Incredimail 2008 Annual Report Download - page 26

(Nasdaq: MSFT), some of which may also incorporate certain special features that provide a personalized email experience. Many of the large
Internet and software companies offer their email software programs free of charge. Our Magentic and PhotoJoy products’ main competitors, in
area of providers of wallpapers and screensaver offer the following products: webshots.com and screensavers.com, which offer wallpapers and
screensavers both free and premium products for a fee. Our HiYo product’s main competitors in the area of creative instant messenger tools, are
SweetIM and SmileyCentral by IAC/InterActiveCorp. Competition with these products could result in reduced prices and margins, fewer
purchases of our products and services, increased research and development costs as well as marketing expenses and loss of market share with
regard to our traditional products, or not achieving adequate market share with our new products and those currently being developed.
Our products also compete in the market for web-based email software products, such as Google’s Gmail, Yahoo! Mail and Microsoft’s
Hotmail. The web based email market is characterized with significant competition, changing technologies and evolving products and services
enhancements.
Google, Yahoo! and Microsoft are each offering a web-based e-mail service in addition to the many other services they provide, such as
desktop search, local search, instant messaging, photos, maps, video sharing, mobile applications and so on. We expect these competitors to
increasingly use their financial and engineering resources to compete with our client-based e-mail service, if we are unable to successfully
compete with them, our results of operations may be adversely affected.
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Many of our competitors have more established brands, products and customer relationships than we do, which could inhibit our market
penetration efforts even if they may not offer a customized and entertaining email experience similar to IncrediMail
®
. For example, consumers
may choose to receive an extensive package of Internet and email services from a more dominant and recognized company, such as Microsoft
Corporation (Outlook Express or MSN
®
) or America Online, Inc. (AOL
®
).
If we are unable to achieve continued market penetration, we will be
unable to compete effectively.
In addition, many of our other current and potential competitors have significantly greater financial, research and development,
manufacturing, and sales and marketing resources than we have. These competitors could use their greater financial resources to acquire other
companies to gain enhanced name recognition and market share, as well as to develop new technologies, products or features that could
effectively compete with our existing product lines. Demand for our products could be diminished by products and technologies offered by
competitors, whether or not their products and technologies are equivalent or superior.
Government Regulation
Our database, which includes a database of registered users, falls within the definition of a database that requires registration under the Israeli
Protection of Privacy Law 1981. Maintaining a database other than in compliance with this law may subject the owner, holder, manager and
operator to criminal liability and civil liability. We registered our database with the Data Base Registrar on June 20, 2004. BizChord’s database
has been registered and is in the process of completing additional aspects of its database registration.
There are still relatively few laws or regulations specifically addressing the Internet. As a result, the manner in which existing laws and
regulations should be applied to the Internet in general, and how they relate to our business in particular, is unclear in many cases. Such
uncertainty arises under existing laws regulating matters, including user privacy, defamation, pricing, advertising, taxation, gambling,
sweepstakes, promotions, content regulation, quality of products and services, and intellectual property ownership and infringement.
However, to resolve some of the current legal uncertainty, it is possible that new laws and regulations will be adopted that will be directly
applicable to our activities. Any existing or new legislation applicable to us could expose us to liability, including significant expenses necessary
to comply with such laws and regulations, and could dampen the growth in use of the Internet in general. Several new U.S. federal laws have
already been adopted that could have an impact on our business. The CAN-SPAM Act of 2003 is intended to regulate spam and create criminal
penalties for unmarked sexually-oriented material and emails containing fraudulent headers. The USA Patriot Act is intended to give the
government greater ability to conduct surveillance on the Internet by allowing it to intercept communications regarding terrorism and computer
fraud and abuse. The Digital Millennium Copyright Act is intended to reduce the liability of online service providers for listing or linking to third-
party Websites that include materials that infringe copyrights or other rights of others. The Children’s Online Protection Act, the Children’s
Online Privacy Protection Act, and the Prosecutorial Remedies and Other Tools to End Exploitation of Children Today Act of 2003, are intended
to restrict the distribution of certain materials deemed harmful to children and impose additional restrictions on the ability of online services to
collect user information from minors. In addition, the Protection of Children from Sexual Predators Act of 1998 requires online service providers
to report evidence of violations of federal child pornography laws under certain circumstances. Under the U.K. Data Protection Act and the
European Union Data Protection Directive, a failure to ensure that personal information is accurate and secure or a transfer of personal
information to a country without adequate privacy protections could result in criminal or civil penalties. Such legislation may impose significant
additional costs on our business or subject us to additional liabilities. When users visit our website or install and use our software, certain
“cookies” (pieces of information sent by a web server to a user’s browser) may be generated by us and our advertisers and may be placed on our
customers’ computers. While we believe that our use of cookies does not result in personal identification, it has been argued that Internet protocol
addresses and cookies are intrinsically personally identifiable information that is subject to privacy standards. We cannot assure you that our
current policies and procedures would meet these restrictive standards. We post our privacy policy and practices concerning the use and disclosure
of user data. Any failure by us to comply with our posted privacy policy, Federal Trade Commission requirements or other domestic or