The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and management's discussion and analysis of financial condition and results of operations for the year ended December 31, 2011 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission, or SEC, on February 28, 2012. This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements are often identified by the use of words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "estimate," or "continue," and similar expressions or variations. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled "Risk Factors," set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and elsewhere in this report. The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.

Executive Overview

We provide online marketing solutions, including email marketing, social media marketing, event marketing, local deals and surveys, for small organizations, including small businesses, associations and non-profits. We seek to help our customers succeed and have a long history of delivering affordable, easy-to-use products, support, knowhow and coaching with a personal touch, all of which empower our customers to create and grow their customer relationships.

We market our products and acquire our customers through a variety of sources including online marketing such as search engines and advertising on online networks and other websites, offline marketing through television and radio advertising, local seminars, relationships with our partners, referrals from our growing customer base, general brand awareness and the inclusion of a link to our website in the footer of substantially all of the emails sent by our customers.

We have grown rapidly since launching our first on-demand product in 2000. We ended the first half of 2012 with approximately 525,000 unique paying customers, excluding customers from our wholly owned subsidiary, SinglePlatform, Corp., or SinglePlatform, and had revenue for the first half of 2012 of $122 million.

Our business strategy focuses on expanding beyond email marketing to support a multi-product strategy to drive high customer lifetime value through gains in average revenue per customer, retention and gross margin. We believe increasing our customer's lifetime value will be a key contributor to our continued success. To drive lifetime value we will continue to invest in acquiring new customers, cross-selling our products to our large and growing customer base, driving increased product usage by our customers and improving customer retention rates. We will continue to invest in broadening our platform of engagement marketing solutions, which we believe will better help our customers create and grow their customer and member relationships. We have made numerous investments over the past six months to drive future growth, including:

• We launched Social CampaignsTM in January 2012. Social Campaigns allows users to create, publish, promote and run campaigns on Facebook ® that offer promotions or content targeted toward those who "Like" them and to incent others to "Like" and share them. Social Campaigns can be published to a customer's email list, to existing Facebook fans, on LinkedIn® and to Twitter® followers.

• In January 2012, we acquired CardStar, Inc., or CardStar, a leading developer of mobile applications that extend the use of loyalty cards and mobile coupons among consumers. The CardStar application consolidates membership and rewards cards on smartphones, letting consumers use a single application rather than a series of physical cards. Merchants can track purchase behavior to reward loyalty, simply and easily. We will continue to operate CardStar's free mobile loyalty application, which currently has over two million active users, and which is available on major mobile platforms, including iPhone ®, Android™, and Blackberry®. See also Note 3, Acquisitions, of the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

• In June 2012, we acquired SinglePlatform, a company that helps small businesses get discovered through web and mobile searches by providing a single place to update important business information. SinglePlatform enables businesses to reach more than 200 million consumers across its extensive publishing network, which includes network sites such as Foursquare, New York Times, YP and Urbanspoon. See also Note 3, Acquisitions, of the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

Key Financial and Operating Metrics

In connection with the ongoing operation of our business, our management regularly reviews key financial and operating metrics. Given our growth strategy, we pay particular attention to customer life-time value, customer acquisition metrics, number of products per customer and average revenue per customer. We also consider other financial and operating metrics such as revenue, gross margin, expenses, trialer growth, customer attrition, customer satisfaction rates, success in cross selling and growing customer list sizes, average speed of answer for customer support calls, email deliverability rates and capital expenditures, among others. Management considers these financial and operating metrics critical to understanding and improving our business, reviewing our historical performance, benchmarking our performance versus other companies and identifying current and future trends, and for planning purposes.

In addition, we consider the following non-GAAP financial measures to be key indicators of our financial performance:

• "adjusted EBITDA," which we define as GAAP net income (loss) plus depreciation and amortization and stock-based compensation, and adjusted for interest and other income (expense) and income taxes;

• "adjusted EBITDA margin," which we define as adjusted EBITDA divided by revenue;

• "non-GAAP net income," which we define as GAAP net income (loss) plus stock-based compensation and adjusted for the non-cash portion of income taxes; and

• "free cash flow," which we define as net cash flow from operating activities less acquisition of property and equipment.

We believe that these non-GAAP financial measures are useful to management and investors in evaluating our operating performance for the periods presented and provide a tool for evaluating our ongoing operations. These non-GAAP financial measures, however, are not a measure of financial performance under accounting principles generally accepted in the United States of America, or GAAP, and should not be considered a substitute for GAAP financial measures, including but not limited to net income (loss) or cash flows from operating, investing and financing activities and may not be comparable to similarly titled measures reported by other companies.

Certain Trends and Uncertainties

The following represents a summary of certain trends and uncertainties, which could have a significant impact on our financial condition and results of operations. This summary is not intended to be a complete list of potential trends and uncertainties that could impact our business in the long or short term. The summary should be considered along with the factors set forth under Part II. Item 1A -"Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q.

• We continue to closely monitor current economic conditions both in the U.S. and abroad, particularly as they impact small businesses, associations and non-profits. We believe that small organizations continue to experience some amount of economic hardship. If this economic hardship continues or worsens, our financial results could be adversely impacted.

• We believe that given the size of our potential market and the relatively low barriers to entry, competition will continue to increase. Increased competition could result from existing competitors or new competitors that enter the market because of the potential opportunity. We will continue to closely monitor competitive activity and respond accordingly. Increased competition could have an adverse effect on our financial condition and results of operations.

• In connection with our acquisition of SinglePlatform, we incurred an obligation to the former shareholders of SinglePlatform to pay additional cash consideration of up to $30.0 million, contingent on the fulfillment of certain revenue targets over the next two years, measured in six month intervals. Based on certain assumptions and estimates, we recorded an estimated liability of $12.2 million as of the acquisition date, which did not change as of June 30, 2012. We will assess these assumptions and estimates on a quarterly basis. Changes in the estimated liability related to updated assumptions and estimates and to the actual revenue achievement will be recognized within the consolidated statements of operations. If our assumptions and estimates change significantly or if actual revenue achievement is significantly different than our estimates, our results of operations and cash flows could be materially affected. See also Note 3, Acquisitions, of the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q. In addition, our operating results could be adversely impacted if we fail to successfully integrate SinglePlatform, if we fail to continue to successfully sell SinglePlatform's product or if the acquisition significantly disrupts our ongoing operations.

• We believe that as we continue to grow revenue at expected rates, our cost of revenue and operating expenses, including sales and marketing, research and development and general and administrative expenses, will increase in absolute dollar amounts. For a description of the general trends we anticipate in various expense categories, see "Cost of Revenue and Operating Expenses" below.

Sources of Revenue

We derive our revenue principally from subscription fees from our customers. Our revenue is driven primarily by the number of paying customers and the subscription fees for our products and is not concentrated within any one customer or group of customers. In 2011, our top 100 customers accounted for less than 1% of our total revenue. We do not require our customers to commit to a contractual term; however, our customers are required to prepay for subscriptions on a monthly, semi-annual, or annual basis by providing a credit card or bank check. Fees are recorded initially as deferred revenue and then recognized as revenue on a daily basis over the prepaid subscription period.

We also generate a small amount of revenue from ancillary services related to our products, which primarily consist of custom services and training through our experts program. Revenue generated from professional services and training accounted for approximately 1% of gross revenue through the first half of 2012 and 2011. In February 2012, we launched our SaveLocal product for which we charge a fee based on the number of deals sold by our customers. We have not yet generated significant revenue from this product. On June 12, 2012,we acquired SinglePlatform. We will continue to sell SinglePlatform's subscription-based product. Our financial results for the second quarter of 2012 did not reflect significant revenue from SinglePlatform.

Cost of Revenue and Operating Expenses

We allocate certain occupancy and general office related expenses, such as rent, utilities, office supplies and depreciation of general office assets to cost of revenue and operating expense categories based on headcount. As a result, an occupancy expense allocation is reflected as personnel related costs in cost of revenue and each operating expense category.

Cost of Revenue. Cost of revenue consists primarily of wages and benefits for software operations and customer support personnel, credit card processing fees and depreciation and amortization, maintenance and hosting of our software applications underlying our product offerings. We allocate a portion of customer support costs relating to assisting trial customers to sales and marketing expense.

