Travelzoo 2014 Annual Report Download - page 48

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Our expansion of our product offering to include Local Deals and Getaway formats and the addition of a hotel booking
platform may result in additional costs that exceed revenue and may trigger additional stock volatility.
During the third quarter of 2010, we launched our Local Deals format of advertising and during the second quarter of
2011, we launched our Getaway format of advertising, under which we sell vouchers directly to consumers to advertise
promotional deals provided by merchants. For example, a consumer could buy a voucher for $99 for a dinner for two at a
merchant’s restaurant that would normally be valued at $199, representing a promotional value of $100 to the consumer. This
format may require investments to maintain and grow the business including additional sales force hiring, building a customer
service organization, marketing, technology tracking systems and payment processing. This format, introduced to the market in
recent years, has resulted in many competitors entering the marketplace, thereby creating a very competitive marketplace. This
competitive landscape along with the required investments to start, maintain and grow this format create a risk that our costs
may exceed our revenues in the short and long term, which may materially impact our results of operation and financial
condition. Operating this format may introduce additional volatility to our stock price due to the performance of this format by
the Company and/or the overall market valuations that are being determined by the market for companies operating this format
of advertising. Moreover, the rate at which our existing customers purchase vouchers has declined, and may continue to
decline, given, among other things, increased competition in the marketplace and the decrease in demand of consumers for
voucher deals. Historically, our customers often purchased a voucher when they received our emails, even though they may not
have intended to use the voucher in the near term. The growth in recent periods of competition and the marketplaces of deals
has enabled customers to wait until they are ready to use the related vouchers before making purchases. This shift in purchasing
behavior may adversely impact revenues. While we are continuing to evolve our strategy to address the changing market
dynamics, we may not always be successful in doing so.
In addition, we are in the process of expanding our hotel booking platform which may result in an increase in costs to
further develop the platform in the near-term and an increase in cost structure in the long-term, which may be in excess of
incremental revenue. If our hotel booking platform is not embraced by our users or our advertising partners, our business and
financial results could be adversely affected. In addition, the hotel booking platform will be sensitive to fluctuations in hotel
supply, occupancy and average daily rates and a fluctuation in any of these factors could negatively impact our hotel booking
revenue. We can give no assurances that the hotel booking platform will yield the benefits we expect and will not result in
additional costs or have adverse impacts on our business.
Our business could be negatively affected by changes in search engine algorithms and dynamics or other traffic-generating
arrangements.
We utilize Internet search engines such as Google, principally through the purchase of travel-related keywords, to
generate additional traffic to our websites. Search engines, including Google, frequently update and change the logic that
determines the placement and display of results of a user’s search, such that the purchased or algorithmic placement of links to
our websites can be negatively affected. In addition, a significant amount of traffic is directed to our websites through our
participation in pay-per-click and display advertising campaigns on search engines, including Google, travel metasearch
engines, including Kayak, and Internet media properties, including TripAdvisor. Pricing and operating dynamics for these
traffic sources can experience rapid change, both technically and competitively. Moreover, a search or metasearch engine could,
for competitive or other purposes, alter its search algorithms or results causing a website to place lower in search query results.
If a major search engine changes its algorithms or results in a manner that negatively affects the search engine ranking, paid or
unpaid, of our websites or that of our third-party distribution partners, or if competitive dynamics impact the costs or
effectiveness of search engine optimization, search engine marketing or other traffic-generating arrangements in a negative
manner, our business and financial performance would be adversely affected, potentially to a material extent.