Incredimail 2014 Annual Report Download - page 52

C. RESEARCH, DEVELOPMENT, PATENTS AND LICENSES, ETC .
Our research and development activities are conducted internally by a 267 person research and development staff. Research and
development expenses were $16.9 million, $22.4 million and $44.1 million in the years ended December 31, 2012, 2013, and 2014, respectively.
In 2014, our efforts were focused on maintaining our software products to adapt with changes to operating systems, browsers or other underlying
platforms. Additionally, we focused our research and development efforts on developing the new mobile advertising platform-
based solutions
that will offer developers (i) effective distribution tools, (ii) increased monetization capabilities, and (iii) enhanced optimization via powerful,
reliable, and easy-to-use analytics.
For a discussion of our intellectual property and how we protect it, see "Business Overview—
Intellectual Property" under Item 4.B
above.
D. TREND INFORMATION
Industry trends expected to affect our revenues, income from continuing operations, profitability and liquidity or capital resources :
1. In recent years the browser companies, particularly Google’
s Chrome, as well as other browsers, have been instituting policy changes
and regulations making it increasingly difficult to change a browser’s settings, including the ability to change a browser’
s default search
settings. Changing such settings has been a major part of the Company’
s monetization model and until now we have been successful in
overcoming these measures; however, it is becoming increasingly difficult to do so. In connection with these efforts by the browser
companies, they are also making an effort to reset the applicable browser’
s settings back to its default setting, causing us to have to
recapture our users on a more concurrent basis. These activities have shortened the average lifetime we see from users utilizing our
search settings. This has reduced the return on investment from our marketing and distribution efforts, moreover, the increased frequency
of changes has limited our visibility and therefore our ability to invest in customer acquisition. However, we believe that as the market
consolidates around accepted marketing practices, there will remain sufficient business and reasonably high profit margins to generate
significant revenues and profits.
2.
New regulations governing the ability to download software from the major software depositories such as the Google Store have limited
our ability to bundle search products, including toolbars, and other services with the other software. In the past we were successful in
working around these restrictions, but this has negatively affected our distribution to some degree and caused us to find work-
arounds
and ways for us and our software developer partners to offer and download software from alternative sites. We currently are working on
taking the business to a less intrusive and more cooperative, and user friendly direction. This will on the one hand reduce the level of
business, but on the other, we believe this will improve our reputation and ability to attract new customers, working hand-in-
hand with
the major search engine companies.
3.
The browsers and certain software depositories have restricted the ability to download multipurpose toolbars. As such, we currently do
not distribute toolbars for those browsers and through those venues and currently are not offering toolbars to new users.
4. In 2013, Google continued to institute further changes to its search partner policies, changing the way Google’
s partners (such as Perion)
acquire and retain customers. Although these changes aim to improve the user experience (which is a goal that we share), they reduced
our return on investment and we currently do not foresee it rebounding in the near future. In addition, we see these changes having long
-
term effects on the search market. We believe that our acquisition of ClientConnect has offered a viable alternative to the relationship
with Google, due to its special relationship with Microsoft, including a less restrictive policy environment. In addition, our newly
attained larger size strengthens our bargaining position in negotiating with the search engine companies. Although we have attained a
certain advantage of size and while we have increased our search engine alternatives, the limited number of relevant search engine
alternatives limits our marketing abilities, and as a result reduced the return on investment from our marketing efforts. In addition, these
policies have limited our ability to partner with software developers and distributors that are non-
compliant with the new policies,
thereby restricting our ability to grow our business at the pace we have been accustomed to in past years.
5.
In the interim, and until the market consolidates around more acceptable market practices, some of the other companies in this market
have become even more aggressive, causing the operating system companies, such as Microsoft – Windows and Apple –
is to come more
protective and also issue directives regarding what they will allow and not allow. This too has given us reason to seek “the high-ground”
with more acceptable practices, that may in the short-term hinder our distribution, but we believe in the long-
term, establish us as a
transparent, user
-
friendly company.
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