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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2003

OR

For the transition period from                          to                         

Commission File Number 0-25131

INFOSPACE, INC.

(Exact name of registrant as specified in its charter)

601 108th Avenue NE, Suite 1200, Bellevue, Washington 98004

(Address of principal executive offices) (Zip code)

Registrant’s telephone number, including area code:

(425) 201-6100

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.0001 per share

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).  Yes  x  No  ¨

The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing price of Common Stock on June 30, 2003 as reported by Nasdaq, was approximately $366.9 million. Shares of voting stock held by each officer and director and by each person who owns 5% or more of the outstanding voting stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of February 27, 2004, 31,598,965 shares of the registrant’s Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates certain information by reference from the definitive proxy statement for the Annual Meeting of Stockholders tentatively scheduled for May 10, 2004 (the “Proxy Statement”).

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ITEM 1.     Business

This report contains forward-looking statements that involve risks and uncertainties. The statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We use words such as “anticipates,” “believes,” “plans,” “expects,” “future,” “intends,” “may,” “will,” “should,” “estimates,” “predicts,” “potential,” “continue,” and similar expressions to identify such forward-looking statements. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance, achievements and prospects, and those of the wireless and Internet software and application services industry generally, to be materially different from those expressed or implied by such forward-looking statements. These risks, uncertainties and other factors include, among others, those identified under “Factors Affecting Our Operating Results, Business Prospects and Market Price of Stock” and elsewhere in this report.

On September 13, 2002, we effected a one-for-ten reverse split of our issued and outstanding common stock. We also effected two-for-one stock splits on May 5, 1999, January 5, 2000 and April 6, 2000. Historical share numbers and prices throughout this Annual Report on Form 10-K are split-adjusted.

Overview

InfoSpace is a diversified technology and services company principally comprised of the following businesses: Search and Directory, Mobile and Payment Solutions. We were founded in 1996 and are incorporated in the state of Delaware. Our principal corporate offices are located in Bellevue, Washington, and we also have facilities in Los Angeles, California; American Fork, Utah; Woking, United Kingdom and Papendrecht, The Netherlands. We completed our initial public offering on December 15, 1998 and our common stock is listed on the Nasdaq National Market under the symbol “INSP”.

Prior to 1997, we had insignificant revenues and were primarily engaged in the development of technology for the aggregation, integration and distribution of Internet content. In 1997, we expanded our operations, adding sales personnel to capitalize on the opportunity to generate Internet advertising revenues. We began generating significant revenue in 1997 with our on-line services. Revenues in 1998 were also primarily generated through our on-line services. Since then, we have expanded and enhanced our products and application services, including those for the wireless data industry, through both internal development and acquisitions.

We recently announced a further tightening of our strategic focus to two businesses: Search and Directory, and Mobile. In October 2003, we began to explore strategic alternatives for our Payment Solutions business and engaged an investment bank to assist in this process. On March 1, 2004, we had announced that we entered into a definitive agreement to sell our Payment Solutions business to Lightbridge, Inc. for $82 million in cash. The transaction is expected to be completed in the second quarter of 2004 and is subject to customary closing conditions, including receipt of regulatory approval.

Company Internet Site and Availability of SEC Filings.    Our corporate Internet site is www.infospaceinc.com. We make available on that site our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, as well as any amendments to those filings, and other filings we make electronically with the U.S. Securities and Exchange Commission (“SEC”). The filings can be found in the Investor Relations section of our site, and are available free of charge. Information on our Internet site is not part of this Form 10-K. In addition to our Web site, the SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements, and other information regarding us and other issuers that file electronically with the SEC.

SEARCH AND DIRECTORY

Our Search and Directory properties are designed to enable Internet users to locate information, merchants, individuals and products on-line. We offer Search and Directory services through our branded Web sites,

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InfoSpace.com, Dogpile.com, Webcrawler.com and MetaCrawler.com, as well as through the Web sites of distribution partners. Partner versions of our Search and Directory services are generally private-labeled and delivered with each customer’s design and logo specifications.

Search and Directory revenue growth is primarily determined by two key drivers: the number of paid searches and the price per paid search. Generally, each time a user “clicks” on a commercial search result or views a directory listing, the search engine or listing provider that provided the result pays us a fee. Beginning in the second quarter of 2003, we began reporting the number of paid searches and the revenue per paid search. Our Search and Directory business in North America generated an aggregate of approximately 155 million paid searches during the quarter ended December 31, 2003, compared to approximately 140 million paid searches during the quarter ended September 30, 2003. Average revenue per paid search for the quarter ended December 31, 2003 was approximately $0.15, compared to approximately $0.14 per paid search for the quarter ended September 30, 2003.

Search

Our Search properties enable Internet users to locate relevant information, merchants and products on-line. We deliver results from leading search engines, including Yahoo! and Google, among others. Our search offerings differ from most other mainstream search services in that they provide “meta-search” technology that selects results from several search engines. We offer search services through our own Web sites, as well as through the Web sites of distribution partners including WebSearch.com, Verizon Online, Cablevision, Info.com, Copernic Technologies and others. The majority of Search revenue growth in 2003 was generated through the addition of new distribution partners.

