Incredimail 2010 Annual Report Download - page 12

We may be unable to maintain the usability and relevance of our existing products or to develop new products. Furthermore, we may
not develop or introduce new products or product enhancements in time to take advantage of market opportunities or achieve a significant or
substantial level of acceptance in new or existing markets. If we fail to do so, our ability to attract and retain customers could be impaired, our
competitive position may be harmed and we may be unable to generate substantial revenues.
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 are simple, safe and useful, and our
ability to maintain these characteristics in our email client and offering it in other existing products or those that will be bought or internally
developed in the future. 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 growing popularity of web based mail and its increased functionality and mobility negatively affect the potential
market demand for our PC based email client. 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 lack of growth in the U.S. and European economies
following on a couple of years of weak performance have resulted in continued negative pressure on consumer spending and have impacted
consumers in our territories in ways that could negatively affect our business. In the event that the United States or Europe experience a return to
the economic downturn, or the current economic climate 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, and this remains an important part of our growth strategy
going forward. 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 declining, as web based solutions are gaining in their popularity.
Our products compete in the market for email software products and services that aim to offer a customized personal, productive and
entertaining email experience for consumers. Our main competitors are those providing a web based email solution, not requiring the user to
download software while providing a very mobile and accessible tool. Some of these are or will provide a downloadable email client as
well. While there are advantages and disadvantages to each method and system and the markets for each of them remain large, the market for
web based systems is growing at the expense of downloadable email clients. In addition, many of our competitors providing a web based
solution have more established brands, products and customer relationships than we do, which could inhibit our market penetration efforts even
if they may not offer features 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 Google (Gmail), Microsoft Corporation (HotMail), Facebook, or Yahoo!
(Yahoo Mail).
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