Incredimail 2013 Annual Report Download - page 10

We may become liable to unforeseen risks and liabilities associated with the acquired ClientConnect business.
In the course of integrating the acquired ClientConnect business into our own business, we may discover risks and liabilities that were
not anticipated at the time of the acquisition. We may also become subject to liabilities arising from the conduct of the ClientConnect business
prior to the time of acquisition. These risks and liabilities could adversely affect our business, financial condition and results of operations.
The generation of revenues from search activity has become subject to fierce competition. We obtain a significant portion of our
revenues from searches made by users of our search properties. If we cannot compete effectively in this market, our revenues are likely
to decline.
We obtain a significant portion of our revenues through designating the Company as the default search provider during the download of
our products and those of our partners. We therefore are constantly looking for ways to convince potential users to accept our offering,
designating the Company as its default search provider and accept the other search properties offered. To achieve these goals, we rely heavily on
third-party publishers to distribute our search syndication services as a value-
added component of their own software product offerings. In
exchange, we pay incentive fees based on a number of factors, including our projection of the potential revenues derived from these
engagements. There are a growing number of companies that generate an increasing amount of their revenues from searches, some of them with
a more significant presence than ours and with greater capability to offer substantially more content, and others utilizing aggressive marketing
practices that we are unwilling to use as it detracts from the user experience or are not permitted by our agreements or accepted practices. In
addition, with competition growing, even the larger and in the past more conservative companies (such as Google, Microsoft and others) have
become increasingly aggressive in their search service offering. Therefore, our ability to attract new users to install our search assets and to
retain existing users, could suffer, preventing or delaying our ability to increase our revenues, or even causing them to decline.
The marketing of our search services significantly relies on our ability to advertise and distribute our products together with the
distribution of free software from other companies. Should Microsoft, Google or our other search partners institute material changes in
our ability to partner with distribution partners, it would be more difficult to acquire new customers and would adversely affect our
revenues .
Our reliance on advertising for acquiring new customers in conjunction with other companies distributing other free software products
has grown and is an integral part of our plans to continue to achieve rapid growth. These distribution partnerships are regulated by our search
partners, including Microsoft and Google. While abiding by search providers’
policies and guidelines, we seek to optimize the installation
process in order to increase users’
selection of search services. In particular, we have adopted an "opt out" approach to the installation process in
the United States and Canada, pursuant to which, when users install a toolbar or other products containing a search engine, the option to have the
search engine serve as their primary search provider is presented as the default option. Users are required to unselect each feature of the toolbar’
s
or other product’
s search services if they do not wish to install the search functions of the product on their computers. This method of
distribution has been very effective for us in the past and has significantly contributed to our growth. Should our search partners continue to
implement changes to their guidelines, including the further restriction of the "opt out" feature, or restrict us from working with other distribution
partners, our ability to market our products and search services would be limited and our results of operations could be materially adversely
affected.
• retaining our legacy customers and sales distribution channels, as well as those of the ClientConnect business;
• fully incorporating ClientConnect's technology and products into our legacy technology and product lines;
•
continuing to demonstrate to the customers of the ClientConnect business that the acquisition has not resulted in any adverse
changes in customer service standards or product support;
•
ensuring that the employees of the legacy business as well as the employees of ClientConnect are comfortable with the business
culture of the combined companies; and
• maintaining employee morale and retaining key employees.
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