We compete against major Internet portals and other providers of Web search services. We also compete against more traditional advertising media, including radio, network and cable television, newspaper, magazines, Internet, direct mail and others for a share of the U.S. advertising media market.

Directory

Our Directory services include on-line yellow and white page services. InfoSpace Directory properties help Internet users find local and national merchants and individuals in North America. With our Directory products, users can identify local or national businesses, locate contact information for friends and associates, or search for items to buy, sell, or rent. We offer Directory services through our branded Web sites, such as InfoSpace.com, as well as through distribution relationships. Our distribution partners include AT&T’s Anywho.com, WhitePages.com, MSN and AOL.

Our on-line yellow page services allow users to find telephone, address and other information for local and national merchants. We provide both on-line and “brick-and-mortar” merchants with a Web-based yellow pages listing that is targeted to consumers looking specifically for the products and services that those merchants offer. We obtain the underlying directory listings primarily through our relationship with Verizon Information Services.

Our white pages service enables on-line users to find telephone and address information, as well as more detailed information, on individuals. In the white pages market, we have relationships with U.S. advertisers related to people, location, information and verification services, and derive substantially all of our revenue from these advertisers.

Our Directory services compete against major Internet portals, print and on-line directories from the Regional Bell Operating Companies (“RBOCs”), portals, and independent print and Web-based directories. We also compete against more traditional advertising media, including radio, network and cable television, newspapers, magazines, Internet, direct mail and others for a share of the total U.S. advertising market.

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MOBILE

Our Mobile division develops applications, tools and infrastructure that enable wireless carriers and information, entertainment and media companies to efficiently develop, deliver and monetize mobile data services across multiple devices. We provide mobile data solutions for wireless operators and branded content providers in North America and Europe. Our service offerings allow our partners to aggregate, configure and customize the services they offer under their own brand and deliver these services to cellular phones.

In November 2003, we acquired Moviso LLC, a mobile media company, from Vivendi Universal Net USA Group, Inc. for $25 million in cash. Mobile media, consisting of ringtones, graphics, video and games, is one of the fastest growing segments of the wireless data market. The acquisition of Moviso provided us with expanded end-user reach, additional carrier relationships and an extensive content library, improving our ability to help content brands and media companies get their content and applications quickly and easily to subscribers.

Today, the Mobile division generates revenue primarily from transaction fees, subscriber fees, revenue sharing fees, set-up fees and professional service fees. As of December 31, 2003, we had relationships with over 30 mobile customers, including Cingular Wireless, T-Mobile, Virgin Mobile, KPN Mobile and Orange Nederland.

Competitors include wireless application providers, wireless application aggregators, wireless application enablers, entertainment and other digital media companies, and the wireless carriers themselves.

Our service offering is focused in two product lines: Moviso^™ content and applications (formerly called MobileZone), and our Modalyst^™ delivery system.

Moviso – Content and Applications

The Moviso content and applications portfolio is a suite of branded content applications featuring entertainment, personalization and information offerings. The Moviso content library provides content brands with access to a large carrier network with wide-scale distribution, and allows wireless carriers to differentiate their data offerings with a broad array of brand name applications.

Our Moviso content and applications portfolio is divided into three main application categories:

We offer thousands of entertainment, information and personalization titles from more than 250 licensors such as major music and sound effect companies, celebrities, and audio and graphical studios.

The Moviso Applications Portfolio can be delivered via a broad range of delivery standards and handsets. Available delivery technologies include Short Messaging Service (“SMS”) and Multimedia Messaging Service (“MMS”); Wireless Application Protocol (“WAP”) and WAP-push; and Binary Runtime Environment for Wireless (“BREW”) and Java2 Platform, Micro Edition (“J2ME”).

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Modalyst – Delivery Platform

The Modalyst delivery platform provides carriers and content providers with comprehensive solutions that support messaging (SMS/MMS), browsing (WAP/xHTML) and downloadable (J2ME/BREW) delivery of content applications. Modalyst also provides tools and infrastructure components to allow carriers, content providers and others to build, publish, market and deliver applications (such as games, ringtones and news) to mobile subscribers across many different networks, handset types, or browser software. Modalyst currently powers mobile data solutions to more than 20 wireless carriers.

Our Modalyst solutions also include wholesale SMS/MMS delivery services that are currently available in the United Kingdom and The Netherlands. Wholesale delivery services allow businesses to reach customers in new and innovative ways via SMS and MMS, and over many mobile network operators at once, through the delivery of interactive promotions, information and other services.

PAYMENT SOLUTIONS

Our Payment Solutions division offers products and services, marketed under the Authorize.Net brand, focused primarily in the e-commerce and mail order/telephone order segment of the U.S. credit card transaction processing market. Our Authorize.Net payment gateway provides credit card and electronic check solutions to e-commerce, phone and mail order companies that process orders for goods and services over the Internet. We connect small and medium-sized businesses to large credit card processors and banking organizations, thereby enabling those businesses to accept electronic payments. Our Authorize.Net service provides transmission of transaction data over the Internet and manages submission of this payment information to the credit card processors.

