Incredimail 2008 Annual Report Download - page 9

If we cannot scale and manage our business appropriately, we will not experience our projected growth and our financial results will suffer.
Our results of operations and financial condition may be adversely impacted by worldwide economic conditions.
Our primary user base is composed of individual consumers. The current overall weakness in the U.S. and European economies, have
resulted in considerable negative pressure on consumer spending and have impacted consumers in our territories in ways that could negatively
affect our business. In the event the current economic downturn in the United States and Europe continues or worsens, our current and potential
software license subscribers may be unable or unwilling to purchase our licensing services as well as have a negative impact on consumer internet
spending and search generated revenues. Both of which would negatively impact our sales and revenue generation, margins and operating
expenses, and consequently have a material adverse effect on our business, results of operations and financial condition.
Due to our limited history of operations, evolving business model and rapid changes in the Internet, we may not be able to predict our
future performance or continue our revenue growth or profitability.
We were incorporated in November 1999 and commercially launched our first product in the third quarter of 2000. Since then, we have
introduced new products almost every year. Consequently, we have a limited history of operations from which to predict our future performance.
Since then we have introduced numerous products and marketing initiatives, addressing these changes some of which have been unsuccessful. The
future viability of our business will depend on our ability to increase product sales, introduce new products appealing to the Internet market,
increase search generated and advertising revenues, exploit our brand name and control our costs, which we may be unable to do. As a result, we
may not be able to continue our revenue growth or profitability.
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Our continuing “viral growth” could be adversely affected if we do not increase the number of our registered users or if users stop using
our software.
To date, we have relied primarily on “viral growth” to increase our user base. This method is of relatively low cost, while its effectiveness
has been decreasing. Other marketing methods, while effective, are far more costly. If users of our products stop, reduce, or limit their usage, our
viral growth will be diminished because they will no longer be forwarding links to our site via their emails, and our market share and revenues
may decrease. Our historical experience with usage of our products indicates that usage of products declines rapidly, currently estimated to be up
to six years. Therefore, in order to induce our existing users to continue to use our products, we must continuously enhance our existing products
and develop new ones. If we cannot offer such products, because of lack of resources, competition or other reasons described elsewhere in these
Risk Factors, our distribution, revenues and results of operations will be adversely affected.
The market for email software products and services is highly competitive, and if we cannot compete effectively, our revenues will decline
and we will be unable to gain or retain market share.
Our products compete in the market for email software products and services that aim to offer a customized and entertaining email
experience for consumers, including features such as graphic email notifiers, software skins, email backgrounds and multimedia content. Our main
competitors among specialized providers of email services offer the following products: FunWeb Products™, Hotbar
®
and WikMail, all of which
incorporate special features that provide a personalized email experience. In addition, our products also face competition from general email
software programs offered to the private market by large Internet and software companies, such as AOL9 by America Online, Inc., Thunderbird
®
by Mozilla Foundation and Outlook Express and MSN9 by Microsoft Corporation (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. Competition with these products could result in fewer downloads of our product, reduced prices and margins, fewer
purchases of our products and services and loss of market share.
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
—
implementing appropriate operational and financial systems and controls;
—
expanding our sales and marketing infrastructure and capabilities; and
—
maintaining the commitment of our employees.