UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2008

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

000-31321

(Commission File No.)

RIGHTNOW TECHNOLOGIES, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		81-0503640
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

136 Enterprise Boulevard

Bozeman, Montana 59718-9300

(Address of Principal Executive Offices) (Zip Code)

(406) 522-4200

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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 o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer x

Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of shares outstanding of the registrant’s common stock, $0.001 par value, as of July 31, 2008 was 33,611,759

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Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

RightNow Technologies, Inc.

Condensed Consolidated Balance Sheets

(In thousands) (Unaudited)

	December			June 30,
	31, 2007			2008
Assets
Cash and cash equivalents	$	43,681		$	52,781
Short-term investments	52,644			41,540
Accounts receivable	29,480			26,722
Term receivables, current	13,069			8,814
Allowance for doubtful accounts	(1,918		)	(2,177		)
Receivables, net	40,631			33,359
Deferred commissions	3,336			3,970
Prepaid and other current assets	2,643			3,112
Total current assets	142,935			134,762

Long-term investments	—			11,925
Property and equipment, net	10,856			10,798
Term receivables, non-current	9,859			5,728
Intangible assets, net	7,996			7,206
Deferred commissions, non-current	1,680			2,305
Other	460			514
Total Assets	$	173,786		$	173,238

Liabilities and Stockholders’ Equity
Accounts payable	$	4,386		$	5,982
Commissions and bonuses payable	5,044			4,279
Other accrued liabilities	11,404			11,937
Current portion of long-term debt	43			44
Current portion of deferred revenue	76,995			76,693
Total current liabilities	97,872			98,935

Long-term debt, less current portion	68			45
Deferred revenue, net of current portion	37,665			39,289

Stockholders’ equity:
Common stock	33			34
Additional paid-in capital	95,377			99,187
Accumulated other comprehensive loss	(292		)	(787		)
Accumulated deficit	(56,937		)	(63,465		)
Total stockholders’ equity	38,181			34,969
Total Liabilities and Stockholders’ Equity	$	173,786		$	173,238

See accompanying notes to condensed consolidated financial statements.

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RightNow Technologies, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts) (Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2008			2007			2008
Revenue:
Software, hosting and support	$	20,693		$	25,573		$	40,512		$	50,129
Professional services	5,772			9,648			11,655			17,990
Total revenue	26,465			35,221			52,167			68,119

Cost of revenue:
Software, hosting and support	4,565			5,043			8,959			10,078
Professional services	5,036			7,810			10,207			15,095
Total cost of revenue	9,601			12,853			19,166			25,173

Gross profit	16,864			22,368			33,001			42,946

Operating expenses:
Sales and marketing	15,788			17,627			31,515			34,445
Research and development	4,343			4,507			8,639			8,993
General and administrative	3,178			3,890			6,038			7,406
Total operating expenses	23,309			26,024			46,192			50,844

Loss from operations	(6,445		)	(3,656		)	(13,191		)	(7,898		)

Interest and other income, net	885			519			1,713			1,457

Loss before income taxes	(5,560		)	(3,137		)	(11,478		)	(6,441		)
(Provision) benefit for income taxes	(181		)	5			(265		)	(87		)
Net loss	$	(5,741	)	$	(3,132	)	$	(11,743	)	$	(6,528	)

Net loss per share:
Basic	$	(0.17	)	$	(0.09	)	$	(0.36	)	$	(0.19	)
Diluted	$	(0.17	)	$	(0.09	)	$	(0.36	)	$	(0.19	)

Shares used in the computation:
Basic	32,983			33,582			32,921			33,557
Diluted	32,983			33,582			32,921			33,557

See accompanying notes to condensed consolidated financial statements.

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RightNow Technologies, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands) (Unaudited)

	Six Months Ended June 30,
	2007			2008
Operating activities:
Net loss	$	(11,743	)	$	(6,528	)
Non-cash adjustments:
Depreciation and amortization	3,555			3,886
Provisions (recoveries) of uncollectible accounts receivable	(56		)	115
Stock-based compensation	3,293			3,163
Loss on disposal of fixed assets	—			24
Changes in operating accounts:
Receivables	23,651			11,509
Prepaid expenses	(983		)	(443		)
Deferred commissions	(2,100		)	(1,213		)
Accounts payable	(1,193		)	1,584
Commissions and bonuses payable	(1,172		)	(781		)
Other accrued liabilities	3,751			451
Deferred revenue	(6,870		)	567
Other	(10		)	(90		)
Cash provided by operating activities	10,123			12,244

Investing activities:
Net change in investments	(13,784		)	(1,222		)
Acquisition of property and equipment	(3,338		)	(3,033		)
Other	(61		)	(27		)
Cash used in investing activities	(17,183		)	(4,282		)

Financing activities:
Proceeds from issuance of common stock under employee benefit plans	1,179			648
Excess tax benefits of stock options exercised	209			—
Payments on long-term debt	(15		)	(22		)
Cash provided by financing activities	1,373			626

Effect of foreign exchange rates on cash and cash equivalents	321			512

Increase (decrease) in cash and cash equivalents	(5,366		)	9,100

Cash and cash equivalents at beginning of period	39,208			43,681
Cash and cash equivalents at end of period	$	33,842		$	52,781

See accompanying notes to condensed consolidated financial statements.

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RightNow Technologies, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(1) Business Description and Basis of Presentation

Business Description

RightNow Technologies, Inc. (the “Company” or “RightNow”) provides customer experience management software solutions for companies of all sizes. The Company’s on demand software is designed to help companies improve their customer experiences while reducing operating costs. RightNow’s solutions go beyond traditional customer relationship management (“CRM”) solutions to support a business’ external customer-facing channels as well as sales, marketing and customer service operations. Founded in 1997, RightNow is headquartered in Bozeman, Montana, with additional offices in North America, Europe, Asia, and Australia. The Company operates in one segment, which is the customer experience management market.

Basis of Presentation

The accompanying condensed interim consolidated financial statements are unaudited. These financial statements and notes should be read in conjunction with the audited consolidated financial statements and related notes, together with management’s discussion and analysis of financial condition and results of operations, contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

The accompanying interim condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles. In the opinion of management, the interim condensed consolidated financial statements and notes have been prepared on the same basis as the audited consolidated financial statements in the Annual Report on Form 10-K and include all adjustments necessary for the fair presentation of the Company’s financial position at June 30, 2008, and results of operations for the three and six month periods ended June 30, 2007 and 2008, and cash flows for the six month period ended June 30, 2007 and 2008. The interim period results are not necessarily indicative of the results to be expected for the full year.