We earn revenue from our merchants from transaction fees and monthly subscription fees. Beginning in the second quarter of 2003, we began reporting the number of active credit card merchant accounts and the average monthly revenue generated per merchant. At December 31, 2003, our payment processing platform had approximately 91,000 active credit card merchant accounts, compared to approximately 88,000 active credit card merchant accounts at September 30, 2003. We earned an average monthly revenue of approximately $24.30 per merchant during the quarter ended December 31, 2003, compared to an average monthly revenue of approximately $22.80 per merchant during the quarter ended September 30, 2003.

Our payment processing services are sold primarily through Independent Sales Organizations (“ISOs”), through our merchant bank partners, such as Wells Fargo, and through direct sales by Authorize.Net.

Competitors include payment processors, other payment gateways, ISOs and in-house payment solutions.

On March 1, 2004, we announced that we entered into a definitive agreement to sell our Payment Solutions business to Lightbridge, Inc. for $82 million in cash. The transaction is expected to be completed in the second quarter of 2004 and is subject to customary closing conditions, including receipt of regulatory approval.

Seasonality

Our search services, mobile services and payment gateway solutions are generally impacted by traditional retail seasonality, with sales usually increasing in the fourth quarter of each calendar year. Additionally, our search and directory services are generally affected by seasonal fluctuations in Internet usage, which generally declines in the summer months.

International Operations

We currently maintain facilities in the United States, The Netherlands and the United Kingdom.

We have historically generated most of our revenues from customers in the United States. Revenue generated in the United States accounted for 90% in 2003, 91% in 2002 and 91% in 2001 of our total revenues in those years.

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Revenue Sources

In 2003, we derived most of our revenues from Search and Directory, Mobile and Payment Solutions. In 2003, we derived 6.5% of our revenue from our non-core services. As of the end of 2003, we had sold all of our non-core services.

Search and Directory Revenue:    We generate revenues from our Web search and on-line yellow page and white page services. Revenues are generated when an end-user of our services generates a paid search at our Web site. We also generate revenue from searches at a distribution partner’s Web site. Revenues are recognized in the period in which a paid search occurs and are based on the amounts earned and remitted to us. We also generate advertising revenues by selling banner, button and text-link advertisements based on cost per search or page view, which are recognized when the services are delivered.

Mobile Revenue:    We earn revenues, typically from agreements with wireless carriers, for content delivery services, which include both subscriber usage or product downloads, hosting and maintenance services and professional services. We recognize subscriber revenues based on a fee per user or per usage by the end user. We recognize revenue from media downloads when the product is delivered. We recognize revenue from Internet hosting services and maintenance of such services, which is recognized in the period in which the service is provided. We sometimes earn one-time user set-up fees. We also generate revenues from professional services, which are recognized as revenue in the period in which the work is completed and accepted by the customer.

Payment Solutions Revenues:    We generate revenues from our credit card processing and eCheck processing services, gateway fees and set-up fees. Processing services revenue, which is based on a fee per transaction or as a percentage of the completed transaction, is recognized in the period the transaction occurs. Revenues from our gateway services are generated from monthly subscriptions charged to our merchant customers for use of the services and are recognized in the period in which the service is provided. Revenues from one-time set-up fees for our payment processing services are recognized ratably over the average estimated life of the merchant.

Product Development

We believe that our technology is essential to successfully implement our strategy of expanding and enhancing our Search and Directory services, expanding in the mobile data market and maintaining the attractiveness and competitiveness of our products and services. Product development expenses were $23.7 million in the year ended December 31, 2003, $35.2 million in the year ended December 31, 2002 and $39.3 million in the year ended December 31, 2001.

Intellectual Property

Our success depends significantly upon our technology. To protect our rights, we rely on a combination of copyright and trademark laws, patents, trade secrets, confidentiality agreements with employees and third parties and protective contractual provisions. Most of our employees have executed confidentiality and non-use agreements that transfer any rights they may have in copyrightable works or patentable technologies to us. In addition, prior to entering into discussions with potential content providers and customers regarding our business and technologies, we generally require that such parties enter into nondisclosure agreements with us. If these discussions result in a license or other business relationship, we also generally require that the agreement setting forth the parties’ respective rights and obligations include provisions for the protection of our intellectual property rights. For example, the standard language in our agreements provides that we retain ownership of all patents and copyrights in our technologies and requires our customers to display our patent, copyright and trademark notices.

