Travelzoo 2015 Annual Report Download - page 55

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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.
Our Local Deals and Getaway formats of advertising include the sale of 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.