The expenses related to our hosted software applications are affected by the number of customers who subscribe to our products and the complexity and redundancy of our software applications and hosting infrastructure. We expect cost of revenue to increase in absolute dollars as we expect to increase our number of customers but to decrease as a percentage of revenue over time as we gain efficiencies created by our expected revenue growth and cost savings.

Research and Development. Research and development expenses consist primarily of wages and benefits for product strategy and development personnel. We have focused our research and development efforts on improving ease of use, functionality and technological scalability of our existing products as well as on the development of new product offerings. We primarily expense research and development costs. However, direct development costs related to software enhancements that add functionality are capitalized and amortized over their useful life. We expect that in 2012 our research and development expenses will increase both in absolute dollars and as a percentage of revenue due to our expanded investment in our product roadmap, inclusive of our investment in SinglePlatform. Over the longer term we expect our research and development expenses to increase in absolute dollars but decrease as a percentage of revenue as we expect to grow our revenue at a faster rate.

Sales and Marketing. Sales and marketing expenses consist primarily of advertising and promotional costs, wages and benefits for sales and marketing personnel, partner referral fees and the portion of customer support costs that relate to assisting trial customers. Advertising costs consist primarily of pay-per-click advertising with search engines, other online and offline advertising media, including television and radio, as well as the costs to create and produce these advertisements. Advertising costs are expensed as incurred. Promotional costs consist primarily of public relations, memberships and event costs. In order to continue to grow our business and brand and category awareness, inclusive of our investments in the SinglePlatform business, we expect that we will continue to commit substantial resources to our sales and marketing efforts. As a result, we expect sales and marketing expenses will increase in absolute dollars, but over time decrease as a percentage of revenue as we expect to grow our revenue at a faster rate.

General and Administrative. General and administrative expenses consist primarily of wages and benefits for administrative, human resources, internal information technology support, finance and accounting personnel, professional fees, board compensation and expenses, certain taxes and other corporate expenses. We expect that general and administrative expenses will increase as we continue to add personnel in connection with the anticipated growth of our business, inclusive of our acquisitions, and incur costs related to operating as a public company. Therefore, we expect that our general and administrative expenses will increase in absolute dollars, but over time decline slightly as a percentage of revenue as we expect to grow our revenue at a faster rate.

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with GAAP. The preparation of our financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. We believe that of our significant accounting policies, which are described in the notes to the condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the SEC, the following accounting policies involve the most judgment and complexity:

• Revenue recognition;

• Income taxes;

• Goodwill and acquired intangible assets;

• Fair value of financial instruments;

• Software and website development costs; and

• Stock-based compensation.

Accordingly, we believe the policies set forth above are critical to fully understanding and evaluating our financial condition and results of operations. If actual results or events differ materially from the estimates, judgments and assumptions used by us in applying these policies, our reported financial condition and results of operations could be materially affected.

There have been no material changes in our critical accounting policies since December 31, 2011, except with respect to the addition to our revenue recognition policy to accommodate our new SaveLocal product, which is described in "Sources of Revenue" above and which policy is described in more detail in Note 2, Summary of Significant Accounting Policies, of the Notes to the Condensed Consolidated Financial Statements appearing elsewhere in this Quarterly Report on Form 10-Q. For further information please see the discussion of critical accounting policies included in our Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the SEC.

Results of Operations

Three Months Ended June 30, 2012 compared to Three Months Ended June 30, 2011

Revenue

Revenue increased by $9.5 million from 2011 to 2012. The increase resulted primarily from an approximately 12% increase in the number of average monthly customers and an approximately 6% increase in average revenue per customer. The increase in average revenue per customer was due to an increase in average customer list size and from add-ons to our email marketing product and an increase in pricing for our event marketing product. We expect our average revenue per customer to increase over time.

Cost of Revenue



                                    Three Months Ended June 30,
                                     2012                 2011          Change
                                      (Dollars in thousands)
           Cost of revenue      $       18,434       $       15,233          21 %
           Percent of revenue               30 %                 29 %

Cost of revenue increased by $3.2 million from 2011 to 2012. The increase resulted primarily from increased customer support personnel costs of $1.5 million to support our customer growth and increased personnel costs of $428,000 in our operations group to manage our infrastructure. Depreciation, hosting and maintenance costs increased by $1.2 million as a result of scaling and adding capacity to our hosting infrastructure inclusive of the effects of transitioning to a new datacenter in California in 2011.

Research and Development



                                      Three Months Ended June 30
                                       2012                 2011          Change
                                        (Dollars in thousands)
        Research and development   $      9,804         $      7,549           30 %
        Percent of revenue                   16 %                 14 %

Research and development expenses increased by $2.3 million from 2011 to 2012. The increase was due primarily to additional personnel related costs as a result of our continued hiring of research and development employees as well as an increase in consulting expense incurred, both to further develop and enhance our products.

Sales and Marketing



                                    Three Months Ended June 30,
                                     2012                 2011          Change
                                      (Dollars in thousands)
          Sales and marketing   $       25,836       $       22,515          15 %
          Percent of revenue                42 %                 43 %

Sales and marketing expenses increased by $3.3 million from 2011 to 2012. The increase in absolute dollars consisted in large part of increased personnel related costs of $2.5 million primarily as a result of adding employees related to customer acquisition, cross-selling to our customer base and enabling increased usage and better retention. Partner referral fees increased by $556,000 as the number of new customers generated from our partners increased.

General and Administrative



                                        Three Months Ended June 30
                                         2012                2011          Change
                                          (Dollars in thousands)
        General and administrative   $       8,404       $       5,918          42 %
        Percent of revenue                      14 %                11 %

General and administrative expenses increased by $2.5 million from 2011 to 2012. The increase was due primarily to additional personnel related costs of $1.5 million largely as a result of increasing the number of general and administrative employees to support our overall growth. We also incurred an increase of approximately $1.0 million in consulting and professional services fees. Approximately $511,000 of this increase consisted of transaction costs associated with our acquisition of SinglePlatform in June 2012 and the remainder of the increase was associated with the growth of our business. We incurred $574,000 of transactions costs in the three months ended June 30, 2012 as compared to $63,000 in the second quarter of 2011.

Interest income and other income (expense), net

                                                  Three Months Ended June 30,
                                                  2012                    2011              Change
                                                     (Dollars in thousands)
Interest income and other income
(expense) net                                 $         62            $         95              (35 )%

Interest income and other income (expense), net decreased by $33,000 from 2011 to 2012 due primarily to a decrease in interest earned on our investment portfolio.

Income Taxes

For the three months ended June 30, 2012, we recorded an income tax expense of $118,000. For the three months ended June 30, 2011, we recorded an income tax expense of $133,000. Income tax is related to federal, state, and to a lesser extent, foreign tax obligations. Our effective tax rate may vary from period to period based on changes in estimated taxable income or loss, changes to federal, state or foreign tax laws, deductibility of certain costs and expenses, and as a result of acquisitions. For the three months ended June 30, 2012, our effective tax rate varied from the statutory tax rate primarily due to the book expense related to incentive stock options, which is non-deductable for tax purposes, offset by state research and development credits that reduced our tax benefit and by non-deductable transaction expenses we incurred that were treated as a discrete item and reduced our tax benefit.

During 2011, we had recorded a full valuation allowance against our net deferred tax assets, which allowance was released in the fourth quarter of 2011. For the three months ended June 30, 2011, our income tax expense consisted of a current income tax expense of $54,000 and a deferred income tax expense of $79,000. The current income tax expense recorded related to our net income for the period multiplied by our estimated annual effective tax rate for 2011. The deferred income tax expense related to the amortization for tax purposes of goodwill from the acquisition of Bantam Networks.

Six Months Ended June 30, 2012 compared to Six Months Ended June 30, 2011

Revenue

Revenue increased by $19.5 million from 2011 to 2012. The increase resulted primarily from an approximately 13% increase in the number of average monthly customers and an approximately 6% increase in average revenue per customer. The increase in average revenue per customer was due to an increase in average customer list size and from add-ons to our email marketing product and an increase in pricing for our event marketing product. We expect our average revenue per customer to increase over time.

Cost of Revenue



                                     Six Months Ended June 30,
                                     2012                2011          Change
. . .