“InfoSpace,” the InfoSpace logo, “Go2Net,” “Authorize.Net,” “Authorize.Net Where the World Transacts,” “Dogpile”, the Dogpile logo, “ActiveShopper,” “100Hot,” “Web21,” “Haggle Online,” “MetaCrawler,”

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“MetaSpy,” “FraudScreen.Net,” “RubberChicken.com,” “Aprilfools.com,” “Pagegreetings,” “Echeck.net,” “Virtual Outlet,” “Valentine.com,” “WebMarket,” “GiantBear,” “Giantbear.com,” “E-Cash,” “Digicash,” “E-Vote, “ “Kidcash,” “Net-Cash,” “Net-Pay,” “Classifieds2000,” “Cool Notify,” “Jango,” “Webcrawler,” “Webcrawler Direct,” “Search the Search Engines!,” “Airpay by Authorize.Net,” “Moviso,” “Ringster,” and “Yourmobile” are U.S. registered trademarks of ours. In addition, we have applied for U.S. federal registration of other marks, including the Go2Net logo, “Discover What You Can Do,” “Airpay,” “Syncnow,” “Ad Focus,” “InfoSpace Mobile Zone,” “WAM!,” “Arfie”, the Arfie logo, “Audiotones,” “Celebrity Voice Ringers,” “FXTones,” “Globalreach,” “Good Dog Great Results,” “Hittones,” “InfoSpace Mobile,” “Modalyst,” “Moviso & Mobile Vision Sound Design,” “Musictones,” “Nutones,” “Picster,” “Realtones,” “Saraide,” “Songcentral,” “Songtones,” “Startones,” “Trutones,” and “Watchdog”. We also have applied for registration of certain service marks and trademarks in the United States and in other countries, and will seek to register additional marks in the U.S. and foreign countries, as appropriate. We may not be successful in obtaining registration for the service marks and trademarks for which we have applied.

We hold 31 U.S. patents. Our issued patents relate to private-label ecommerce solutions; tracking the purchase of products, services and information on the Internet and on wireless devices; order injection technology and electronic transaction technologies. We have many issued foreign patents and patents pending covering some of these technologies. We are currently pursuing certain pending U.S. patent applications that relate to various aspects of our technology, including technology we have developed for querying and developing databases, for developing and constructing Web pages, electronic ecommerce on-line directory services, wireless soft-key navigation and Web scraping. We anticipate on-going patent application activity in the future. However patent claims may not be issued, and, if issued, may be challenged or invalidated. In addition, issued patents may not provide us with any competitive advantages and may be challenged or invalidated by third parties.

Despite our efforts to protect our rights, unauthorized parties may copy aspects of our products or services or obtain and use information that we regard as proprietary. The laws of some foreign countries do not protect proprietary rights to as great an extent as do the laws of the United States. In addition, others could independently develop substantially equivalent intellectual property. If we do not effectively protect our intellectual property, our business could suffer.

Companies in the Internet software and application services industry have frequently resorted to litigation regarding intellectual property rights. We may have to litigate to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of others’ proprietary rights. From time to time, we have received, and may receive in the future, notice of claims of infringement of others’ proprietary rights. Responding to any such claims could be time-consuming, result in costly litigation, divert management’s attention, cause product or service release delays, require us to redesign our products or services or require us to enter into royalty or licensing agreements. If a successful claim of infringement were made against us and we could not develop non-infringing technology or license the infringed or similar technology on a timely and cost-effective basis, our business could suffer.

MetaCrawler License Agreement.    We hold an exclusive, perpetual worldwide license, subject to certain limited exceptions, to the MetaCrawler intellectual property and related search technology from the University of Washington, which we use in our various Search businesses.

Competition

We operate in the Internet software and application and mobile services markets, which are extremely competitive and rapidly changing. Our current and prospective competitors include many large companies that have substantially greater resources than we have. We believe that the primary competitive factors in the market for mobile and Internet software and applications are:

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Although we believe that no one competitor offers all of the products and services we do, our primary offerings face competition from various sources. We compete, directly or indirectly, in the following ways, among others:

We expect that in the future we will experience competition from other Internet software and application and mobile services companies. Some of these companies are currently customers or distribution partners of ours, the loss of which could harm our business.

Many of our current customers have established relationships with some of our current and potential future competitors. Some of our customers are also our competitors. If our competitors develop software and application services that are superior to ours, or that achieve greater market acceptance than ours, our business will suffer.

Governmental Regulation

Because of the increasing use of the Internet, U.S. and foreign governments have adopted or may in the future adopt laws and regulations relating to the Internet, addressing issues such as user privacy, pricing, content, taxation, copyrights, distribution and product and services quality.

Recent concerns regarding Internet user privacy have led to the introduction of U.S. federal and state legislation to protect Internet user privacy. Existing laws regarding user privacy that we may be subject to include the Children’s Online Privacy Protection Act, which regulates the online collection of personal information from children under 13, and the Gramm-Leach-Bliley Act, which regulates the collection and processing of personal financial information. In addition, the Federal Trade Commission has initiated investigations and hearings regarding Internet user privacy, which could result in rules or regulations that could adversely affect our business. As a result, we could become subject to new laws and regulations that could limit our ability to conduct targeted advertising, or to distribute or collect user information. The various states likewise have sought to regulate advertising and privacy.