The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosures of contingent assets and liabilities. Management evaluates these estimates and assumptions on an on-going basis. Significant estimates and assumptions made by management include the identification and fair value of individual elements in multiple-element sales arrangements, whether the fees charged for our products and services are fixed or determinable, valuation allowances for trade receivables and deferred income tax assets, and assumptions used in estimating the fair value of stock options granted for stock-based compensation.

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(2) Certain Risks and Concentrations

The Company’s revenue is derived from the subscription, license, hosting and support of its software products and provision of related professional services. The markets in which the Company competes are highly competitive and rapidly changing. Significant technological changes, changes in customer requirements, or the emergence of competitive products with new capabilities or technologies could adversely affect the Company’s operating results. The Company has historically derived a majority of its revenue from customer service software solutions. These products are expected to continue to account for a significant portion of revenue for the foreseeable future. As a result of this revenue concentration, the Company’s business could be harmed by a decline in demand for, or in the prices of, these products or as a result of, among other factors, any change in pricing model, a maturation in the markets for these products, increased price competition or a failure by the Company to keep up with technological change.

Financial instruments subjecting the Company to concentrations of credit risk consist primarily of cash and cash equivalents, short and long-term investments, and accounts and term receivables. The Company maintains cash, cash equivalents, and short and long-term investments with various domestic and foreign financial institutions. From time to time, the Company’s cash balances with its financial institutions may exceed deposit insurance limits. Short and long-term investments are investment grade, interest-earning securities, and are diversified by type and industry. Our long-term investments consist of approximately $12.4 million par value auction rate securities as further described in Note 7.

The Company’s customers are worldwide with historical sales of approximately 70% to 75% in the United States, 20% to 25% in Europe and 5% to 8% in Asia Pacific. No individual customer accounted for more than 10% of the Company’s revenue in 2007 or the three and six months ended June 30, 2008. One customer represented 12% of term receivables at December 31, 2007 and the same one customer represented 16% of term receivables at June 30, 2008. No individual customer accounted for more than 10% of the Company’s accounts receivable at December 31, 2007 and June 30, 2008.

As of December 31, 2007 and June 30, 2008, assets located outside the United States were 14% and 16% of total assets, respectively. The loss from operations outside of the United States totaled $6.1 million and $8.5 million for the six months ended June 30, 2007 and 2008, respectively. Revenue by geographical region follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2007		2008		2007		2008

United States	$	18,908	$	23,384	$	37,380	$	45,741
Europe	5,321		8,876		10,680		16,942
Asia Pacific	2,236		2,961		4,107		5,436
	$	26,465	$	35,221	$	52,167	$	68,119

(3) Revenue Recognition

The Company earns its revenues from the delivery of software, hosting, and support services, and from the delivery of professional services. Software, hosting and support services

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are sold under subscription arrangements and license arrangements. In 2007, the Company essentially discontinued sales of perpetual licenses. Hosting and support services involve the remote management of software, technical assistance, and unspecified product upgrades and enhancements on a when and if available basis. Professional services include consulting, training and development services.

The Company recognizes revenue for subscriptions and licenses when all of the following criteria are met: a) the Company has entered into a legally binding agreement with the customer; b) the software has been made available or delivered to the customer; c) the Company’s fee for providing the software and services is fixed or determinable; and d) collection of the Company’s fee is probable.

Subscriptions include access to the Company’s software through its hosting services, technical support, and product upgrades when and if available, all for a bundled fee. The Company accounts for subscriptions in accordance with Emerging Issues Task Force Issue No. 00-21, Revenue Arrangements with Multiple Deliverables (“EITF 00-21”). Under EITF 00-21, value is allocated to each deliverable of an arrangement using prices established when the elements are sold stand-alone. Stand-alone sales are evidenced by subscription renewals and by rates charged for consulting, education, and development services in stand-alone transactions. The arrangement fee is then allocated to the individual elements based on their relative fair values. Revenue for subscriptions are recognized ratably over the contractual period and professional services are recognized as incurred provided the above criteria have been met.

Under the Company’s subscription contracts, the Company applies EITF 00-21 to its subscriptions as opposed to Statement of Position 97-2, Software Revenue Recognition (“SOP 97-2”) as the customer does not have the right to take possession of the software without incurring a significant incremental penalty. In accordance with Emerging Issues Task Force Issue No. 00-03, Application of AICPA Statement of Position 97-2, Software Revenue Recognition, to Arrangements That Include the Right to Use Software Stored on Another Entity’s Hardware (“EITF 00-03”), such arrangements are considered service contracts and are not within the scope of SOP 97-2.

Prior to 2007, the majority of the Company’s revenues were earned under license arrangements. Revenue under these arrangements is recognized pursuant to the requirements of Statement of Position (SOP) 97-2, Software Revenue Recognition, and SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition With Respect to Certain Transactions, issued by the American Institute of Certified Public Accountants. Licenses generally include the same elements as subscriptions, plus the right to take possession of the software for no additional fee and are sold for a period of time (a “term” license) or perpetually. Term contracts are non-cancelable, and generally cover a period of two years, but can range from a period of six months to five years. For term contracts, the Company treats the software license, hosting and support services as a single element (“term license bundle”) for purposes of allocating revenue. The Company has established vendor specific objective evidence of fair value for the term license bundle based on stand-alone sales of the bundled items. When sold with professional services, revenue is allocated between the software license, hosting and support element and the professional services element using the relative fair value method. Revenue for the term license element is recognized ratably over the period of the arrangement and revenue for professional services in these arrangements is recognized as performed.

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Sales of perpetual software licenses include hosting and support services for a period of time, typically one year. The Company has established vendor specific objective evidence for the combined element of hosting and support elements of perpetual license sales, based on the prices charged when sold separately. Accordingly, revenue for the perpetual software license element is determined using the residual method and is recognized upon delivery. Revenue for the hosting and support elements is recognized ratably over the contractual time period.

The Company’s policy is to record revenue net of any applicable sales, use or excise taxes.

If an arrangement includes a right of acceptance or a right to cancel, revenue is recognized when acceptance is received or the right to cancel has expired. If the fee for the license has any payment term that is due in excess of the Company’s normal payment terms (over 90 days), the fee is considered to not be fixed or determinable, and the amount of revenue recognized (a) for perpetual license arrangements, is limited to the amount currently due from the customer, or (b) for term license or subscription arrangements, is limited to the lesser of the amount currently due from the customer or a ratable portion of the total unallocated arrangement fee.

Certain customers have license agreements that provide for usage fees above fixed minimums. Usage of the Company’s software requires additional fees if used by more than a specified number of users or for more than a specified number of interactions. Fixed minimums are recognized as revenue ratably over the term of the arrangement. Usage fees above fixed minimums are recognized as revenue when such amounts are known and billed.

Separate contracts with the same customer that are entered into at or near the same time are generally presumed to have been negotiated together and are combined and accounted for as a single arrangement.

Professional services revenue is recognized as performed, based on hours incurred, unless sold in conjunction with a term license or subscription where objective and reliable evidence (including vendor specific objective evidence) for the term or subscription element does not exist, in which case professional services revenue is recognized ratably over the contractual period. The Company has determined that the professional service elements of its software arrangements are not essential to the functionality of the software. The Company has also determined that its professional services (a) are available from other vendors, (b) do not involve a significant degree of risk or unique acceptance criteria, and (c) are not required for the customer to use the software.

(4) Sales Commissions

Beginning in 2007, in conjunction with the Company’s business model change, sales commissions paid for subscriptions are deferred and charged to expense in proportion to the revenue recognized. Sales incentives paid for licenses are expensed when earned, which is typically at the time the related sale is invoiced. Sales incentive expense was $2.6 million and $3.8 million for the three months ended June 30, 2007 and 2008, respectively. Sales incentive expense was $4.7 million and $7.0 million for the six months ended June 30, 2007 and 2008, respectively. Deferred commissions were $5.0 million and $6.3 million at December 31, 2007 and June 30, 2008, respectively.

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(5) Net Loss Per Share

A reconciliation of the denominator used in the calculation of basic and diluted net loss per share is as follows (in thousands):

	Three Months Ended June 30,		Six Months Ended June 30,
	2007	2008	2007	2008

Weighted average common shares outstanding for basic net loss per share	32,983	33,582	32,921	33,557
Effect of dilutive securities:
Employee stock options	—	—	—	—
Weighted average shares outstanding for dilutive net loss per share	32,983	33,582	32,921	33,557

The following common stock equivalents were excluded from the computation of diluted earnings per share because their impact was anti-dilutive (in thousands):

	Three Months Ended June 30,		Six Months Ended June 30,
	2007	2008	2007	2008

Employee stock options	4,272	4,584	4,272	4,584

(6) Comprehensive Loss

Comprehensive loss for the comparative periods was as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2008			2007			2008

Net loss	$	(5,741	)	$	(3,132	)	$	(11,743	)	$	(6,528	)
Other comprehensive income (loss):
Unrealized gain (loss) on short-term investments	(13		)	(172		)	3			25
Unrealized loss on long-term investments	—			(10		)	—			(425		)
Foreign currency translation adjustments	(110		)	(71		)	(175		)	(95		)
Comprehensive loss	$	(5,864	)	$	(3,385	)	$	(11,915	)	$	(7,023	)

(7) Fair Value

Effective January 1, 2008, the Company adopted the provisions of Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). In February 2008, the Financial Accounting Standards Board (FASB) issued Staff Position No. SFAS 157-2, “Effective Date of FASB Statement No. 157,” which provides a one year deferral of the effective date of SFAS 157 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. Therefore, the Company has adopted the provisions of SFAS 157 with respect to its financial assets and liabilities only.

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SFAS 157 defines fair value, establishes a framework for measuring fair value in GAAP, and enhances disclosures about fair value measurements. Fair value is defined under SFAS 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under SFAS 157 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:

· Level 1 – Quoted prices in active markets for identical assets or liabilities.

· Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

· Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The adoption of this statement did not have a material impact on the Company’s consolidated results of operations and financial condition.

In accordance with SFAS 157, the following table represents the Company’s fair value hierarchy for its financial assets (cash equivalents and investments) measured at fair value on a recurring basis as of June 30, 2008 (in thousands):

	Level 1		Level 2		Level 3		Total
Money Market funds	$	13,423					$	13,423
Commercial paper			$	1,100			1,100
Corporate notes and bonds			8,341				8,341
U.S. Government agency securities			37,175				37,175
State and Municipal securities			8,567		4,725		13,292
Auction rate preferred stocks					7,200		7,200
	$	13,423	$	55,183	$	11,925	$	80,531

The following table illustrates the activity of “level 3” assets from March 31, 2008 to June 30, 2008 (in thousands):

	June 30, 2008
Fair value	$	17,810
Unrealized Losses	(10		)
Redemptions	(5,875		)
Fair value	$	11,925

As of June 30, 2008, assets characterized as “level 3” for fair value purposes consist of approximately $12.4 million in par value auction rate state and municipal securities and auction rate preferred stocks with investment grades of AAA or AA. The auction rate state and municipal securities are comprised of federally insured student loan bonds, and the auction rate preferred securities are comprised of preferred shares of closed end mutual funds. Auction rate securities are long-term bonds or preferred stocks that act like short-term debt, where interest rates reset in Dutch auctions held daily, weekly or monthly and have historically provided liquidity for these investments. Despite the long-term contractual maturities of the underlying securities, all of these securities were considered available for sale and were available to fund the Company’s current operations as of December 31, 2007. Since February 2008, uncertainties in the credit markets caused substantially all auctions of these securities held by the Company to be unsuccessful. An unsuccessful auction is an event when there are fewer securities bid for than are available for sale. Upon an unsuccessful auction, the interest rate is reset at a predetermined rate. Given that substantially all of the auctions have been unsuccessful since February, the Company reclassified

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the investments from short-term to long-term, and recorded a temporary impairment valuation adjustment of approximately $425,000 in accumulated other comprehensive loss. Our determination of fair value was based upon broker statements, assumed risk premiums, and assumed work out periods, using a discounted cash flow model.

The Company’s management believes that the unrealized losses are temporary, and it has the ability and intent to hold the investments until at least substantially all of the cost of the investment is recovered. The Company believes the impairment is temporary due primarily to the credit quality of the underlying securities. Additionally, $5.85 million of the auction rate securities held by the Company were redeemed at par by the issuers in the second quarter of 2008. To date, the Companyhas collected all interest payments on all of the auction rate securities held by it when due. If the auction rate securities continue to experience unsuccessful auctions, or if the credit rating of the auction rate securities deteriorates, the Company may be required to realize an impairment charge as “other than temporary.” While the recent auction failures will limit the Company’s ability to liquidate these investments for some period of time, the Company does not believe the auction failures will materially impact its ability to fund its working capital needs, capital expenditures, or other business requirements. The Company will continue to monitor the state of the credit markets and its potential impact, if any, on the fair value and classification of its portfolio of auction rate securities.

(8) Stock-Based Compensation

Stock-based compensation costs are recognized based on the estimated fair value at the grant date for all stock-based awards. The Company estimates grant date fair values using the Black-Scholes-Merton option pricing model, which requires assumptions of the life of the award and the stock price volatility over the term of the award. The Company records compensation cost of stock-based awards using the straight line method, which is recorded into earnings over the vesting period of the award.

The following table illustrates the stock-based compensation expense resulting from stock-based awards included in the condensed consolidated statement of operations (amounts in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
Stock-based compensation expense:	2007		2008		2007		2008
Cost of software, hosting and support	$	79	$	79	$	137	$	156
Cost of professional services	149		165		274		318
Sales and marketing expenses	731		595		1,389		1,133
Research and development expenses	289		242		515		477
General and administrative expenses	743		816		978		1,079
Stock-based compensation expense	$	1,991	$	1897	$	3,293	$	3,163

No stock-based compensation expense was capitalized during the six months ended June 30, 2007 or 2008.

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Unrecognized compensation expense of outstanding stock options at June 30, 2008 was approximately $14 million, which is expected to be recognized over a weighted average period of 2.8 years.

Information regarding the fair value of stock options granted, and the weighted-average assumptions used to obtain the fair values, for the respective periods follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2008			2007			2008
Fair value per share	$	6.43		$	5.98		$	7.46		$	5.46
Risk free rate	4.9		%	3.0		%	4.8		%	2.67		%
Expected term	3.6 yrs			4.1 yrs			4.1 yrs			4.5 yrs
Volatility	51		%	54		%	53		%	55		%
Dividend yield	0		%	0		%	0		%	0		%

Key assumptions used to estimate the fair value of stock awards are as follows:

Risk Free Rate: The risk-free rate is determined by reference to the U.S. Treasury yield curve in effect at or near the time of grant for the expected term of the award.

Expected Term: The expected term represents the period that the Company’s stock-based awards are expected to be outstanding and is determined based on historical experience of similar awards, giving consideration to the contractual term of the awards, vesting schedules and expectations of employee exercise behavior.

Volatility: The Company’s estimate of expected volatility is based on a combination of the Company’s historical volatility and peer-company volatilities. The Company believes the combined data points are more representative of future stock price trends than its historical volatility alone.

Dividend Yield: The dividend yield assumption is based on the Company’s history and expectation of dividend payouts.

Activity under the Company’s stock option plans for the six months ended June 30, 2008 was as follows (option shares in thousands):

	Shares available for grant		Outstanding options		Weighted average exercise price per share		Aggregate intrinsic value (in thousands)		Weighted average remaining contractual life (in years)
Balance at December 31, 2007	3,404		3,874		$	11.81
Annual reserve addition (1)	1,000		—		—
Granted	(1,053	)	1,053		11.57
Exercised	—		(142	)	3.75
Forfeited, expired, exchanged or canceled (2)	200		(201	)	14.60
Balance at June 30, 2008	3,551		4,584		$	11.89	$	13,466	7.4

Vested or expected to vest at June 30, 2008			4,265		$	11.76	$	13,045	7.3

Exercisable at June 30, 2008			2,341		$	10.02	$	10,755	6.0

(1) The 2004 Equity Incentive Plan provides for an automatic, annual increase on the first of each year in an amount equal to the lesser of: a) 1,000,000 shares; b) 4% of the number of outstanding common shares on

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the last day of the previous fiscal year; or c) such lesser amount as determined by the board of directors. The annual automatic increase has been approved by shareholders through December
31, 2014.

(2) Shares forfeited, expired, exchanged or canceled under the 1998 Long-Term Equity Incentive and Stock Option Plan are not available for re-grant under the 2004 Equity Incentive Plan.

The total intrinsic value of options exercised during the six months ended June 30, 2007 and 2008 was $2.8 million and $3.5 million, respectively.

From time to time the Company may grant options to purchase stock to consultants. The Company accounts for consultant stock options in accordance with SFAS 123 and Emerging Issues Task Force Consensus Issue No. 96-18 (“EITF 96-18”), Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction With Selling, Goods or Services. Compensation expense for the grant of stock options to consultants is determined based on the estimated fair value of the stock options at the measurement date as defined in EITF 96-18 and is recognized over the vesting period. There were no stock options granted to non-employees for the six months ended June 30, 2007 or 2008.

(9) Commitments and Contingencies

Warranties and Indemnification

The Company’s on demand application service is typically warranted to perform in accordance with its user documentation.

The Company’s arrangements generally include certain provisions for indemnifying customers against liabilities if its products or services infringe a third-party’s intellectual property rights. To date, the Company has not incurred any material costs as a result of such indemnifications and has not accrued any liabilities related to such obligations in the accompanying consolidated financial statements.

The Company has entered into service level agreements with a number of its customers warranting certain levels of uptime reliability and permitting those customers to receive credits or terminate their license agreements in the event that the Company fails to meet those levels. To date, the Company has not provided any material credits, or cancelled any agreements related to these service level agreements.

The Company has also agreed to indemnify its directors and executive officers for costs associated with any fees, expenses, judgments, fines and settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the person’s service as a director or officer, including any action by the Company, arising out of that person’s services as the Company’s director or officer or that person’s services provided to any other company or enterprise at the Company’s request.

Litigation

From time to time, the Company is involved in legal proceedings arising in the normal course of business. The Company believes that the resolution of these matters will not have a material effect on the Company’s consolidated financial position, results of operations or liquidity.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

In this report, the terms “RightNow Technologies,” “RightNow,” “Company,” “we,” “us” and “our” refer to RightNow Technologies, Inc. and its subsidiaries.

Cautionary Statement

All statements included or incorporated by reference in this report, other than statements or characterizations of historical fact, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on our current expectations, estimates and projections about our industry, management’s beliefs, and certain assumptions made by us, all of which are subject to change. Forward-looking statements can often be identified by words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “may,” “will,” “should,” “would,” “could,” “potential,” “continue,” “ongoing,” similar expressions, and variations or negatives of these words, and include, but are not limited to, statements regarding projected results of operations, market acceptance and performance of our products, our ability to retain and hire key executives, sales and technical personnel and other employees in the numbers, with the capabilities, and at the compensation levels needed to implement our business and product plans, the competitive nature of and anticipated growth in our markets, our accounting estimates, assumptions and judgments, and management’s future strategic plans. These forward-looking statements are not guarantees of future results and are subject to risks, uncertainties and assumptions that are difficult to predict and that could cause our actual results to differ materially and adversely from those expressed in any forward-looking statement. The risks and uncertainties referred to above include, but are not limited to, our ability to develop or acquire, introduce, market and gain market acceptance for new products and enhancements to existing products in a cost-effective and timely manner; the ability to gain and retain key customers; competitive pressures and other similar factors such as the availability and pricing of competing products and technologies and the resulting effects on sales and pricing of our products; the rate at which our present and future customers adopt our existing and future products and services; our ability to expand operations; possible fluctuations in our operating results including our revenue mix and our rate of growth; the credit markets and potential impact on the recoverability of our portfolio of auction rate securities; fluctuations in our operating results from the impact of stock-based compensation expense; our ability to manage and expand our partner relationships; interruptions or delays in our hosting operations; breaches of our security measures; our ability to hire, retain and motivate our employees and manage our growth; general economic conditions; the impact of potential acquisitions, if any; and various other factors, some of which are described under the section below entitled “Risk Factors,” in Part II, Item 1A of this report. These forward-looking statements speak only as of the date of this report. We undertake no obligation to revise or update publicly any forward-looking statement for any reason, except as otherwise required by law.

Overview

We are a leading provider of customer experience management software solutions for companies of all sizes. Our on demand software is designed to go beyond traditional customer relationship management (“CRM”) solutions to help companies improve their customer experiences, while reducing operating costs. Our software solutions support a business’s external customer-facing channels as well as sales, marketing and customer service operations.

We released our initial version of RightNow Service ™ in 1997. This product addressed the new customer service needs resulting from the increasing use of the Internet as a customer service channel. Since then, we have significantly enhanced product features and functionality to

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address customer service needs across multiple communication channels, including web, interactive voice, email, chat, telephone and proactive outbound email communications. We have also added several products that are complementary to our RightNow Service solution, including RightNow Marketing ™, RightNow Sales ™, and RightNow Feedback ™ which automate aspects of marketing campaigns, sales operations, and customer monitoring. In February 2007, we released RightNow 8, our newest enterprise-class solution for service, sales and marketing. To date, approximately 80% to 90% of our revenue has been generated by the RightNow Service suite.

We have approximately 1,900 customers worldwide as of June 30, 2008, and our products served more than 477 and 939 million customer interactions, or unique sessions hosted by our solutions, during the three and six months ended June 30, 2008, respectively. We distribute our solutions primarily through direct sales efforts and to a lesser extent through indirect channels.

2007 Business Model Changes

To better align with industry practice, beginning in 2007 we changed our product offerings from software license arrangements to subscription service arrangements. As the industry and business models for “software as a service” or “on demand” have evolved, the standard form of arrangements is subscription service arrangements that can be hosted rather than licenses of software. We believe providing offerings in this manner will ultimately increase our market penetration.

Accordingly, our terms of sale have been revised to provide a hosting service where the customer accesses the software and data via the Internet. Our previous terms of sale provided the customer a software license, and for no additional fee, the customer could choose to have the software hosted by us, by themselves or by someone else. Revenue recognition for our subscription service arrangements is not materially different from our previous term license arrangements, as revenue under either type of contract is generally recognized ratably over the period of the agreement. As a result of this change, the amount of deferred revenue on the balance sheet under subscription arrangements decreased because only the amount currently due from the customer is recorded to accounts receivable and deferred revenue. Conversely, under software license arrangements, the full customer commitment is recorded to receivables and deferred revenue whether or not currently due because we have the contractual right to collect the entire arrangement fee.

Also beginning in 2007, we essentially discontinued selling perpetual software licenses, which represented 21% of our revenue in 2006. Consequently, perpetual software licenses were 2% of revenue in 2007 and less than 1% for the three and six months ended June 30, 2008.

Our policy for subscription contract acquisition costs, such as sales commissions, is to recognize them in proportion to the revenue recognized under the subscription arrangement. Sales incentives paid for licenses and professional services are expensed when earned, which is typically at the time the related sale is invoiced.

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Sources of Revenue

Our revenue is comprised of fees for software, hosting and support, and fees for professional services. “Recurring revenue,” referred to in this report includes software, hosting and support revenue from term license and subscription agreements.

Software, hosting and support revenue includes fees earned under subscriptions and software license arrangements. Subscription arrangements include a bundled fee to access the software and data through our hosting services, and support services. Subscription revenue is recorded ratably over the length of the agreement. Our hosting services provide remote management and maintenance of our software and customers’ data which is physically located in third party facilities. Customers access “hosted” software and data through a secure Internet connection. Support services include technical assistance for our software products and unspecified product upgrades and enhancements on a when and if available basis.

License arrangements can be over time (a “term” license) or perpetual. For term licenses, software, hosting and support revenue is recognized ratably over the length of the agreement. Perpetual license revenue is generally recorded in full upon delivery of the license, and the hosting and support elements are recognized ratably over the contractual period. Perpetual license revenue ranged from 21% to 25% of our total revenue from 2004 through 2006. Due to the change in our business model noted above, perpetual license revenue decreased from 21% of revenue in the quarter ended June 30, 2006 to 1% of revenue in the quarter ended June 30, 2007 to less than 1% of revenue in the quarter ended June 30, 2008.

Our sales arrangements generally provide customers with the right to use our software up to a maximum number of users or transactions. A number of our arrangements provide for additional fees for usage above the maximum, which are billed and recognized into revenue when determinable and earned.

Professional services revenue is comprised of revenue from consulting, education, development services, and reimbursement of related travel costs. Consulting and education services include implementation and best practices consulting. Development services include customizations and integrations for a client’s specific business application. Professional services revenue was approximately 22% of total revenue in each of the past three years ended December 31, 2007. Professional services revenue increased from 22% of total revenue in the quarter ended June 30, 2007 to 27% of total revenue in the quarter ended June 30, 2008.

Professional services are typically sold with initial sales arrangements and then periodically over the client engagement. Our typical education courses are billed on a per person, per class basis.

Depending on the size and complexity of the client project, our consulting or development services contracts are either fixed price/fixed scope or, more frequently, billed on a time and materials basis. We have determined that the professional services element of our software and subscription arrangements is not essential to the functionality of the software.

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Cost of Revenue and Operating Expenses

Cost of Revenue. Cost of revenue consists primarily of salaries and related expenses (such as employee benefits and payroll taxes) for our hosting, support and professional services organizations, third-party costs and equipment depreciation relating to our hosting services, third-party costs for voice enabled CRM applications, travel expenses related to providing professional services to our clients, amortization of acquired intangible assets and allocated overhead. We allocate most overhead expenses, such as office supplies, computer supplies, utilities, rent, and depreciation for furniture and equipment, based on headcount. As a result, overhead expenses are reflected in each cost of revenue and operating expense category.

Sales and Marketing Expenses. Sales and marketing expenses consist primarily of salaries and related expenses for employees in sales and marketing, including commissions and bonuses, advertising, marketing events, corporate communications, product management expenses, travel costs and allocated overhead. For subscription arrangements, we expense the related sales commission in proportion to the revenue recognized. We expense our sales commissions on license and professional service arrangements when earned, which is typically at the time the related sale is invoiced to the client. Since the majority of our revenue prior to 2007 was from license arrangements recognized over time, we have experienced a delay between increasing sales and marketing expenses and the recognition of corresponding revenue. We also expect significant additional increases in sales and marketing expenses in absolute dollars as we continue to hire additional sales and marketing personnel and increase the level of marketing activities.

Research and Development Expenses. Research and development expenses consist primarily of salary and related expenses for development personnel and costs related to the development of new products, enhancement of existing products, translation fees, quality assurance, testing and allocated overhead. To date, we have not capitalized any software development costs because the timing of the commercial releases of our products has substantially coincided with the attainment of technological feasibility. As a result, research and development costs have been expensed as incurred. We intend to continue to expand and enhance our product offerings. To accomplish this, we plan to hire additional personnel and, from time to time, contract with third parties. We expect that research and development expenses will increase in absolute dollars as we seek to expand our technology and product offerings.

General and Administrative Expenses. General and administrative expenses consist primarily of salary and related expenses for management, finance and accounting, legal, information systems and human resources personnel, professional fees, other corporate expenses and allocated overhead. We anticipate that we will incur additional employee salaries and related expenses, professional fees and insurance costs related to the growth of our business and operations.

Critical Accounting Policies and Estimates

Our financial statements and accompanying notes are prepared in accordance with U.S. generally accepted accounting principles. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These assumptions are affected by management’s application of accounting

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policies. Our critical accounting policies include revenue recognition, valuation of receivables and deferred tax assets, and accounting for share-based compensation.

Revenue Recognition

Beginning in 2007, we changed the nature of our sales arrangements from license arrangements to subscription arrangements (“subscriptions”). For a bundled fee, subscriptions provide the customer with access to the software and data over the Internet, or on demand, and provide technical support services and software upgrades when and if available. Under subscriptions, customers do not have the right to take possession of the software and, in accordance with EITF 00-03, such arrangements are considered service contracts which are outside the scope of SOP 97-2. Accordingly, we account for sales of subscriptions under EITF 00-21 and recognize subscription revenue ratably over the length of the agreement in accordance with SAB 104.

Prior to 2007, we sold the majority of products under software license arrangements (“licenses”) and accounted for them in accordance with SOP 97-2 and SOP 98-9. Licenses generally include multiple elements that are delivered up front or over time. For example, under a term license, we deliver the software up front and provide hosting and support services over time. Fair value for each element in a license does not exist since none are sold separately, and consequently, the bundled revenue is recognized ratably over the length of the agreement. Under a perpetual license, vendor specific objective evidence of fair value of the hosting and support elements is based on the price charged at renewal when sold separately, and therefore the license element is recognized immediately into revenue upon delivery using the residual method, and the hosting and support elements are recognized ratably over the contractual term.

The application of these rules requires judgment, including the identification of individual elements in multiple element arrangements, whether there is objective and reliable evidence of fair value, including vendor specific objective evidence (“VSOE”) of fair value, for some or all elements. Changes to the elements in our sales arrangements, or our ability to establish VSOE or fair value for those elements, may result in a material change to the amount of revenue recorded in a given period.

Fees charged for professional services are recognized when delivered. We believe the fees for professional services qualify for separate accounting because: a) the services have value to the customer on a stand-alone basis; b) objective and reliable evidence of fair value exists for these services; and c) performance of the services is considered probable and does not involve unique customer acceptance criteria.

Our standard payment terms are net 30, although payment within 90 days is considered normal. We periodically provide extended payment terms and we consider any fees due beyond 90 days to not be fixed or determinable. In such cases, judgment is required in determining the appropriate timing of revenue recognition. Changes to our practice of providing extended payment terms or providing concessions following a sale, may result in a material change to the amount of revenue recorded in a given period.

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Allowance for doubtful accounts

We regularly assess the collectibility of outstanding customer invoices and, in so doing, we maintain an allowance for estimated losses resulting from the non-collection of customer receivables. In estimating this allowance, we consider factors such as: historical collection experience; a customer’s current creditworthiness; customer concentration; age of the receivable balance; and general economic conditions that may affect a customer’s ability to pay. Actual customer collections could differ from our estimates and exceed our related loss allowance.

Income Taxes

We record income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. When applicable, a valuation allowance is established to reduce any deferred tax asset when it is determined that it is more likely than not that some portion of the deferred tax asset will not be realized.

We have established a valuation allowance equal to our net deferred tax assets due to uncertainties regarding the realization of our net operating loss carryforwards, tax credits, and deductible timing differences. The uncertainty of realizing these benefits is based primarily on our lack of taxable earnings.

Effective January 1, 2007, the Company adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainties in Income Taxes, an Interpretation of FASB Statement No. 109 (“FIN 48”) and it did not have a significant impact on our financial position or results of operations. FIN 48 requires judgment when evaluating tax positions. Our judgment includes, but is not limited to, an evaluation of our material positions taken on tax provisions and tax return filings. The ultimate resolution of tax issues may result in a significant change to our recorded tax assets and liabilities.

Share-Based Compensation

Statement of Financial Accounting Standards No. 123(R), Share Based Payment, (“SFAS 123R”) requires the cost of share-based payment arrangements to be recorded in the statement of operations. Prior to 2006, the estimated cost of share-based payment arrangements was disclosed in a footnote to the financial statements. Share-based compensation amounts are affected by our stock price as well as our assumptions regarding the expected volatility of our stock, our employee stock option exercise forfeitures, and the related income tax effects. Our assumptions are based primarily on our historical information, some of which was developed when we were a private company.

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Recently Issued Accounting Standards

In December 2007, the Financial Accounting Standards Board issued Statement No. 141 (revised 2007), Business Combinations (SFAS 141R). SFAS 141R requires the use of “full fair value” to record all the identifiable assets, liabilities, noncontrolling interests and goodwill acquired in a business combination. SFAS 141R is effective for fiscal years beginning on or after December 15, 2008. The requirements are effective for us beginning in the first quarter of 2009. We do not believe adoption of SFAS 141R will have a material effect on our financial statements.

In December 2007, the Financial Accounting Standards Board issued Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements (SFAS 160). SFAS 160 requires the noncontrolling interests (minority interests) to be recorded at fair value and reported as a component of equity. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. The requirements are effective for us beginning in the first quarter of 2009. We do not believe adoption of SFAS 160 will have a material effect on our financial statements.

In May 2008, the Financial Accounting Standards Board issued Statement No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS 162). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (the GAAP hierarchy). SFAS 162 will become effective 60 days following SEC approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.” We do not believe adoption of SFAS 160 will have a material effect on our financial statements.

Results of Operations

The following table sets forth certain consolidated statements of operations data for each of the periods indicated, expressed as a percentage of total revenue:

	Three Months Ended June 30,				Six Months Ended June 30,
	2007		2008		2007		2008

Revenue:
Software, hosting and support	78	%	73	%	78	%	74	%
Professional services	22		27		22		26
Total revenue	100		100		100		100
Cost of revenue:
Software, hosting and support	17		14		17		15
Professional services	19		22		20		22
Total cost of revenue	36		36		37		37
Gross profit	64		64		63		63
Operating expenses:
Sales and marketing	60		50		60		51
Research and development	16		13		17		13
General and administrative	12		11		11		11
Total operating expenses	88		74		88		75
Loss from operations	(24	)	(10	)	(25	)	(12	)
Interest and other income, net	3		1		3		2
Loss before income taxes	(21	)	(9	)	(22	)	(10	)
(Provision) benefit for income taxes	(1	)	(-	)	(1	)	(-	)
Net loss	(22	)%	(9	)%	(23	)%	(10	)%

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The following table sets forth our on demand customer interactions and our revenue by type and geography expressed as a percentage of total revenue for each of the periods indicated.

	Three Months Ended June 30,				Six Months Ended June 30,
	2007		2008		2007		2008

Customer interactions (in millions)	332		477		684		939
Revenue by type:
Recurring (subscriptions, term licenses, hosting and support)	77	%	73	%	76	%	74	%
Perpetual licenses	1		—		2		—
Professional services	22		27		22		26
Revenue by geography in:
United States	72%		67	%	72	%	67	%
Europe	20		25		20		25
Asia Pacific	8		8		8		8

Quarter Overview

Total revenue for the second quarter of 2008 increased 33% over the second quarter of 2007. Within software, hosting and support, during the second quarter of 2008 recurring revenue increased 25% and perpetual revenue decreased 68% compared to the second quarter of 2007. Recurring revenue increased in the second quarter of 2008 due to higher average revenue per customer and growth in the number of customers. Additionally, these factors also contributed to the increase in the European geographical revenue. The much lower perpetual license revenue resulted from our business model change in early 2007 in which we essentially eliminated sales of new perpetual licenses.

During the quarter ended June 30, 2008, we continued to invest in our operations by adding professional service personnel and partners to support our solution offerings, added sales and marketing personnel to focus on new customer acquisition, and added capacity to our hosting, and technical support organizations to broaden and enhance our solution offerings. These investments increased total expenses in absolute dollars, but decreased as a percentage of revenue during the quarter ended June 30, 2008 compared to the quarter ended June 30, 2007. Consequently, our operating loss as a percentage of revenue improved to (10)% during the quarter ended June 30, 2008 compared to (24)% during the quarter ended June 30, 2007.

For the quarter ended June 30, 2008, we generated $8.6 million of cash from operations compared to $4.8 million of cash from operations in the quarter ended June 30, 2007. We increased our cash and investment balances to $106.2 million at June 30, 2008 from $86.8 million one year earlier.

As of June 30, 2008, we had an accumulated deficit of $63.5 million. This deficit and our historical operating losses were primarily the result of costs incurred in the development, sales and marketing of our products and for general and administrative purposes.

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Three and Six Months Ended June 30, 2008 and 2007

Revenue

	Three Months Ended June 30,						Six Months Ended June 30,
(Amounts in thousands)	2007		2008		Percent Change		2007		2008		Percent Change

Software, hosting and support:
Recurring	$	20,341	$	25,459	25	%	$	39,566	$	49,871	26	%
Perpetual	352		114		(68	)	946		258		(73	)
Professional services	5,772		9,648		67		11,655		17,990		54
Total revenue	$	26,465	$	35,221	33	%	$	52,167	$	68,119	31	%

Total revenue for the three months ended June 30, 2008 was $35.2 million, an increase of $8.7 million, or 33%, over total revenue of $26.5 million for the three months ended June 30, 2007. Total revenue for the six months ended June 30, 2008 was $68.1 million, an increase of $16.0 million, or 31%, over total revenue of $52.2 million for the six months ended June 30, 2007.

Software, hosting and support revenue, consisting of recurring revenue and perpetual license revenue, for the three months ended June 30, 2008 increased $4.9 million, or 24%, over the three months ended June 30, 2007. For the six months ended June 30, 2008, software, hosting and support revenue increased $9.6 million, or 24%, from the comparable 2007 period. Recurring revenue, comprised of subscriptions, term licenses, hosting and support, for the three and six month periods ended June 30, 2008 increased 25% and 26% over the comparable 2007 three and six month periods, respectively, primarily due to a 22% increase in the average revenue per customer. We believe our latest product, RightNow 8, appeals to large customers because of its robust performance characteristics, which in turn has driven larger average purchase volumes and higher average selling prices per customer. Average revenue per customer increased as a result of sales of capacity additions, contract renewals and new products. Customer interactions, a measure of unique customer sessions hosted in our data centers and customer usage, exceeded 477 million in the quarter ended June 30, 2008 as compared to 332 million in the quarter ended June 30, 2007.

