| The market for members, visitors and Internet advertising is new and rapidly
evolving, and competition for members, visitors and advertisers is intense and
is expected to increase significantly in the future. Barriers to entry are
relatively insubstantial. The Company believes that the principal competitive
factors for companies seeking to create community on the Internet are critical
mass, functionality, brand recognition, member affinity and loyalty, broad
demographic focus and open access to visitors. Other companies who are
primarily focused on creating Web-based community on the Internet are
Tripod/Lycos, Angelfire, Xoom and theglobe. The Company will likely also face competition in the future from Web directories, search engines, shareware archives, content sites, commercial online services, sites maintained by ISPs and other entities that attempt to or establish communities on the Internet by developing their own or purchasing one of the Company's competitors. In addition, the Company could face competition in the future from traditional media companies, a number of which, including Disney, CBS and NBC, have recently made significant acquisitions of or investments in Internet companies. Further, there can be no assurance that the Company's competitors and potential competitors will not develop communities that are equal or superior to those of the Company or that achieve greater market acceptance than the Company's community. The Company also competes for visitors with many Internet content providers and ISPs, including Web directories, search engines, shareware archives, content sites, commercial online services and sites maintained by ISPs, as well as thousands of Internet sites operated by individuals and government and educational institutions. These competitors include free information, search and content sites or services, such as AOL, CNET, CNN/Time Warner, Excite, Infoseek, Lycos, Netscape, Microsoft and Yahoo!, some of whom, such as Yahoo! and Lycos, also have relationships with GeoCities. The Company also competes with the foregoing companies, as well as traditional forms of media such as newspapers, magazines, radio and television, for advertisers and advertising revenue. The Company believes that the principal competitive factors in attracting advertisers include the amount of traffic on its Web site, brand recognition, customer service, the demographics of the Company's members and viewers, the Company's ability to offer targeted audiences and the overall cost-effectiveness of the advertising medium offered by the Company. The Company believes that the number of Internet companies relying on Web-based advertising revenue will increase greatly in the future. Accordingly, the Company will likely face increased competition, resulting in increased pricing pressures on its advertising rates which could in turn have a material adverse effect on the Company's business, results of operations and financial condition. Many of the Company's existing and potential competitors, including Web directories and search engines and large traditional media companies, have longer operating histories in the Web market, greater name recognition, larger customer bases and significantly greater financial, technical and marketing resources than the Company. Such competitors are able to undertake more extensive marketing campaigns for their brands and services, adopt more aggressive advertising pricing policies and make more attractive offers to potential employees, distribution partners, commerce companies, advertisers and third party content providers. There can be no assurance that Internet content providers and ISPs, including Web directories, search engines, shareware archives, sites that offer professional editorial content, commercial online services and sites maintained by ISPs will not be perceived by advertisers as having more desirable Web sites for placement of advertisements. In addition, substantially all of the Company's current advertising customers and strategic partners also have established
collaborative relationships with certain of the Company's competitors or
potential competitors, and other high-traffic Web sites. Accordingly, there
can be no assurance that the Company will be able to grow its memberships,
traffic levels and advertiser customer base at historical levels or retain its
current members, traffic levels or advertiser customers, or that competitors
will not experience greater growth in traffic than the Company as a result of
such relationships which could have the effect of making their Web sites more
attractive to advertisers, or that the Company's strategic partners will not
sever or will elect not to renew their agreements with the Company. There can
also be no assurance that the Company will be able to compete successfully
against its current or future competitors or that competition will not have a
material adverse effect on the Company's business, results of operations and
financial condition. |