PRSS 2017 Annual Report

2 contributed through a variety of means, including crowd-sourced user generated content, stock art licenses and licensed content relationships with large entertainment companies and brands. Our distinctive items bring our customers' passions to life and connect people to each other. Our production facility and fulfillment center in Louisville, Kentucky has innovative technology and manufacturing processes that enable us to provide high-quality customized products that are individually built to order. Our proprietary processes enable us to produce a broad range of merchandise efficiently and profitably. We alsomaintain a diverse network of contract manufacturers that give us the ability to broaden our manufacturing capabilities and produce in certain international locales. Most of our net revenue is generated from sales of customized products through our e-commerce websites (collectively referred to as "CafePress.com"), associated Retail Partner Channel ("Retail Partner Channel") or through storefronts hosted by CafePress ("Shop"). In addition, we currently generate limited revenue from third-party printing and fulfillment services. Customized products include user-designed products as well as products designed by our content owners. E-Commerce Platform Products and Services We receive content from a wide variety of sources, including user-generated content, licensed content from various properties and content from stock photo sources. These products are digitally rendered for consumers onto a variety of base goods, and the combination of the content and base good creates the range of products offered on CafePress.com. On CafePress.com, these products and the associated metadata are marketed to draw both search engine and direct traffic. Prices are established by us, and we control the marketing. User-generated content can also be created on CafePress.com for self-purchase or to be sold. If user-generated content is to be sold to others, the content generator is called a Shopkeeper and may be paid a commission in one of two ways. The predominant way in which a commission is earned consists of Shopkeepers benefiting from a percentage of sales of their content sold on CafePress.comor through our Retail Partner Channel as determined by published terms and conditions. Commission rates typically range from 5% to 11% of sales. The Shopkeeper can also elect to create a Shop and can use a suite of tools to provide a unique e-commerce experience, establish their own markup above our standard product pricing and drive their own marketing. As Shopkeepers drive their own traffic and establish their own markup for their Shop, the commission is typically higher than that earned on CafePress.com. Our Retail Partner Channel typically refers to the fact that we are generating revenue from sources other than CafePress.com or our related websites. Retail Partner refers to the distribution of our more popular content and products to other e-commerce retail websites such asAmazon andWalmart. During 2017, we increased our product catalog withWalmart and we expanded ourAmazon partner channel into additional locations in Europe. Whether sold on CafePress.com, through a Shop or through our Retail Partner Channel, the resulting order is electronically communicated to our fulfillment center in Louisville, Kentucky, and then routed to the appropriate location to be manufactured on-demand. Most of our goods are manufactured in Louisville, Kentucky, however we do have fulfillment arrangements with other third-parties with different product expertise, or geographical advantages such as operations in Europe, Australia and Canada. Products are then produced and shipped from the appropriate fulfillment location. We generate the majority of revenue from CafePress.com. By controlling the production process in our manufacturing facility, we can produce high-quality products, innovate quickly, maintain a favorable cost structure and ensure timely shipments to customers during our peak periods of demand. We generate approximately 90% of our revenue from sales originating in the United States and our sales are seasonally driven as we generate approximately 40% of our total revenue during our fiscal fourth quarter. Business and Marketing Strategy Our goal is to help individuals establish connections and celebrate their identities, interests and affinities through unique products and content. The desire to personalize products and express affinity through the things individuals surround themselves with, whether they are decorating their apparel, their home or office, remains strong, and as we improve the quality of our execution and services, we believe we can eventually capture more of that demand. To reach new and existing customers, we rely on consumer awareness of our brand and use a variety of integrated marketing programs, including search engine marketing, search engine optimization, social media, e-mail and other forms of online marketing. Key elements of our strategy, both in 2017 and going forward, to achieve this goal include: