Incredimail 2008 Annual Report Download - page 36

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much more graphically advanced user interface.
Our research and development expenditures were $3.2 million, $6.1 million and $7.6 million, in the years ended December 31, 2006, 2007
and 2008, respectively. Although we intend to continue our investment in product development, with the suspension of continued development of
some of our products and the completion of others, we expect our expenditures on research and development to decrease in 2009.
Sales. The increase in sales in 2008 compared to 2007 was due to the continued increase in search generated revenues. We continue to
believe that the potential for growth in search generated revenues is much greater than product sales. This is based on the introduction of our
search model in our recently introduced HiYo product as well as optimizing these revenues from our other products. These revenues are less
seasonal than revenue from products and we therefore expect that our total revenues will be less seasonal than in past years. In June 2008 we
launched HiYo , our graphic and instant messaging enhancement tool, and in December 2008 we also released the Beta of a new version of our
back-bone email client product IncrediMail
®
, with a prospective launch in 2009. We expect these products to contribute to our revenues in the
upcoming year.
R&D . R&D expenses have increased over the last few years. We expect this trend to slightly reverse next year as we have discontinued
some of our development efforts and will have completed some of the others. We currently do not intend to develop new products, so that future
R&D investments will be devoted to further enhancing and improving our existing products.
Sales and Marketing Expenses
. Our sales and marketing expenses increased significantly in 2007 and even more so in 2008. The increase in
2008 was primarily a result of media buying expenses, which totaled $3.5 million in 2008, as well as increasing the marketing staff. The
investment in media buying was to “jump-start” registrations in our recently released HiYo product as well as maintain the registration level of
our IncrediMail email product. In 2009 we have discontinued all media buying for our HiYo product, having achieved the goals set out and able to
rely on entirely viral marketing. In addition we have reduced our investment in media buying for our IncrediMail email product in light of the
current economic conditions and our increased focus on profitability. As a result, we can expect selling and marketing expenses to decrease in
2009.
General and Administrative expenses
. G&A expenses increased over the last few years, however, in 2008 we have succeeded in maintaining
the same level of expenditure as in 2007, and as a percentage of sales, these expenses decreased from 20% in 2007 to 17% in 2008. We expect to
be able to maintain the 2008 level of expenditure in 2009, so that G&A expenses will continue to representing a decreasing percentage of our
revenues.
Industry trends expected to affect our revenues, income from continuing operations, profitability and liquidity or capital resources :
38
D.
TREND INFORMATION
1. In recent years, we have witnessed an increase in the use of web-based e-mail solutions such as MSN Hotmail and Yahoo! Mail.
Google’s Gmail, a relatively new addition to this market, is becoming increasingly popular, and home users are gradually choosing
Gmail as their preferred web-based solution over other solutions. Unlike Hotmail and Yahoo! Mail, which do not support the POP3
mail protocol and are therefore not compatible with e-mail clients, Gmail fully supports POP3 and is compatible with e-mail clients
such as IncrediMail
®
. We believe that IncrediMail will benefit from Gmail’s growing popularity, as users are able to access their
Gmail accounts via IncrediMail
®
and are likely to choose this option.
2. The storing of digital photos on personal computers, and on photo hosting sites such as Flickr.com, has increased substantially in
recent years. The convenience of such online storage of photos has caused a decrease in usage of regular printed picture albums.
However, a problem often experienced by people that store their photos on their hard disk or on a photo-hosting site is that they
simply do not enjoy their photos as they had previously. In the past, people spent time looking through their photo albums, but
today photos are saved in a computer folder and easily forgotten about or lost. Access to photos saved on personal computers is not
immediate and is somewhat tedious; hence, old favorite photos are neglected over time. PhotoJoy , which we have completed
developing, is aimed to address this problem, by enabling users to enjoy all the photos that they have stored on their computer or
online using new capabilities, with no effort from the user. Photos can be revealed on the users’ desktop constantly, in more
creative and high-quality ways than those available on the web. Some examples of PhotoJoy’s features are 3D Photo Screensavers
showing the users’ photos and enriched with a variety of styles and designs, fun desktop widgets that display users’ photos in
creative and playful ways (nicknamed “PhotoToys”), and Collage Wallpapers presenting photos within various themes, sceneries,
and illustrations. In addition, the software lets users take photos stored on other photo web sites (such as Flickr and Picasa) and
enjoy them using
PhotoJoy
’
s
fun capabilities.
3. In recent years, we have witnessed an increased use by younger customers of Instant Messaging and various social networks as
their preferred means of communication. In May 2008 we launched HiYo , a graphic and communication enhancement tool for
instant messaging products, which is aimed to enhance the Instant Messaging experience and make it much more enjoyable for
today’s teens and young adults. HiYo offers IncrediMail’s high-quality creative content incorporated seamlessly within Windows
Live Messenger
, thus enabling users to customize and personalize their conversations, express themselves and most importantly
generate enjoyment from chatting with friends on Windows Live Messenger . We believe that HiYo , which is aimed to the younger