TeleNav 2012 Annual Report Download - page 29

Table of Contents
We rely on a proprietary provisioning and reporting system to track end user activation, deactivation and usage data and any material failures in
this system could harm our revenue, affect our costs and impair our ability to manage our business effectively.
Our provisioning and reporting system that authenticates end users and tracks the number of end users and their use of our services is a
proprietary and customized system that we developed internally. Although we believe that the flexibility of this service to integrate tightly with
wireless carriers’
reporting and provisioning systems gives us a competitive advantage, we might lose revenue and the ability to manage our business
effectively if the system were to experience material failures or be unable to scale as our business grows. In addition, we may not be able to report
our financial results on a timely basis if our customers question the accuracy of our records or we experience significant discrepancies between the
data generated by our provisioning and reporting systems and data generated by their systems, or if our systems fail or we are unable to report timely
and accurate information to our third party data providers. The inability to timely report our financial results would impair the quality of our financial
reporting and could result in the delisting of our common stock.
We may incur further losses as we expand into other service and product areas and we may be unable to recoup our investments.
We currently receive a majority of our revenue from monthly subscription fees paid by wireless carrier customers who bill their subscribers for
our services on a standalone or bundled basis. As we expanded our navigation service offerings to enable end users to purchase our services from
application stores, we modified our revenue model to include an annual fee for services, which has resulted in, and we anticipate will continue to
result in, lower gross and net profit margins. In addition, as we expand into the automotive navigation market, we expect that the net profit margins
will continue to be lower than our historical net profit margins. As we expand into mobile advertising and premium navigation services or other
markets for location services, we may be required to adopt new pricing models and may incur cost of revenue substantially different than that which
we have experienced historically due in part to third party content costs. These different pricing models and increased costs of revenue may result in
declines in our gross margins and profitability, and we may incur losses.
We have limited experience in selling our services and products outside of the wireless carrier application platform and automotive navigation
market. As we expand into new service and product areas, and as the wireless carrier and auto market rapidly evolve, we may not be able to compete
effectively with existing market participants, adjust our business operations to changing market conditions, and may not be able to realize a positive
return on the investment we have made in these products or services. If our introduction of a new product or service is not successful or we are not
able to achieve the revenue or margins we expect, our operating results may be harmed and we may not recover our product development and
marketing expenditures.
If our end users increase their usage of our services, our net operating income may decline, or we may incur losses because we offer the service
as a free offering or usage for paid offerings outpaces our expectations.
With limited exceptions, fees for the use of our services do not vary depending on whether or how often an end user uses our services, and we
offer certain of our mobile phone based navigation services for free. Historically, end users using certain mobile phones or under certain service plans
tended to use our services more than other end users. We budget and operate our services by making certain assumptions about usage patterns. If our
end users were to further increase their usage of our services substantially or more end users access our services for free through a freemium model,
we would incur additional expenses to expand our server capacity, operate additional data centers and pay additional third party content fees. These
additional costs would harm our operating results and financial condition.
We rely on third party data and content to provide our services and if we were unable to obtain content at reasonable prices, or at all, our gross
margins and our ability to provide our services would be harmed.
We rely on third party data and content to provide our services, including map data, POI, traffic information, gas prices and weather
information. If our suppliers of this data or content were to enter into exclusive relationships with other providers of location services or were to
discontinue providing such information and we were unable to replace them cost effectively, or at all, our ability to provide our services would be
harmed. Our gross margins may also be affected if the cost of third party data and content increases substantially.
We obtain map data from TomTom and HERE, which are companies owned by our current and potential competitors TomTom and Nokia,
respectively. Accordingly, these third party data and content providers may act in a manner that is not in our best interest. For example, they may
cease to offer their map data to us.
We may not be able to upgrade our navigation services platform to support certain advanced features and functionality without obtaining
technology licenses from third parties. Obtaining these licenses may be costly and may delay the introduction of such features and functionality, and
these licenses may not be available on commercially favorable terms, or at all. The inability to offer advanced features or functionality, or a delay in
our ability to upgrade our navigation services platform, may adversely affect consumer demand for our navigation services and, consequently, harm
our business.
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