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  As Of               Filer                 Filing     As/For/On Docs:Pgs              Issuer               Agent

 5/27/04  Websidestory Inc                  S-1                   31:520                                    Bowne of San Diego/FA

Document/Exhibit                   Description                      Pages   Size 

 1: S-1         Registration Statement (General Form)               HTML  1,329K 
 2: EX-4.2      Instrument Defining the Rights of Security Holders    29    115K 
 3: EX-4.3      Instrument Defining the Rights of Security Holders    10     45K 
 4: EX-4.4      Instrument Defining the Rights of Security Holders    12     60K 
 5: EX-4.5      Instrument Defining the Rights of Security Holders     8     46K 
 6: EX-4.6      Instrument Defining the Rights of Security Holders    12     59K 
 7: EX-4.7      Instrument Defining the Rights of Security Holders     9     52K 
 8: EX-10.1     Material Contract                                     21    104K 
 9: EX-10.3     Material Contract                                     31±   129K 
10: EX-10.4     Material Contract                                      6     32K 
11: EX-10.5     Material Contract                                     58    350K 
12: EX-10.6     Material Contract                                      5     31K 
13: EX-10.7     Material Contract                                     13     48K 
14: EX-10.8     Material Contract                                      9     41K 
15: EX-10.9     Material Contract                                     10     41K 
16: EX-10.10    Material Contract                                      1     11K 
17: EX-10.11    Material Contract                                      7     35K 
18: EX-10.12    Material Contract                                      9     39K 
19: EX-10.13    Material Contract                                      1     11K 
20: EX-10.14    Material Contract                                      2     20K 
21: EX-10.15    Material Contract                                     10     58K 
22: EX-10.17    Material Contract                                      2     17K 
23: EX-10.18    Material Contract                                      3     21K 
24: EX-10.19    Material Contract                                     40    129K 
25: EX-10.20    Material Contract                                      2     14K 
26: EX-10.21    Material Contract                                     10     41K 
27: EX-10.22    Material Contract                                      8     58K 
28: EX-10.23    Material Contract                                      8     49K 
29: EX-10.24    Material Contract                                      8     45K 
30: EX-10.26    Material Contract                                      2     16K 
31: EX-23.1     Consent of Experts or Counsel                          1      9K 

Table of Contents

SECURITIES AND EXCHANGE COMMISSION

FORM S-1

WEBSIDESTORY, INC.

10182 Telesis Court, 6th Floor

Copies To:

Approximate date of commencement of proposed sale to the public:

      If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), check the following box.     o

      If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o                               

      If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o                               

      If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o                               

      If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.     o

CALCULATION OF REGISTRATION FEE

(1)	Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended. Includes the offering price attributable to shares available for purchase by the underwriters to cover over-allotments.

     The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

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The information in this prospectus is not complete and may be changed. Neither we nor the selling stockholders may sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

Subject to Completion, dated May 27, 2004

Common Stock

We are offering for sale                shares of our common stock. The selling stockholders included in this prospectus are offering an additional                shares of common stock. This is our initial public offering and no public market currently exists for our shares. We anticipate that the initial public offering price will be between $               and $               per share.

We have applied to list our common stock on the Nasdaq National Market under the symbol “WSSI.”

      Investing in our common stock involves risks. See “Risk Factors” beginning on page 5.

We and the selling stockholders have granted the underwriters a right to purchase up to                additional shares of common stock to cover over-allotments, if any.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares on or about                , 2004.

Joint Book-Running Managers

                    , 2004

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PROSPECTUS SUMMARY

      This summary does not contain all the information that you should consider before buying shares in this offering. You should read the entire prospectus carefully, especially “Risk Factors” and the consolidated financial statements and the related notes, before deciding to invest in shares of our common stock.

WebSideStory

Our Business

      We are a leading provider of on-demand web analytics services. Web analytics refers to the collection, analysis and reporting of information about Internet user activity. Our services collect data from web browsers, process that data and deliver reports of online behavior to our customers on demand. Customers subscribe to our services, including our primary service, HBX, to better understand how Internet users respond to website design and content, online marketing campaigns and e-commerce offerings. As a result, our customers can make better marketing decisions and improve the merchandising, sales, support and design of their websites, improving their return on investment on marketing dollars spent.