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In October 1998, the European Union adopted a directive that may limit our collection and use of information regarding Internet users in Europe. European countries may pass new laws in accordance with the directive, or may seek to more strictly enforce existing legislation, which may prevent us from offering some or all of our services in some European countries. The European Union also has enacted an electronic communications directive that imposes certain restrictions on the use of cookies and action tags as well as sending of unsolicited communications. Each European Union member country was required to enact legislation to comply with the provisions of the directive by October 31, 2003. Germany already has imposed its own laws limiting the use of user profiling, and other countries (both in and out of the European Union) may impose similar limitations.

We may be subject to provisions of the Federal Trade Commission Act that regulate advertising in all media, including the Internet, and require advertisers to substantiate advertising claims before disseminating advertising. The Federal Trade Commission has the power to enforce this Act. It has recently brought several actions charging deceptive advertising via the Internet and is actively monitoring advertising via the Internet. States as well have brought such actions.

We may also be subject to the provisions of the Child Online Protection Act, which restricts the distribution of certain materials deemed harmful to children. The Act is also designed to restrict access to such materials by children, and accordingly, the provisions of this Act may apply to certain Internet product and service providers even though such companies are not engaged in the business of distributing the harmful materials. Although some court decisions have cast doubt on the constitutionality of this Act, and we have instituted processes for voluntary compliance with provisions of the Act that may be relevant to our business, it could subject us to liability.

The Banking Secrecy Act, the USA Patriot Act of 2001 and the Homeland Security Act contain anti-money laundering and financial transparency laws and mandate the implementation of various new regulations applicable to financial services companies, including obligations to monitor transactions and report suspicious activities. The obligations under these Acts which may apply directly, or could be applied by our financial services partners, to certain of our merchant services requires the implementation and maintenance of internal practices, procedures and controls which will increase our costs and may subject us to liability.

These or any other laws or regulations that may be enacted in the future could have adverse effects on our business, including higher regulatory compliance costs, limitations on our ability to provide some services in some countries, and liabilities which might be incurred through lawsuits or regulatory penalties.

Employees

As of February 29, 2004, we had 466 employees. None of our employees are represented by a labor union, and we consider employee relations to be positive. There is competition for qualified personnel in our industry, particularly for software development and other technical staff. We believe that our future success will depend in part on our continued ability to hire and retain qualified personnel.

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Executive Officers and Directors

The following table sets forth certain information as of February 29, 2004 with respect to our executive officers and directors:

James F. Voelker assumed the role of our Chairman and Chief Executive Officer since December 2002. He also held the title of President from December 2002 to April 2003. He has served as a director since July 2002. He served as President and a director of NEXTLINK Communications, Inc. (now XO Communications, Inc.) from inception in 1994 through 1998. Prior to NEXTLINK, he served as Chief Executive Officer and director of U.S. Signal, a full service competitive local exchange carrier. He currently serves as an advisor to Providence Equity Partners.

Kathleen H. Rae was appointed President and Chief Operating Officer in April 2003. She served as a partner of Ignition Partners from inception in March 2000 to June 2001. She served as Chief Financial Officer and a member of the founding operational team for NEXTLINK Communications, Inc. (now XO Communications, Inc.), from January 1996 through December 1999. She served with Alaska Airlines and Horizon Air, subsidiaries of Alaska Air Group from 1987 to 1995. From 1994 to 1995 she served as President and Chief Executive Officer of Horizon Air. Ms. Rae holds a B.S. in Business from the University of California, Berkeley.

David E. Rostov was appointed Chief Financial Officer in April 2003. From March 2001 to November 2002, he served as Chief Financial Officer of Apex Learning, a provider of online advanced placement courses for U.S. high schools. From May 2002 to November 2002 he also served as acting Chief Operating Officer. Prior to Apex Learning, he served as Chief Financial Officer of drugstore.com from January 1999 to January 2001. He served as Chief Financial Officer of Nextel International from 1996 to 1999. He served in various financial positions at McCaw Cellular Communications from 1992-1995. Mr. Rostov holds a B.A. in Economics from Oberlin College, and an M.B.A and M.A. in Public Policy from the University of Chicago Graduate School of Business.

Edmund O. Belsheim, Jr. joined us in November 2000 as Senior Vice President and General Counsel, and was appointed Chief Operating Officer in January 2001 and Chief Administrative Officer in April 2003. He also served as President from July 2001 to December 2002. Mr. Belsheim has also been a director since January 2001. From April 1999 to November 2000, he was a partner at Perkins Coie LLP, a Seattle-based law firm. From 1996 to 1998, Mr. Belsheim served as Vice President, Corporate Development, General Counsel and Secretary of Penford Corporation, a maker of specialty starches. He also served as Senior Vice President, Corporate Development, General Counsel and Secretary of Penwest Pharmaceuticals Co., an oral drug delivery technology and products company. Prior to joining Penford Corporation, Mr. Belsheim was a member of the law firm Bogle & Gates, P.L.L.C. Mr. Belsheim holds an A.B. from Carleton College, an M.A. from the University of Chicago and a J.D. from the University of Oregon.

