America Online 2014 Annual Report Download - page 33

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generating display advertising on Third Party Properties are variable, a majority of costs associated with
generating display advertising revenue on AOL Properties are fixed. Therefore, even if we generate higher
display advertising revenues on Third Party Properties, because there are lower incremental margins associated
with these sales, the increase in our operating income will be less than it would with an equivalent increase in
display revenues on AOL Properties.
Additionally, advertising revenues are more unpredictable and variable than our subscription revenues, and
are more likely to be adversely affected during economic downturns, as spending by advertisers tends to be
cyclical in line with general economic conditions.
We face intense competition in all aspects of our business.
The internet industry, with its low barriers to entry and rapidly shifting consumer tastes, is dynamic and
rapidly evolving. Competition among internet companies offering online content, products and services, as well
as with traditional offline content and advertising companies which are increasingly offering their own online
content, products and services, is intense both domestically and globally and new competitors can quickly
emerge. Additionally, as the use of programmatic advertising continues to increase, we compete with companies
that have also invested in programmatic platform offerings. As companies integrate into larger, more
comprehensive programmatic platforms, new competitors may arise and our business could be adversely affected
if we do not continue to invest in, develop and improve our programmatic products and services.
As consumers increasingly use mobile devices and as the demand for video content and advertising
increases, we compete with other companies in developing and offering mobile and video content and advertising
products and services. If consumers, advertisers and publishers do not widely adopt our mobile and video
offerings or if we do not generate sufficient revenue from our mobile or video offerings, our competitive position
could be adversely affected.
In addition, companies offering services to advertisers are increasingly seeking to track individual consumer
usage across devices through the use of tracking and data correlation technologies. To the extent companies with
a larger audience reach than ours are able to track individual consumer usage in this way and gather data about
consumers that is valuable to advertisers, those companies will have a competitive advantage. If we cannot
develop and offer effective tracking and data correlation technologies or we do not have access to a sufficient
consumer audience, our advertising products and services may not be as valuable to advertisers and publishers
and our competitive position and results of operations may be harmed.
Additionally, we could be at a competitive disadvantage in the long term if we are not able to capitalize on
international opportunities, especially as compared to a number of our competitors who maintain an expansive
global presence. If our competitors are more successful than we are in developing compelling content, products
and services or in attracting and retaining consumers, advertisers, publishers and subscribers domestically and
internationally, our business could be adversely affected.
If we do not continue to develop and offer compelling content, products and services and attract new
consumers or maintain the engagement of our existing consumers, our advertising revenues could be
adversely affected.
In order to attract consumers and maintain or increase engagement on AOL Properties, we believe we must
offer compelling content, products and services across all devices, including mobile. Acquiring, developing and
offering new content, products and services, as well as new functionality, features and enhanced performance of
our existing content, products and services, may require significant investment and time to develop. In addition,
consumer tastes are difficult to predict and subject to rapid change.
In general, our subscribers are among the most engaged consumers on AOL Properties. As our subscriber
base declines, it is advantageous to maintain the engagement of former AOL subscribers and increase the number
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