      We deliver our services over the Internet using a secure, proprietary, scalable application and system architecture, which allows us to simultaneously serve a large number of customers and to efficiently distribute the workload across our network of servers. Our technology is easy to implement and allows our customers to avoid large, up-front hardware expenses and software license fees, and to realize lower administration costs compared to traditional software licensing alternatives.

      Our direct sales force sells our services to a wide range of organizations in many industries including sports and entertainment, news, retail, finance, travel, technology, manufacturing, telecommunications and education. Our services are offered by subscription agreements, typically with terms of one to three years. As of March 31, 2004, we had more than 500 HBX customers, an increase from approximately 180 customers as of March 31, 2001. Our representative customers include the Walt Disney Internet Group, Best Buy, Nokia, Delta Tre, BSkyB, Cisco Systems, Sony, AT&T, Daimler Chrysler and Federal Express.

Market Opportunity

      The use of the Internet by businesses has evolved from providing basic product information on websites to incorporating critical business processes such as sales, marketing, advertising and customer service and support. As organizations continue to adopt the Internet for an increasing number of business processes, they face many challenges and, as a result, need better web analytics. For example, it is often difficult for businesses to measure the direct impact of their marketing initiatives and branding campaigns and to improve the conversion rate of web visitors to paid customers, subscribers or qualified sales leads. In addition, businesses want to reduce the number of costly customer support calls that are caused by problem areas of their websites or faulty online self-help processes. In order to solve these problems, businesses need tools that can track web visitor navigation and measure responses to changes in content and product offerings. These tools should provide actionable information and analysis to decision makers in an easy-to-use format.

      With web analytics, organizations now have the ability to quickly measure and quantify the effect of various online marketing campaigns on site traffic, conversion rates, online sales and other applicable metrics. Users of web analytics can better allocate marketing budgets, improve site design, prioritize site content, characterize advertising inventory and quantify sales. Web analytics services are even being used to measure online responses to off-line marketing such as direct mail and radio advertising. According to IDC, a market research firm, the web analytics market is expected to increase from $257 million in 2003 to $418 million in 2007. As web analytics technology advances, it is becoming more functionally integrated with other digital marketing tools and services. Forrester Research, a market research firm, estimates that the aggregate market for digital marketing, which it defines to include display advertising, search engine marketing and email marketing, will increase from $7.0 billion in 2003 to $15.6 billion in 2008.

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Our Solution

      We offer web analytics services that collect data from web browsers, process that data and deliver analytic reports of online behavior over the Internet. We believe our services:

	•	Facilitate better decision making regarding online and off-line initiatives;
	•	Improve marketing return on investment;
	•	Provide valuable information and analysis on demand;
	•	Deliver intuitive, easy-to-use reports for business users;
	•	Are secure and scalable; and
	•	Offer a lower total cost of ownership compared to traditional web analytics software.

Our Strategy

      Our goal is to be the leading global provider of web analytics and to extend our leadership position into related markets. The key components of our strategy are to:

	•	Expand the features and functionality of our services;
	•	Pursue new customers in our existing markets and expand into new geographic markets;
	•	Develop or acquire related services and technologies;
	•	Provide superior customer service and build lasting relationships with our customers;
	•	Pursue longer term contracts with our new and existing customers; and
	•	Encourage the development of third-party applications that integrate with and are complementary to our services.

Corporate Information

      WebSideStory was incorporated in California in September 1996 and was reincorporated in Delaware in September 2000. Our principal executive offices are located at 10182 Telesis Court, 6th Floor, San Diego, California 92121, and our telephone number at that address is (858) 546-0040. Our principal website is located at www.websidestory.com. The information contained in, or that can be accessed through, our website is not part of this prospectus. Unless the context indicates otherwise, as used in this prospectus, the terms “we,” “us” and “our” refer to WebSideStory, Inc., its predecessors and its wholly-owned direct and indirect subsidiaries, including HitBox, Inc, WebSideStory SAS, WebSideStory Holding B.V., WebSideStory CallCenter and Service B.V. and WebSideStory UK Limited.

      WebSideStory® and HitBox® are our United States registered service marks. We have applied to register our service mark, HBX^TM, in the United States. All other trademarks and trade names appearing in this prospectus are the property of their respective owners.

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The Offering

      The number of shares to be outstanding after this offering is based on the number of shares outstanding as of March 31, 2004. This number does not include, as of March 31, 2004:

	•	3,504,710 shares of common stock subject to options outstanding under our stock option plans, at a weighted average exercise price of $0.92 per share;
	•	1,454,988 shares of common stock issuable upon warrants outstanding, at a weighted average exercise price of $0.31 per share; and
	•	619,569 shares of common stock reserved for future grant or issuance under our stock option plans.

      Except as otherwise indicated in this prospectus, all of the information in this prospectus reflects:

	•	the redemption of all of our outstanding shares of redeemable preferred stock upon the completion of this offering;
	•	the conversion of all of our outstanding shares of convertible redeemable preferred stock into 19,719,535 shares of common stock upon the completion of this offering;
	•	the adoption of our amended and restated certificate of incorporation and bylaws, which will be effective upon the completion of this offering;
	•	no exercise of outstanding options and warrants to purchase common stock or preferred stock;
	•	no exercise of the underwriters’ over-allotment option; and
	•	a                reverse stock split of our common stock to be effected prior to the completion of this offering.

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Summary Consolidated Financial Data

      The following table summarizes our consolidated financial data. The summary consolidated financial data for the years ended December 31, 2001, 2002 and 2003 are derived from our audited consolidated financial statements. We have also included data from our unaudited consolidated financial statements for the three months ended March 31, 2003 and 2004 and as of March 31, 2004. You should read this data together with our consolidated financial statements and related notes included elsewhere in this prospectus and the information under “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The share information included in the consolidated statements of operations data has been computed as described in Note 2 to the consolidated financial statements. The pro forma as adjusted consolidated balance sheets data reflect the balance sheets data as of March 31, 2004 adjusted for our redemption of all of our redeemable preferred stock, the conversion of all of our outstanding convertible redeemable preferred stock into 19,719,535 shares of common stock, and the receipt of the estimated net proceeds from the sale of the shares of common stock by us in this offering, at an assumed initial public offering price of $               , after deducting estimated underwriters’ discounts and commissions and offering expenses.

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RISK FACTORS

      You should consider carefully the following information about the risks described below, together with the other information contained in this prospectus before you decide to buy our common stock. If any of the following risks actually occurs, our business, financial condition, results of operations and future growth prospects would likely be materially and adversely affected. In these circumstances, the market price of our common stock could decline, and you may lose all or part of the money you paid to buy our common stock.

Risks Related to Our Business

We have limited experience in an emerging market with unproven business and technology models, which makes it difficult to evaluate our current business performance and future prospects.

      Although we were formed in September 1996, we did not begin selling our services for a fee until August 1999. Prior to that, we provided a basic Internet user behavior information and analysis service solely in exchange for online advertising space that we used or sold. Our revenues from advertising have been steadily declining due to our decision in 2001 to stop providing our free web analytics service that generated advertising revenue and in December 2003, we stopped providing services in exchange for advertising. As a result, we have limited experience in the subscription web analytics business, and we must sell increasing amounts of services in the future to new customers, while retaining our current customers, in order to grow our business. Many risks and uncertainties are inherent in our business, including securing new customers, attracting and retaining qualified personnel, expanding our operations and developing and upgrading our technology and services. These risks and uncertainties are particularly significant for companies such as ours that operate in rapidly evolving markets for Internet products and services. If businesses are not willing to buy our services, then our revenues will not grow and our operating results will suffer, which may cause our stock price to decline.

Our web analytics services comprise a majority of our revenues, and our business will be harmed if these services do not achieve widespread customer acceptance.

      In late 1999, we introduced the predecessors of our HBX and HitBox Professional services. Since that time, we have made significant changes to these services, including the release of HBX in April 2004. These services and related support represented 96% and 98% of our total revenues for the year ended December 31, 2003 and the three months ended March 31, 2004, respectively. These new subscription services may not achieve broad customer acceptance, and we may not be able to continue to generate or to grow revenue from sales of these services. In addition, due to the recent introduction of our core services, our target customers, which are generally medium and large businesses, may have concerns regarding our viability and may prefer to purchase services from one of our larger, more established competitors.

We have only recently become profitable and may not maintain our level of profitability.

      Although we have generated net income for the three months ended December 31, 2003 and March 31, 2004, we have not historically been profitable and were not profitable for the year ended December 31, 2003, and we may not be profitable in future periods. We expect that our expenses relating to the sales of our services, technology improvements and general and administrative functions, as well as the costs of operating and maintaining our network, will increase in the future. We may not be able to reduce or maintain our expenses in response to any decrease in our revenues, and our failure to do so would adversely affect our operating results and our level of profitability.

We operate in highly competitive markets, which could make it difficult for us to acquire and retain customers.

      The market for web analytics is rapidly evolving and highly competitive. We expect competition to increase from existing competitors as well as new market entrants. We compete primarily with other

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	•	web analytics application service providers such as Coremetrics, Fireclick, Nedstat and Omniture;
	•	network management software and business intelligence vendors such as NetIQ and SPSS; and
	•	digital marketing services providers such as aQuantive and DoubleClick that incorporate web analytics in their services.

      In addition, we face competition from companies that independently develop methods of measuring their own audience. Many companies, including some of our largest potential customers, use internally-developed web analytics software rather than the commercial services or software offered by us or our competitors. These companies may seek to offer their internally-developed software commercially in the future, which would bring us into direct competition with their products. Likewise, to date, no web analytics service has been adopted as the industry standard for measuring Internet user behavior and preferences. However, if one of our current or future competitors is successful in establishing its products and services as the industry standard, it will be difficult for us to retain current customers, or attract additional customers for our services.

      Furthermore, some businesses may require data or reports that are available only in competitors’ products, and potential customers may, therefore, select the products of our competitors. Many of our current and potential competitors have longer operating histories, greater name recognition, access to larger client bases, and substantially greater resources, including sales and marketing, financial, support and other resources than we have. As a result, these competitors may be able to devote more resources to new customer acquisitions or may be able to respond to evolving market needs more quickly than we can. If we are not able to compete successfully against our current and future competitors, it will be difficult to acquire and retain customers, and we may experience limited revenue growth, reduced operating margins, loss of market share and diminished value in our services.

The majority of our services are sold pursuant to short-term subscription agreements, and if our customers elect not to renew these agreements, our revenues may decrease.

      Typically, our HBX services are sold pursuant to short-term subscription agreements, which are generally one to three years in length, with no obligation to renew these agreements. In addition, our HitBox Professional services are usually cancelable any time with little or no penalty. Many of our customers are new, which makes it difficult for us to predict if they will renew their agreements. Many of our HBX subscription agreements will be subject to renewal in the next 12 months, and we cannot assure you that such agreements will be renewed. Our renewal rates may decline due to a variety of factors, including the services and prices offered by our competitors, consolidation in our customer base or if some of our customers cease their operations. If our renewal rates are low or decline for any reason, or if customers renew on less favorable terms, our revenues may decrease, which could adversely affect our stock price.

If we fail to respond to rapidly changing technology or evolving industry standards, our services may become obsolete or less competitive.

      The market for our services is characterized by rapid technological advances, changes in client requirements, changes in protocols and evolving industry standards. If we are unable to develop enhancements to and new features for our existing services or acceptable new services that keep pace with rapid technological developments, our services may become obsolete, less marketable and less competitive and our business will be harmed. The success of any enhancements, new features and services depends on

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We may be liable to our customers and may lose customers if we provide poor service, if our services do not comply with our agreements or if there is a loss of data.

      The information in our databases may not be complete or may contain inaccuracies that our customers regard as significant. Our ability to collect and report data may be interrupted by a number of factors, including our inability to access the Internet or the failure of our network or software systems. In addition, computer viruses may harm our systems causing us to lose data, and the transmission of computer viruses could expose us to litigation. Our subscription agreements generally give our customers the right to terminate their agreements for cause if we fail to meet certain reliability standards stated in the agreements or if we otherwise materially breach our obligations. Any failures in the services that we supply or the loss of any of our customers’ data may give our customers the right to terminate their agreements with us and could subject us to liability. We may also be required to spend substantial amounts to defend lawsuits and pay any resulting damage awards. We may be liable to our customers for loss of business, loss of future revenue, breach of contract or even for the loss of goodwill to their business. In addition to potential liability, if we supply inaccurate information or experience interruptions in our ability to supply information, our reputation could be harmed and we could lose customers.

      Although we have media/professional insurance with coverage limits of up to $3 million, this coverage may be inadequate, or may not be available in the future on acceptable terms, or at all. In addition, we cannot assure you that this policy will cover any claim against us for loss of data or other indirect or consequential damages and defending a suit, regardless of its merit, could be costly and divert management’s attention.

We may expand through acquisitions of, or investments in, other companies or through business relationships, all of which may divert our management’s attention and consume resources that are necessary to sustain our business.

      One of our business strategies is to develop or acquire complementary services and technologies, which may occur through the acquisition of, or investment in, complementary businesses or technologies. We also may enter into relationships with other businesses in order to expand our service offerings. For example, through our product alliance agreement with salesforce.com, which expires in May 2005, our customers can analyze the effect of online marketing campaigns on off-line sales. Future relationships may involve preferred or exclusive licenses, additional channels of distribution or discount pricing.

      An acquisition, investment or business relationship may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties assimilating or integrating the acquired businesses, technologies, products, personnel or operations of the acquired companies, particularly if the key personnel of the acquired company choose not to work for us, and we may have difficulty retaining the customers of any acquired business due to changes in management and ownership. Acquisitions may also disrupt our ongoing business, divert our resources and require significant management attention that would otherwise be available for ongoing development of our business. Moreover, we cannot assure you that the anticipated benefits of any acquisition, investment or business relationship would be realized or that we would not be exposed to unknown liabilities. In connection with one or more of those transactions, we may:

	•	issue additional equity securities that would dilute our stockholders;
	•	use cash that we may need in the future to operate our business;
	•	incur debt on terms unfavorable to us or that we are unable to repay;
	•	incur large charges or substantial liabilities;

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	•	encounter difficulties retaining key employees of the acquired company or integrating diverse business cultures; and
	•	become subject to adverse tax consequences, substantial depreciation or deferred compensation charges.

      Although we periodically engage in preliminary discussions with respect to acquisitions, we are not currently a party to any agreements or commitments, and we have no understandings with respect to any acquisitions.

Any efforts we may make in the future to expand our services beyond the web analytics market may not succeed.

      Although we have historically focused on the web analytics market, we may in the future seek to expand our service offerings to address the demand for other digital marketing tools. Any efforts to expand our services beyond the web analytics market may not result in significant revenue growth for us. In addition, our efforts to expand may divert management resources from our existing operations and require us to commit significant resources to an unproven business, limiting the financial and other resources that we are able to devote to our existing business.

Because we recognize revenue from subscriptions to our services over the term of the applicable agreement, the lack of subscription renewals or new subscription agreements may not be immediately reflected in our operating results.

      We recognize revenue from our customers monthly over the term of their agreements with us. The majority of our quarterly revenue usually represents deferred revenue from subscription agreements entered into during previous quarters. As a result, a decline in new or renewed subscription agreements in any one quarter will not necessarily be fully reflected in the revenue for the corresponding quarter but will negatively affect our revenue in future quarters. Additionally, the effect of significant downturns in sales and market acceptance of our services may not be fully reflected in our results of operations until future periods. Our business model would also make it difficult for us to reflect any rapid increase in our customer base and the effect of this increase in our revenue in any one period because revenue from new customers must be recognized over the applicable subscription agreement term.

Fluctuations in our operating results may make it difficult to predict our future performance and may result in volatility in the market price of our common stock.

      Due to our limited experience selling our services, our evolving business model and the unpredictability of our emerging industry, we may not be able to accurately forecast our rate of growth. For example, in our last eight quarters, we have recorded quarterly operating income of as much as $141,000 and a quarterly operating loss of as much as $1.1 million. In addition, we may experience significant fluctuations in our operating results for other reasons such as:

	•	our ability to retain and increase sales to existing customers, attract new customers and satisfy our customers’ requirements;
	•	the timing and success of new product introductions or upgrades by us or our competitors;
	•	changes in our pricing policies or payment terms or those of our competitors;
	•	concerns relating to the security of our network and systems;
	•	the rate of success of our domestic and international expansion;
	•	our ability to hire and retain key executives and technical and sales and marketing personnel;
	•	our ability to expand our operations and the amount and timing of expenditures related to this expansion;

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	•	limitations in the bandwidth of our network and systems;
	•	costs related to the development or acquisition of technologies, products or businesses;
	•	seasonality in our customers’ purchasing habits; and
	•	general economic, industry and market conditions.

These factors tend to make the timing and amount of revenue unpredictable and may lead to greater period-to-period fluctuations in revenue than we have experienced historically.

      As a result of the factors described above, we believe that our quarterly revenue and results of operations are likely to vary significantly in the future and that period-to-period comparisons of our operating results may not be meaningful. You should not rely on the results of one quarter as an indication of future performance. If our quarterly revenue or results of operations fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially.

We rely on a small number of third parties to support our network, any disruption of which could affect our ability to provide our services and could harm our reputation.

      Our network is susceptible to outages due to fires, floods, power loss, telecommunications failures, systems failures, break-ins and similar events. In addition, our network infrastructure is located in San Diego, California, an area susceptible to earthquakes and rolling electricity black-outs. We do not have multiple operating sites for our services in the event of any such occurrence. Despite our implementation of network security measures, our servers are vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering with our computer systems. We do not carry sufficient business interruption insurance to compensate us for the intangible losses that may occur as a result of any of these events.

      All of our customers’ data and our servers are located at a single, third party co-location facility located in San Diego, California, operated by Level 3 Communications, Inc. Our agreement with Level 3 expires on May 31, 2005. Level 3 has the right to discontinue our service if, within 30 days of providing written notice to us, we fail to cure any of the following: (a) our failure to pay any amounts past due within three business days of written notice; (b) our violation of any laws related to our service; (c) a material misrepresentation by us related to our service; (d) our filing for bankruptcy or reorganization, or our failure to discharge any involuntary petition for bankruptcy within 60 days; or (e) our use of the service that materially exceeds our credit limit, and our failure to give adequate security for payment of the additional use within one day of receipt of written notice from Level 3.

      We depend on access to the Internet through Internet service providers, or ISPs, to operate our business. If we lose the services of one or more of our ISPs for any reason, we could experience disruption in our service offerings. The loss of one of our ISPs as the result of consolidation in the ISP industry could delay us from retaining the services of a replacement ISP and increase the potential for disruption of our business. Any disruption to our business could damage our reputation and result in a decrease in our revenue from the loss of current or potential customers.

A rapid expansion of our network and systems could cause us to lose Internet user behavior measurement information or cause our network or systems to fail.

      In the future, we may need to expand our network and systems at a more rapid pace than we have in the past. We may suddenly require additional bandwidth for which we have not adequately planned. We may secure an extremely large customer or a group of customers with extraordinary volumes of information to collect and process that would require significant system resources, and our systems may be unable to process the information. Our network or systems may not be capable of meeting the demand for increased capacity, or we may incur additional unanticipated expenses to accommodate such capacity constraints. In addition, we may lose valuable Internet user data or our network may temporarily shut down if we fail to expand our network to meet future requirements. Any lapse in our ability to collect

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If our security measures are breached and unauthorized access is obtained, our services may be perceived as not being secure, and customers may hold us liable or reduce their use of our services.

      Our services involve the storage and transmission of proprietary information, and security breaches could expose us to a risk of loss of this information, litigation and possible liability. If our security measures are breached as a result of third-party action, employee error or otherwise, and as a result, someone obtains unauthorized access to our data or our customers’ data, we could incur liability and our reputation will be damaged. For example, hackers or individuals who attempt to breach our network security could, if successful, misappropriate proprietary information or cause interruptions in our services. If we experience any breaches of our network security or sabotage, we might be required to expend significant capital and resources to protect against or to alleviate problems. We may not be able to remedy any problems caused by hackers or saboteurs in a timely manner, or at all. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach of our security occurs, the perception of the effectiveness of our security measures could be harmed and we could lose current and potential customers.

The success of our business depends in large part on our ability to protect and enforce our intellectual property rights.

      We regard the protection of our inventions, patent, copyrights, service marks, trademarks and trade secrets as important to our future success. We rely on a combination of patent, copyright, service mark, trademark, and trade secret laws and contractual restrictions to establish and protect our proprietary rights, all of which only offer limited protection. We endeavor to enter into agreements with our employees and contractors and agreements with parties with whom we do business in order to limit access to and disclosure of our proprietary information. Despite our efforts, the steps we have taken to protect our intellectual property may not prevent the misappropriation of proprietary rights or the reverse engineering of our technology. Moreover, others may independently develop technologies that are competitive to ours or infringe our intellectual property. The enforcement of our intellectual property rights also depends on our legal actions against such infringers being successful, but we cannot be sure such actions will be successful, even when our rights have been infringed.

      Although we do have one U.S. patent, several registered service marks, and pending patent, and service mark applications, we cannot assure you that any future patents or service mark registrations will be issued with respect to pending or future applications or that any issued patents or registered service marks will be enforceable or provide adequate protection of our proprietary rights. Because of the global nature of the Internet, our websites can be viewed worldwide, but we do not have intellectual property protection in every jurisdiction. Furthermore, effective patent, trademark, service mark, copyright and trade secret protection may not be available in every country in which our services are available over the Internet. In addition, the legal standards relating to the validity, enforceability and scope of protection of intellectual property rights in Internet-related industries are uncertain and still evolving.

If a third party asserts that we are infringing its intellectual property, whether successful or not, it could subject us to costly and time-consuming litigation or expensive licenses, and our business may be harmed.

      The software and Internet industries are characterized by the existence of a large number of patents, trademarks and copyrights and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. Third parties may assert patent and other intellectual property infringement claims against us in the form of lawsuits, letters or other forms of communication. If a third-party successfully asserts a claim that we are infringing their proprietary rights, royalty or licensing

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	•	divert management’s attention;
	•	result in costly and time-consuming litigation;
	•	require us to enter into royalty or licensing agreements, which may not be available on acceptable terms, or at all; or
	•	require us to redesign our software and services to avoid infringement.

      As a result, any third-party intellectual property claims against us could increase our expenses and adversely affect our business. In addition, many of our subscription agreements require us to indemnify our customers for third-party intellectual property infringement claims, which would increase the cost to us resulting from an adverse ruling in any such claim. Even if we have not infringed any third parties’ intellectual property rights, we cannot be sure our legal defenses will be successful, and even if we are successful in defending against such claims, our legal defense could require significant financial resources and management’s time.

Any failure to adequately expand our direct sales force will impede our growth.

      We expect to be substantially dependent on our direct sales force to obtain new customers, particularly large enterprise customers, and to manage our customer relationships. We believe that there is significant competition for direct sales personnel with the advanced sales skills and technical knowledge we need. Our ability to achieve significant growth in revenue in the future will depend, in large part, on our success in recruiting, training and retaining sufficient direct sales personnel. New hires require significant training and may, in some cases, take more than a year before they achieve full productivity. Our recent hires and planned hires may not become as productive as we would like, and we may be unable to hire sufficient numbers of qualified individuals in the future in the markets where we do business. If we are unable to hire and develop sufficient numbers of productive sales personnel, sales of our service will suffer.

If we fail to develop our brand cost-effectively, our business may suffer.

      We believe that developing and maintaining awareness of the WebSideStory brand in a cost-effective manner is critical to achieving widespread acceptance of our current and future services and is an important element in attracting new customers. Furthermore, we believe that the importance of brand recognition will increase as competition in our market develops. Successful promotion of our brand will depend largely on the effectiveness of our marketing efforts and on our ability to provide reliable and useful services at competitive prices. Brand promotion activities may not yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incur in building our brand. If we fail to successfully promote and maintain our brand, or incur substantial expenses in an unsuccessful attempt to promote and maintain our brand, we may fail to attract enough new customers or retain our existing customers to the extent necessary to realize a sufficient return on our brand-building efforts, and our business and results of operations could suffer.

We rely on a relatively new management team and need additional personnel to grow our business.

      Several of our executive officers are relatively new, and we intend to continue to hire key management personnel. Our success and future growth depends to a significant degree on the skills and continued services of our senior management team, including Jeffrey W. Lunsford, our president, chief executive officer and chairman, who was hired in April 2003, Thomas D. Willardson, our chief financial officer, who was hired in April 2004, Rand Schulman, our chief marketing officer, who was hired in June 2003 and Christopher Reid, our senior vice president, sales, who was hired in February 2003. We may experience

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      We have employment agreements with our executive officers; however, under these agreements, our employment relationships with our executive officers are “at-will” and they can terminate their employment relationship with us at any time. See “Management — Employment Arrangements and Change in Control Arrangements.” We do not maintain key person life insurance on any members of our management team.

      Our future success also depends on our ability to attract, retain and motivate highly skilled technical, managerial, marketing and customer service personnel. We plan to hire additional personnel in all areas of our business, in particular for our sales, marketing and technology development areas, both domestically and internationally. Competition for these types of personnel is intense, particularly in the Internet industry. As a result, we may be unable to successfully attract or retain qualified personnel. Our inability to retain and attract the necessary personnel could adversely affect our business.