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Victor J. Melfi, Jr. joined us in November 2003 as Chief Strategy Officer, after previously serving in a consulting role. Since 1998, he has served as a consultant to and board member of several technology companies, including License Online, Virtual Spin, and PrairieLaw.com, where he also served as Chief Executive Officer. From November 1994 to January 1998, he served as Chief Executive Officer of Multiple Zones (now Zones, Inc.), a direct marketing reseller of technology products. From 1990 to 1994, he served at Reader’s Digest Association, Inc. Mr. Melfi holds a bachelor’s degree from Shimer College and a master’s degree from Oxford University. He also holds an M.B.A. and M.A. from Yale University.

Brian T. McManus joined us in April 2003 as Executive Vice President, Search and Directory. From April 2000 to October 2002, he served as Vice President of Corporate Development at Internet service provider Epoch Internet. From October 1999 to April 2000, he served as Chief Operating Officer of Bazillion. From December 1998 to June 1999, he served as Chief Executive Officer of Intermind (now OneName). From December 1993 to March 1998, he served in various executive positions for AccessLine Technologies, including Chief Executive Officer from June 1997 to March 1998. Mr. McManus holds a B.S. in Business Administration and Economics from the University of California, Berkeley. He also holds a M.B.A. and a J.D. from the University of Washington.

Kendra Ann VanderMeulen joined InfoSpace as Executive Vice President, InfoSpace Mobile in May 2003. She led the formation of the wireless data business at AT&T Wireless from 1994 until August 2001. Previously she was with Cincinnati Bell Information Systems (now Convergys), where she served as Chief Operating Officer and President of the Communications Systems Group. Ms. VanderMeulen holds a B.S. in mathematics from Marietta College and a M.S. in computer science from Ohio State University.

Prakash Kondepudi joined us in April 2000 as Vice President, Mobile Commerce and was appointed Executive Vice President, Merchant in February 2001, and was appointed Executive Vice President of Payment Solutions in April 2003. Mr. Kondepudi had served as Vice President, Application Services of Saraide Inc. (formerly saraide.com, inc.) from November 1998 until our acquisition of a controlling interest in Saraide in March 2000. From May 1995 to October 1998, Mr. Kondepudi worked for VeriFone, Inc., where he initially served as Director, Client/Server Technology and was later appointed Director, Business Development. Mr. Kondepudi holds a bachelor’s degree in Technology from Jawaharlal Nehru Technology University (India) and a master’s degree in Technology from the Indian Institute of Technology-Madras.

Allen M. Hsieh joined us in June 2003 as Vice President Financial Operations and Chief Accounting Officer. From February 2000 to March 2003, he served as Vice President Finance at Terabeam Corp., a start up technology company. Prior to Terabeam Corp. he served in various positions at PricewaterhouseCoopers LLP, a big four accounting firm, from July 1985 to February 2000, and the last two years as a partner in their accounting and auditing practice. Mr. Hsieh holds a B.A. in Business Administration from the University of Washington.

John E. Cunningham, IV has served as a director since July 1998. Mr. Cunningham has been a general partner of Clear Fir Partners, L.P. since February 1998. From April 1995 until February 2003, he served as President of Kellett Investment Corporation, an investment fund for private companies. During 1997, Mr. Cunningham acted as interim Chief Executive Officer of Real Time Data, a wireless services company. From February 1991 to November 1994, he served as Chairman and Chief Executive Officer of RealCom Office Communications, a privately-held telecommunications company that merged with MFS Communications Company, Inc. Mr. Cunningham is on the board of directors of Petra Capital, LLC and Revenue Science, Inc., formerly digiMine.com, and also serves as an advisor to Petra Mezzanine Fund, L.P. He holds a B.A. from Santa Clara University and an M.B.A. from the University of Virginia.

Rufus W. Lumry, III has served as a director since December 1998. Since 1992, Mr. Lumry has served as President of Acorn Ventures, Inc., a venture capital firm he founded. Prior to founding Acorn Ventures, Mr. Lumry served as a director and Chief Financial Officer of McCaw Cellular Communications. Mr. Lumry was one of the founders of McCaw in 1982, and retired from McCaw in 1990 as Executive Vice President and Chief Financial Officer. Mr. Lumry holds an A.B. from Harvard University and an M.B.A. from the Harvard Graduate School of Business Administration.

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Lewis M. Taffer has served as a director since June 2001. Mr. Taffer was appointed Executive Vice President, Acquisition Marketing of America Online in January 2004. From May 2001 to January 2004, Mr. Taffer was an independent consultant specializing in marketing, business development and strategic partnerships. From 1979 through April 2001, Mr. Taffer served in various positions at American Express Company, most recently as Senior Vice President—Corporate Business Development, a position at which he developed and launched an online shopping portal for American Express Cardmembers, which utilized InfoSpace services. Mr. Taffer serves on the board of directors of Lymphoma Research Foundation, a nonprofit entity. Mr. Taffer holds a B.A. from the University of Pittsburgh and a J.D. from the University of Michigan.

