Support.com 2007 Annual Report Download - page 22

We may be unable to achieve or sustain profitability in our enterprise business if we do not manage our professional services organization or other costs
in our enterprise business effectively.
Clients that license our enterprise software solutions typically engage our professional services organization to assist with installation and implementation of
our software and related consulting services. Revenue from professional services represented a substantial portion of our total revenue for the year ended
December 31, 2007. Although significant improvement occurred in the second half of 2007, our professional services business was not profitable during the first
half of 2007. We have generally billed our customers for professional services on a time and material basis, using an agreed upon daily rate. However, customers
have increasingly requested various contract structures, including milestone-based contracts and contracts for a fixed total fee. If unanticipated factors in a project
are encountered, we may be subject to monetary and other significant penalties, and the profitably of our professional services business would decline.
Furthermore, an estimated loss on a contract is generally required to be recorded in the period in which a loss becomes evident. Recording a loss on a services
contract could have a material adverse effect on our operating results for the period in which the loss was recorded. In addition to managing the costs in our
professional services organization, if we are unable to manage costs in our enterprise customer support, research and development or sales and marketing
organizations, our enterprise business may not be able to achieve or sustain profitability.
If our existing customers do not renew maintenance contracts or purchase additional products and services, our operating results could suffer.
Historically, we have derived, and expect to continue to derive, a significant portion of our total revenue from existing customers who purchase additional
products and services and renew maintenance contracts. In the past, some customers have sought to reduce the fees required to renew their maintenance
contracts. In certain cases we have permitted customers to reduce their maintenance fees for a corresponding reduction in the level of our support obligation to
them. Furthermore, our customers may not renew maintenance contracts or purchase additional products and services. In addition, as we introduce new products,
our current customers may not require or desire the functionality of our new products and may not ultimately purchase these products. If our customers do not
renew maintenance contracts or do not purchase additional products and services, our operating results would suffer.
If our revenue from our international operations does not exceed the expense of establishing and maintaining international operations, our business
could suffer.
For the years ended December 31, 2005, 2006 and 2007, international revenue was 21%, 23% and 24% of total revenue, respectively. We have limited
experience in international operations and may not be able to compete effectively in international markets or effectively manage our operations in various
countries. If we do not generate enough revenue from international operations to offset the expense of these operations, our operating results could suffer. Risks
we face in conducting business internationally include:
•
costs of staffing and managing international operations;
•
changes in currency exchange rates and controls;
•
smaller customers with less ability to pay United States rates for software and services;
•
difficulty in reaching geographically dispersed customers;
•
compliance with a variety of complex laws and treaties, including unexpected changes in (or new) legislative or regulatory requirements;
18
Source: SUPPORTSOFT INC, 10-K, March 13, 2008