such
registries could offer aggressive price discounts on the gTLDs they offer or bundle gTLDs as a loss leader with other services. If we are unable
to match o r beat such marketing and pricing initiatives, or are otherwise unable to successfully compete with existing and new registries, we
may not be able to develop, maintain and grow significant market share for our new gTLD offerings, and our business, financial condition and
results of operation would be adversely affected.
A significant portion of the future revenue generated by our domain name business is expected to be derived from our registry services
business. If we are unsuccessful in marketing and selling our gTLDs or there is insufficient consumer demand for our gTLDs, our future
business and results of operations would be materially adversely affected.
Our registry services business, which will derive most of its revenue from registration fees for domain names, is expected to generate a
significant portion of our domain name business revenue in the future. The new gTLDs we intend to offer to the market are untested and it is
unclear what the market size or demand is or will be for these new offerings . There can be no guarantees that consumers will demand or accept
new gTLDs in general or our new gTLDs in particular.
Our registry services business will be substantially dependent upon third-parties to market and distribute our gTLDs and we would be
adversely affected if these relationships do not materialize or are terminated or diminished.
We expect a large portion of our gTLD sales to be made through third-party channels, including resellers currently on our platform and
third-party registrars. Our distribution partners may also offer our competitors’ gTLDs. The extent to which our third-party distribution partners
sell our gTLDs will be partly a function of pricing, terms and special marketing promotions offered by us and our competitors. Our agreeme nts
with our third-party distribution partners are generally nonexclusive and may be terminated by them or by us without cause. Our business would
be adversely affected if such distribution partners chose not to offer our gTLDs at all or chose to sell greater amounts of competitive offerings
relative to the amount they sell of our offerings.
If our registrar 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 registrar customers’ renewals of their domain name registrations. Registrar service revenue,
which is closely tied to domain name registrations, represented approximately 38% and 35% of total revenue in the years ended December 31,
2013 and 2012, respectively. Our customer renewal rate for expiring domain name registrations was approximately 70% and 72% in the years
ended December 31, 2013 and 2012, 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, which could further harm our revenue and profitability, drive up our customer acquisition costs
and negatively impact our operating results. Since our strategy is
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