Shutterfly 2007 Annual Report Download - page 21

Table of Contents
continue to use stock options to attract, incentivize and retain our employees and will therefore incur the resulting
stock-based compensation expense, which will continue to adversely affect our operating results in future periods.
We have a limited operating history, which makes it difficult to evaluate our business and prospects.
Our company was formed in April 1999, and we have only a limited operating history on which investors can
base an evaluation of our business and prospects. As an e-commerce company in the early stage of development, we
face increased risks, uncertainties, expenses and difficulties. To address these risks and uncertainties, we must do the
following:
We may be unable to accomplish one or more of these things, which could cause our business to suffer. In
addition, accomplishing one or more of these things might be very expensive, which could harm our financial results.
If we are not able to reliably meet our data storage and management requirements, customer satisfaction and
our reputation could be harmed.
As a part of our current business model, we offer our customers free unlimited online storage and sharing of
photographs and, as a result, must store and manage hundreds of terabytes of data. This results in immense system
requirements and substantial ongoing technological challenges, both of which are expected to continue to increase
over time. If we are not able to reliably meet these data storage and management requirements, we could have
disruptions in services which could impair customer satisfaction and our reputation and lead to reduced net revenues
and increased expenses. Moreover, if the cost of meeting these data storage and management requirements exceeds
or expectations, our results of operations would be harmed.
Our data storage system could suffer damage or interruption from human error, fire, flood, power loss,
telecommunications failure, break-ins, terrorist attacks, acts of war and similar events. In addition, our primary
storage facilities are located near a major fault line, increasing our susceptibility to the risk that an earthquake could
significantly harm our data storage system. If we experience disruption to our redundant systems located at our data
storage center, such disruption could result in the deletion or corruption of customer stored images. For example,
recently we experienced a loss of a small number of customer images due to an isolated server failure. We identified
the cause of this isolated server failure and addressed it. We have also implemented new additional procedures for
our multiple backup systems.
Interruptions to our website, information technology systems, print production processes or customer service
operations could damage our reputation and brand and substantially harm our business and results of
operations.
The satisfactory performance, reliability and availability of our website, information technology systems,
printing production processes and customer service operations are critical to our reputation, and our ability to attract
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maintain and increase our number of customers;
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maintain and enhance our brand;
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maintain and grow our website and customer operations;
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enhance and expand our products and services;
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successfully execute our business and marketing strategy;
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continue to develop and upgrade our technology and information processing systems;
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continue to enhance our service to meet the needs of a changing market;
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provide superior customer service;
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respond to competitive developments; and
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attract, integrate, retain and motivate qualified personnel.