Richard D. Hearney has served as a director since September 2001. General Hearney served as President and Chief Executive Officer of Business Executives for National Security, an organization focusing on national security policy, from January 2000 to April 2002. General Hearney joined McDonnell Douglas Corporation in 1996 and served as Regional Vice President of Business Development—Western Europe until the acquisition of McDonnell Douglas by The Boeing Company in 1997, and subsequently served as Vice President of the Military Aircraft and Missile Systems Group of Boeing until November 1999. General Hearney served in the United States Marine Corps for over 35 years, and retired from military service in 1996 as Assistant Commandant of the Marine Corps. He holds a B.A. from Stanford University and an M.A. from Pepperdine University and graduated from the Naval War College.

George M. Tronsrue, III was appointed as a director in February 2003. Mr. Tronsrue is currently Co-Manager of Jericho Fund, LLC, an investment and consulting company. From January 2000 to March 2004, Mr. Tronsrue served as Chairman and Chief Executive Officer of Monet Mobile Networks Inc., a Seattle-based wireless Internet service provider. Monet Mobile filed for Chapter 11 bankruptcy protection in March 2004. From October 1997 to October 1999, Mr. Tronsrue was with XO Communications, Inc. (formerly NEXTLINK Communications, Inc.), a broadband communications company, where he served as Chief Operating Officer and was also appointed as President in July 1998. Prior to his tenure at XO Communications, Mr. Tronsrue was a member of the initial executive management team of American Communications Services, Inc. (later called e.spire Communications, Inc.), an Internet data and fiber infrastructure company. Prior to e.spire, Mr. Tronsrue was employed by Teleport Communications Group and MFS Communications. Mr. Tronsrue serves on the boards of directors of several private companies and charitable organizations. Mr. Tronsrue holds a B.S. from the U.S. Military Academy.

Vanessa A. Wittman was appointed as a director in April 2003. She presently serves as Executive Vice President and Chief Financial Officer of Adelphia Communications Corporation, where she has served since March 2003. From February 2000 to March 2003, she was Chief Financial Officer of broadband network services provider 360networks. Previously, she served as senior director of Corporate Development at Microsoft, and was Chief Financial Officer of the wireless-services company Metricom, Inc. Ms. Wittman holds a BS/BA in Business Administration from the University of North Carolina at Chapel Hill, and an MBA from the University of Virginia’s Darden Graduate School of Business.

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FACTORS AFFECTING OUR OPERATING RESULTS,

BUSINESS PROSPECTS AND MARKET PRICE OF STOCK

Financial Risks Related to Our Business

We have a history of losses and may continue to incur operating losses, and we may not achieve or sustain profitability under U.S. generally accepted accounting principles (GAAP).

We have incurred net losses on an annual basis from our inception through December 31, 2003. As of December 31, 2003, we had an accumulated deficit of approximately $1.3 billion. We may continue to incur operating losses in the future. These losses may be higher than our current losses from operations. Some of our operating expenses are fixed in the short term. We may in the future incur losses from the impairment of goodwill or other intangible assets, losses from acquisitions we may enter into, or incur restructuring charges as our business evolves. We must therefore generate revenues sufficient to offset these expenses in order for us to become profitable under GAAP. While we achieved profitability in the three-month periods ended September 30, 2003 and December 31, 2003, we have yet to achieve profitability on an annual basis. Further, we may not be able to sustain profitability on a quarterly basis or on an annual basis.

Our revenues are dependent on our relationships with companies who distribute our products and services.

We rely on our relationships with distribution partners, including Web portals, wireless carriers, merchant banks, financial institutions and resellers, for distribution or usage of our products and application services. In 2003 we generated approximately 30% of our total revenues through our relationships with our top ten distribution partners in our various businesses. In particular, we rely on a small number of distribution partners for a significant portion of the revenues associated with our search and directory products, and most of these partners are development-stage companies with limited operating histories and evolving business models. We cannot assure you that any of these relationships will continue, be sustainable or result in benefits to us that outweigh the costs of the relationships.

Certain of our agreements with our distribution partners will come up for renewal or expire during 2004. We cannot assure you that such arrangements will not be terminated or that such arrangements will be renewed upon expiration of their terms. We cannot guarantee that new contracts, if any, which replace terminated contracts will be on terms as favorable to us as the prior arrangements. In particular, we are currently experiencing industry pricing pressure in our wireless business. Also, certain of our distribution partners may not comply with their agreement with us, which may cause us to terminate the agreement. Additionally, certain terms of our agreements with our third party content providers may be amended from time to time by both parties or may be subject to different interpretation by either party, which may require the rights we grant to our distribution partners to be modified to comply with such amendments or interpretations. Our agreements with our distribution partners generally provide that we may modify the rights we grant to our distribution partners to avoid being in conflict with the agreements with our content providers. Failure of a distribution partner to comply with any such modification may require us to either not provide content from the applicable content provider to such distribution partner or to terminate the distribution agreement.

