ServiceMagic 2010 Annual Report Download - page 17

Table of Contents
in attracting advertisers and serving up paid listings in response to search queries. In addition, Google makes judgments about the relative
attractiveness (to the advertiser) of clicks on paid listings from searches performed on our search services and these judgments factor into the
amount of revenue we receive. Changes to Google's paid listings network efficiency or its judgment about the relative attractiveness of clicks on
paid listings from our search services could have an adverse effect on our business, financial condition and results of operations. Such changes
could come about for a number of reasons, including general market conditions, competition or policy and operating decisions made by Google.
Our paid listing supply agreement requires that we comply with certain guidelines promulgated by Google for the use of its services and
that we establish guidelines to govern certain activities of third parties to whom we syndicate paid listings, specifically, the manner in which
these parties drive search traffic to their websites and display Google paid listings within search results. Subject to certain limitations, Google
may unilaterally update its policies and guidelines, which could in turn require modifications to (or prohibit certain of) our products, services
and/or business practices, which could be costly or otherwise have an adverse effect on our business, financial condition and results of
operations. Noncompliance with Google's guidelines by us or third parties to whom we syndicate paid listings could, if not cured, result in
Google's suspension of some or all services to our websites or the websites of our third party partners, the imposition of additional restrictions on
our ability to syndicate paid listings or the termination of the paid listing supply agreement by Google.
The termination of the paid listing supply agreement by Google or the failure of Google to perform its obligations under the agreement
would have an adverse effect on our business, financial condition and results of operations. In addition, our inability to obtain a renewal of our
agreement with Google with substantially comparable economic and other terms upon the expiration of our current agreement could have an
adverse effect on our business, financial condition and results of operations. If any of these events were to occur, we may not be able to find
another suitable alternate paid listings provider (or if an alternate were found, the economic and other terms of the agreement and the quality of
paid listings may be inferior relative to our arrangements with, and the paid listings supplied by, Google) or otherwise replace the lost revenues.
General economic events or trends that reduce advertising spending could harm our business, financial condition and results of operations.
A substantial portion of our consolidated revenue is attributable to advertising. Accordingly, we are particularly sensitive to events and
trends that result in decreased advertising expenditures. Advertising expenditures have historically been cyclical in nature, reflecting overall
economic conditions and budgeting and buying patterns, as well as levels of consumer confidence and discretionary spending.
Small and local businesses with which we do business are particularly sensitive to these events and trends, given that they are not as well
situated to weather adverse economic conditions as their larger competitors, which are generally better capitalized and have greater access to
credit. In the recent past, adverse economic conditions have caused, and if such conditions were to recur in the future they could cause, decreases
and/or delays in advertising expenditures, which would reduce our revenues and adversely affect our business, financial condition and results of
operations.
Our success depends upon the continued growth and acceptance of online advertising, particularly paid listings, as an effective alternative to
traditional, offline advertising and the continued commercial use of the internet.
Many advertisers still have limited experience with online advertising and may continue to devote significant portions of their advertising
budgets to traditional offline advertising media. Accordingly, we continue to compete with traditional media, including television, radio and
print, in addition to a
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