We may encounter difficulties managing our growth, which could adversely affect our results of operations.

      We will need to expand and effectively manage our organization, operations and facilities in order to successfully sell our services and maintain our recent profitability. We increased the number of our full-time employees from 17 as of January 1, 1998 to 114 as of March 31, 2004, and we expect to continue to grow to meet our strategic objectives. If we continue to grow, it is possible that our management, systems and facilities currently in place may not be adequate. Our need to effectively manage our operations and growth requires that we continue to improve our operational, financial and management controls, reporting systems and procedures. We may not be able to successfully implement these tasks on a large scale and, accordingly, may not achieve our strategic objectives.

Because we conduct operations in Europe and because our business strategy includes expanding our international operations, our business is susceptible to risks associated with international operations.

      We currently maintain a sales office in the Netherlands, and our business strategy includes expanding our international operations. We have very limited prior experience operating in foreign jurisdictions. Conducting international operations subjects us to new risks that we have not generally faced in the United States. These include:

	•	political, social and economic instability abroad, including the conflicts in the Middle East, terrorist attacks and security concerns in general;
	•	localization of our service, including translation into foreign languages and associated expenses;
	•	fluctuations in currency exchange rates;
	•	unexpected changes in foreign regulatory requirements;
	•	longer accounts receivable payment cycles and difficulties in collecting accounts receivable;
	•	difficulties in managing and staffing international operations;
	•	potentially adverse tax consequences, including the complexities of foreign value added tax systems and restrictions on the repatriation of earnings;
	•	maintaining and servicing computer hardware in distant locations;
	•	the burdens of complying with a wide variety of foreign laws and different legal standards; and
	•	reduced or varied protection for intellectual property rights in some countries.

      The occurrence of any one of these risks could negatively affect our international business and, consequently, our results of operations generally. In addition, the Internet may not be used as widely in

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      Some of our international subscription fees are currently denominated in U.S. dollars and paid in local currency. As a result, fluctuations in the value of the U.S. dollar and foreign currencies may make our services more expensive for international customers, which could harm our business.

Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.

      Generally accepted accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board, or FASB, the American Institute of Certified Public Accountants, the Securities and Exchange Commission, or SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change.

      FASB has recently announced its tentative decision to require companies to expense employee stock options in accordance with Statement of Financial Accounting Standards, or SFAS, No. 123, Accounting for Stock-Based Compensation, for financial reporting purposes, effective in 2005. Such stock option expensing would require us to value our employee stock option grants pursuant to a binomial valuation formula and then amortize that value against our reported earnings over the vesting period in effect for those options. We currently account for stock-based awards to employees in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and have adopted the disclosure-only alternative of SFAS 123. If we are required to expense employee stock options in the future, this change in accounting treatment would materially and adversely affect our reported results of operations as the stock-based compensation expense would be charged directly against our reported earnings.

We may lose our net operating loss and tax credit carryforwards, which could prevent us from offsetting future taxable income.

      Sales of our convertible redeemable preferred stock in 1999, 2000 and 2001 and this proposed public offering in 2004 may be deemed a change in control that could cause the limitation of Section 382 of the Internal Revenue Code of 1986, as amended, to be applicable. This limitation would allow us to use only a portion of the net operating loss and tax credit carryforwards generated prior to the deemed Section 382 change in control to offset future taxable income, if any, for United States and state income tax purposes. Federal net operating losses generally carry forward for 20 years from the year generated. The expiration dates for net operating losses vary among states. The majority of our state net operating losses are in California, and these net operating losses will begin to expire in 2005. Federal research and development tax credits have a 20 year carry forward period. California research and development tax credits have no expiration.

Risks Related to Our Industry

Widespread blocking or erasing of cookies or limitations on our ability to use cookies may impede our ability to collect information with our technology and reduce the value of that data.

      Our technology currently uses cookies, which are small files of information placed on a user’s computer, to collect information about an Internet user’s visits to the websites of our customers. Third party software and our own technology make it easy for users to block or delete our cookies. Several software programs, sometimes marketed as ad-ware or spyware detectors, block our cookies by default or prompt users to delete or block our cookies. If a large number of users de