Incredimail 2009 Annual Report Download - page 11

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If we are unable to establish and increase market acceptance of our products, we will not expand our business and our revenues could
decline.
Our basic software products are currently supplied to our customers free of charge. We will be able to increase product revenues only if
we can create and maintain a substantial market demand for our products, including acceptance of the search properties offered with them, and to
a certain extent our enhanced software products, for which we currently charge a one-time license, or subscription fee.
Our ability to execute our business strategy depends on market demand for software programs that create a customized and entertaining
email, instant messaging or computer desktop experience of the kind provided by our products. For instance, the fact that many email users have
multiple email clients and accounts, many of which are likely provided to them free of charge by large Internet and software companies
positively affects the potential market demand for our enhanced email software products. On the other hand, the fact that many instant messaging
software providers offer a graphic and entertaining user experience negatively affects the potential market demand for our enhanced instant
messaging software product. The rate of adoption and acceptance of our products may be affected adversely by changing consumer preferences,
product obsolescence, technological change, market competition, development and acceptance of non-
Internet mediums of communication and
our products’ quality and novelty.
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. This would also have a negative impact on consumer
internet spending and search generated revenues. A reduction in the purchasing of our licensing services, consumer internet spending and search
generated revenues have had a negative impact in the past, and may possibly have a greater negative impact in the future, on 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.
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, however 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 periodically 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™, and WikMail, 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 Corporation and Outlook Express and WLM 2009 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.
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