A substantial portion of our revenues is attributable to a small number of customers, the loss of any one of which would harm our financial results.

We derive a substantial portion of our revenues from a small number of customers. We expect that this concentration will continue in the foreseeable future. Our top ten customers represented 68.1% of our revenues for 2003. Overture, Verizon Information Services and Google each accounted for more than 10% of our revenues in the year ended December 31, 2003. If we lose any of these customers, or if any of these customers are unable or unwilling to pay us amounts that they owe us, our financial results could materially suffer.

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Our financial results are likely to continue to fluctuate, which could cause our stock price to be volatile or decline.

Our financial results have varied on a quarterly basis and are likely to fluctuate in the future. These fluctuations could cause our stock price to be volatile or decline. Several factors could cause our quarterly results to fluctuate materially, including:

For these reasons, among others, you should not rely on period-to-period comparisons of our financial results to forecast our future performance. Furthermore, our fluctuating operating results may fall below the expectations of securities analysts or investors, which would cause the trading price of our stock to decline.

Our strategic direction is evolving, which could negatively affect our future results.

In 2003 we announced that, as part of an in-depth and ongoing analysis of our business, we were taking steps to streamline operations and sharpen our strategic focus on our core businesses: Search and Directory, Mobile and Payment Solutions. Services falling outside of these areas have been sold or otherwise divested. Recently, we announced that we have entered into an agreement to sell our Payment Solutions business, subject to certain closing conditions. Further changes in strategic direction may occur as we continue to evaluate opportunities in a rapidly evolving market.

These changes to our business may not prove successful in the short or long term and may negatively impact our financial results. In particular, we expect to experience a decline in revenue in the short term due in part to the disposition of our non-core services, and we may incur additional charges due to restructuring or impairment of assets.

We operate in new and rapidly evolving markets, and our business model continues to evolve, which makes it difficult to evaluate our future prospects.

Since inception, our business model has evolved and is likely to continue to evolve as we refine our product offerings and market focus. In particular, in 2003 we completed an in-depth analysis of our business, and we have taken, and continue to take, steps to streamline operations and sharpen our strategic focus.

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As a result, our potential for future profitability must be considered in light of the risks, uncertainties, expenses and difficulties frequently encountered by companies that are in new or rapidly evolving markets and continuing to innovate with new and unproven technologies, as well as undergoing significant change. Some of these risks relate to our potential inability to:

In addition, we have in the past and may in the future find it beneficial to streamline operations and reduce expenses, including such measures as reductions in the workforce, reductions in discretionary spending, reductions in capital expenditures as well as other steps to reduce expenses. Effecting any such restructuring would likely place significant strains on management and our operational, financial, employee and other resources. In addition, any such restructuring could negatively affect our development, marketing, sales and customer support efforts or alter our product development plans.

If we do not effectively address the risks we face, our business model may become unworkable and we may not achieve or sustain profitability.

Our future earnings could continue to be negatively affected by significant charges resulting from the impairment in the value of assets we acquire or sell.

For acquisitions that we have accounted for using the purchase method, we regularly evaluate the recorded amount of long-lived assets, consisting primarily of goodwill, acquired contracts and core technology, to determine whether there has been any impairment of the value of the assets and the appropriateness of their estimated remaining lives. We evaluate impairment annually or whenever events or changed circumstances indicate that the carrying amount of the long-lived assets might not be recoverable.

We also may incur charges when we abandon or sell non-core assets for less than their carrying value. During the year ended December 31, 2003, we evaluated our other intangible assets and recorded an impairment charge of $1.2 million related to core technology acquired in certain previous acquisitions as we determined that we would no longer pursue providing certain services due to changes in our business focus.

In addition, recent changes in GAAP require us to discontinue amortizing goodwill and certain intangible assets. We adopted these changes effective January 1, 2002. Under this approach, goodwill and certain intangible assets are not amortized into results of operations, but instead are reviewed for impairment and written down and charged to results of operations only in the periods in which the recorded value of goodwill and certain intangible assets is more than its fair value. We will continue to regularly evaluate the recorded amount of our long-lived assets including acquired contracts and core technology and test for impairment. In the event we determine that any long-lived asset has been impaired, we will record additional impairment charges in future quarters. Goodwill impairment will be evaluated at least annually. We are unable to predict the amount, if any, of potential future impairments.

As of December 31, 2003, the carrying value of our acquired intangible assets is $126.4 million, consisting of goodwill of $106.2 million and other intangible assets of $20.2 million. The other intangible assets are being amortized over their useful lives, through 2008. We intend to continue to acquire strategic assets and businesses, and may continue to incur impairment charges relating to past and future acquisitions.

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Our stock price has been and is likely to continue to be highly volatile.

The trading price of our common stock has historically been highly volatile. Since we began trading on December 15, 1998, our stock price has ranged from $3.70 to $1,385.00 (as adjusted for stock splits). On February 27, 2004, the closing price of our common stock was $36.35. Our stock price could decline or be subject to wide fluctuations in response to factors such as the other risks discussed in this section and the following, among others: