LeapFrog 2007 Annual Report Download - page 25

net sales of the classic LeapPad platforms in our U.S. Consumer business peaked in 2002 and have since been
declining. We must continuously develop new products. The timely introduction of new products and the
enhancement and extension of existing products, through the introduction of additional software or by other
means, is critical to our future sales growth. To remain competitive, we must continue to develop new
technologies and products and enhance existing technologies and product lines, as well as successfully integrate
third-party technology with our own.
The successful development of new products and the enhancement and extension of our current products
will require us to anticipate the needs and preferences of consumers and educators and to forecast market and
technological trends accurately. Consumer preferences, and particularly children’s preferences, are continually
changing and are difficult to predict. In addition, educational curricula change as states adopt new standards. The
failure to enhance and extend our existing products or to develop and introduce new products and services that
achieve and sustain market acceptance and produce acceptable margins would harm our business and operating
results.
In 2008, we expect to introduce a number of new products and services to the market and we expect these
new products to represent a substantial portion of our 2008 sales. We cannot assure you that any new products or
services will be successful or accepted and adopted by the consumers, and if these new products are not
successful, our business results will be adversely affected.
If we are unable to successfully launch, market and operate our web-connected products and the software
that is required for their use, the sales of our products and our business results could suffer.
In 2008, we are launching a number of web-connected products that will require parents to download
software onto their computers, connect to the Internet and create online accounts in order to access the full
capabilities and features of these products and our Internet-based LeapFrog Learning Path. For example, while
the title included with the purchase of our Tag reading system can be used by the child straight out of the box, in
order to add and manage new content on the Tag reader and to connect to our LeapFrog Learning Path
application, parents will need to install our LeapFrog Connect software onto their computers and log onto our
website. Many toys and other products targeted towards children do not require the use of a computer or
connection to the Internet, and parents who do not have access to or are not facile with a computer or the Internet,
may react adversely to our new web-connected products. In addition, if the LeapFrog Learning Path or other
online features of our web-connected products are not accepted or adopted by parents, or if children have a
negative reaction to the parental feedback aspect of the LeapFrog Learning Path, our business may be adversely
affected.
Further, as we launch these new products and software and Internet applications, we may have technical
malfunctions or compatibility issues with the computer systems and equipment of the users of our products that
could also reduce the adoption of our web-connected products, which in turn could adversely affect our business.
Privacy concerns about our web-connected products and related software and applications could harm
our business or reputation.
By using the Internet-based LeapFrog Learning Path application, information captured by our
web-connected products about a child’s performance and activities will be transferred and stored on our website
servers. Due to privacy, confidentiality and security concerns, parents may not want our products collecting
information about their child’s activities and performance and may not feel comfortable uploading and storing
this information on our website servers. If these concerns prevent parents from accepting or adopting our
connected products, the sales of our products and our business results could suffer. In addition, if the
confidentiality of such information stored on our website servers is compromised or breached by third-parties or
our mismanagement, our reputation could be tarnished, which in turn could adversely affect our operating results.
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