Tucows 2012 Annual Report Download - page 11

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The information on the web site listed above is not and should not be considered part of this Annual Report on
Form 10-K and is not incorporated by reference in this document.
We were incorporated in the Commonwealth of Pennsylvania in November 1992. Our executive offices are
located at 96 Mowat Avenue, Toronto, Ontario, Canada M6K 3M1. Our telephone number is [phone].
ITEM 1A. RISK FACTORS
Our business faces significant risks. Some of the following risks relate principally to our business and the
industry and statutory and regulatory environment in which we operate. Other risks relate principally to the securities
markets and ownership of our stock. The risks described below may not be the only risks we face. Additional risks that
we do not yet know of or that we currently think are immaterial may also impair our business operations. If any of the
events or circumstances described in the following risk factors actually occur, our business, financial condition or
results of operations could suffer, and the trading price of our common stock could decline.
Risks Related to Our Business and Industry
We may not be able to maintain or improve our competitive position and may be forced to reduce our prices because
of strong competition in the market for Internet services generally and domain name registration, in particular,
which we expect will continue to intensify.
The market for Internet services generally and domain registrations in particular is intensely competitive and
rapidly evolving as participants strive to protect their current market share and improve their competitive position, and
we expect competition to intensify in the future. Most of our existing competitors are also expanding the variety of
services that they offer. These competitors include, among others, domain name registrars, website design firms, website
hosting companies, Internet service providers, Internet portals and search engine companies, including Google,
Microsoft, Network Solutions, VeriSign and Yahoo!. Competitors like Microsoft, Google and Yahoo!, as well as other
large Internet companies, have the ability to offer these services for free or at a reduced price as part of a bundle with
other service offerings. If these companies decide to devote greater resources to the development, promotion and sale of
these new products and services, greater numbers of individuals and businesses may choose to use these competitors as
their starting point for creating an online presence and as a general platform for running their online business operations.
In particular, VeriSign may in the future decide to offer additional services that compete with our domain name
registration services or other services. If VeriSign were to become a competitor of ours in our core business areas,
VeriSign would likely enjoy a number of competitive advantages, including its position as the largest registry, as well as
superior financial and operational resources and customer awareness within our industry.
In addition, other large competitors, in an attempt to gain market share, may also offer aggressive price
discounts on the services they offer. These pricing pressures may require us to match these discounts in order to remain
competitive, which would reduce our margins, or potentially cause us to lose customers altogether who decide to
purchase these discounted services.
We also face significant competition from other existing registrars and the continued introduction of new
registrars in the domain registration industry. Currently ICANN has approximately 1,000 registrars who register domain
names in one or more of the generic top level domains, or gTLDs, that it oversees. Not all of these accredited registrars,
however, are operational. There are relatively few barriers to entry in this market, so as this market continues to develop
we expect the number of competitors to increase. The continued entry into the domain registration industry and the rapid
growth of some competitive registrars and service providers who have already entered the industry may make it difficult
for us to maintain our current market share. As a result, we may not be able to compete effectively.
In addition, we cannot predict the impact on the domain name industry of the anticipated introduction of new
gTLDs by ICANN. If we do not properly manage our response to any resulting changes in the business environment, it
could adversely impact our competitive position or market share.
As our business model is premised upon selling multiple services through our resellers, we have competed
aggressively to attract new clients and retain existing customers. As a result of these actions, our average selling prices
have fallen and we may be required, by marketplace factors or otherwise, to reduce, perhaps significantly, the prices we
charge for our domain registration and related products and services. The decline in our average selling price has
partially offset the impact of increased transaction volume on our revenue and profitability. The likelihood of further