Incredimail 2009 Annual Report Download - page 43

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E. OFF-BALANCE SHEET ARRANGEMENTS
We do not have off-
balance sheet arrangements (as such term is defined by applicable SEC regulations) that have or are reasonably
likely to have a current or future effect on our financial condition, changes in financial conditions, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that are material to investors.
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 most of the major instant
messaging platforms, thus enabling users to customize and personalize their conversations, express themselves and most importantly
generate enjoyment from chatting with friends on these platforms. We believe that HiYo
, which is aimed to the younger audience, will
enable us to effectively reach this significant demographic segment. Since its launch in May 2008, the number of registered downloads
has passed 8.5 million.
4.
With the growing usage of e
-
mail as a form of daily communication, spam has become a major threat to home users, and as a result
methods of blocking and avoiding spam have become commonly used by home users. As e-
mail usage is continuing to grow with time,
so is the usage of Anti-Spam mechanisms. IncrediMail's subscription-based anti-spam tool, JunkFilter Plus
created especially for
IncrediMail’s
e-mail client, blocks such Spam from entering IncrediMail
®
users' Inboxes. As Spam threats are consistently increasing,
we believe that the need to purchase IncrediMail's Anti-
Spam mechanism will sustain the current level of revenue from sales of our
JunkFilter Plus
product. However, offsetting this effect is the trend of freely available anti-
spam services by large web based email
providers such as Gmail by Google, HotMail by Microsoft and others. We believe this already has had a negative effect on our revenues
from JunkFilter subscriptions, and could continue going forward.
5.
There has been a growing usage of portable platforms bridging between the mobile phone and the PC, enabling users to enjoy a more
graphic and creative experience, while not requiring a PC. This trend is most prominent with the advent of the iPhone
TM
and since then
other similar “smart phone”
products. Although this trend is attracting an increasing portion of the market, we believe that particularly
with regard to our demographic, the PC environment will remain the predominant platform for managing emails in the near future.
6.
Recently there has been a trend of market leaders in different areas to incorporate services from other areas. An example of this has been
the social network leader Facebook with their increasing penetration into instant messaging and now email. This trend has caused us to
focus efforts in accommodating the Facebook platform, but could radically change the competition and integration scenario for the
Company.
7.
As over 75% of our revenues are search generated, we are affected by the general trends and metrics of the search revenue market. One
of the most significant metrics is the cost per click (“CPC”)
rate. In an economic downturn, the amount advertisers are willing to pay
naturally declines, reducing the CPC rate and subsequently our revenues. The CPC rate has fluctuated dramatically over the past months
and it is difficult to predict a specific trend in this important metric going forward.
8.
There have also been conflicting trends regarding the enabling of multiple product offerings during the download process of a particular
product chosen by users. Some companies perceive that method of offering to be less user-
friendly and as such there is a trend for not
enabling or hampering the download of products not proactively chosen by the user. A reverse trend, sometimes employed even by the
same companies, is to continue, and sometimes even more aggressively employ this method of marketing, as the search market becomes
more competitive. It is difficult to predict at which point these conflicting tends will reach equilibrium.
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