Perpetual license revenue decreased $0.2 million, or 68%, in the quarter ended June 30, 2008 compared to the quarter ended June 30, 2007, and decreased as a percentage of total revenue to less than 1% in the second quarter of 2008 from 1% in the second quarter of 2007. For the six months ended June 30, 2008, perpetual license revenue decreased $688,000, or 73%, from the comparable 2007 period. Beginning January 2007, we substantially eliminated the sale of perpetual arrangements.

Professional services revenue increased $3.9 million, or 67%, in the quarter ended June 30, 2008 over the comparable 2007 quarter, due to improved billable utilizations, capacity growth, and an improvement in working through backlog. Consequently, we have increased professional service revenue per customer. In addition, many customers have purchased professional services as part of their plans to automate call-centers while upgrading to RightNow 8. Professional services revenue for the six months ended June 30, 2008 increased $6.3 million, or 54%, over the six months ended June 30, 2007. Customers generally purchase professional services with initial subscription or license arrangements, and periodically over the life of the contract.

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The mix of professional services revenue affects our profitability from period-to-period due to the lower gross profit earned on professional services as compared to the gross profit earned on software, hosting and support revenue. Professional services revenue represented 27% and 22% of total revenue in the three months ended June 30, 2008 and 2007, respectively.

Revenue from European customers grew to represent 25% of total revenue in the quarter ended June 30, 2008 from 20% of total revenue in the quarter ended June 30, 2007, while revenue from Asia Pacific clients represented 8% of total revenue in each of the quarters ended June 30, 2008 and June 30, 2007. Total revenue outside the United States increased to represent 33% of revenue from 28% for the comparative three month and six month periods ended June 30, 2008 and 2007, due to our focus of increasing sales penetration in global markets.

Cost of Revenue

	Three Months Ended June 30,						Six Months Ended June 30,
(Amounts in thousands)	2007		2008		Percent Change		2007		2008		Percent Change

Software, hosting and support	$	4,565	$	5,043	10	%	$	8,959	$	10,078	12	%
Professional services	5,036		7,810		55		10,207		15,095		48
Total cost of revenue	9,601		12,853		34	%	$	19,166	$	25,173	31	%

Total cost of revenue for the quarter ended June 30, 2008 was $12.9 million, an increase of $3.3 million, or 34%, over total cost of revenue of $9.6 million for the quarter ended June 30, 2007. Total cost of revenue for the six months ended June 30, 2008 was $25.2 million, or 31% over total cost of revenue of $19.2 million for the six months ended June 30, 2007.

Cost of software, hosting and support increased $0.5 million, or 10%, in the second quarter of 2008 over the second quarter of 2007 due to increased voice and non-voice hosting volume, increased depreciation expense, and staff additions in our hosting and technical support operations. For the six months ended June 30, 2008, cost of software, hosting and support increased $1.1 million, or 12%, from the comparable 2007 period. Adding increased capacity to assist with voice and non-voice hosting volume increased third-party hosting costs $133,000 in the quarter ended June 30, 2008 compared to the quarter ended June 30, 2007. Depreciation from capacity additions to our data centers, which occurred during 2007, combined with development of new language packages, increased depreciation expense in the second quarter of 2008 by $80,000 over the second quarter of 2007. Average employee count in our hosting and technical support operations was 88 during the second quarter of 2008 as compared to 80 during the second quarter of 2007, which increased salaries and related expenses by $77,000 during the second quarter of 2008. As a percent of the associated revenue, software, hosting and support costs were 20% in both the three months and six months ended June 30, 2008 as compared to 22% in both the three and six months ended June 30, 2007.

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Cost of professional services increased $2.8 million, or 55%, in the quarter ended June 30, 2008 over the quarter ended June 30, 2007 due primarily to employee staff additions, increased utilization of third-party partners, and higher travel and meals expenses. For the six months ended June 30, 2008, cost of professional services increased $4.9 million, or 48%, from the comparable 2007 period. Average employee count in our professional services organization grew to 168 during the second quarter of 2008 from 138 during the second quarter of 2007, which increased salaries and bonus expenses by $1.2 million during the second quarter of 2008. Increased utilization of third-party partners used to assist in the deployment of professional services increased by $936,000 during the second quarter of 2008. Travel and meal expenses associated with professional service deployments increased by $248,000 during the second quarter of 2008. As a percent of the associated revenue, professional services costs decreased to 81% and 84% in the three and six months ended June 30, 2008, respectively, from 87% and 88% in the three and six months ended June 30, 2007, respectively. Employee and/or partner training and customer scheduling requirements can cause the cost of professional services to fluctuate as a percentage of revenue.

Operating Expenses

	Three Months Ended June 30,						Six Months Ended June 30,
(Amounts in thousands)	2007		2008		Percent Change		2007		2008		Percent Change

Sales and marketing	$	15,788	$	17,627	12	%	31,515		$	34,445	9	%
Research and development	4,343		4,507		4		8,639		8,993		4
General and administrative	3,178		3,890		22		6,038		7,406		23
Total operating expenses	$	23,309	$	26,024	12	%	$	46,192	$	50,844	10	%

Sales and Marketing Expenses

Sales and marketing expenses were $17.6 million in the second quarter of 2008 an increase of $1.8 million, or 12% over sales and marketing expenses of $15.8 million in the second quarter of 2007. Sales incentives increased $1.2 million in the second quarter of 2008 due primarily to the 25% increase in recurring revenue compared to the second quarter of 2007. Average employee count in our sales and marketing organization grew to 275 during the second quarter of 2008 from 265 during the second quarter of 2007, which increased salaries and related expense by $833,000 during the second quarter of 2008. These costs were partially offset by a planned reduction in direct marketing and advertising costs of $303,000 in the quarter ended June 30, 2008 compared to the quarter ended June 30, 2007.

Sales and marketing expenses were $34.4 million for the six months ended June 30, 2008, an increase of $2.9 million, or 9%, over sales and marketing expenses of $31.5 million for the six months ended June 30, 2007, primarily due to $2.3 million of sales incentive increase due to the 26% increase in recurring revenue for the six months ended June 30, 2008. Additionally, employee growth increased salaries and related expenses by $1.0 million that were partially offset

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Interest and Other Income (Expense), Net

	Three Months Ended June 30,								Six Months Ended June 30,
(Amounts in thousands)	2007			2008			Percent Change		2007			2008			Percent Change

Interest income	$	918		$	729		(21	)%	$	1,803		$	1,653		(8	)%
Interest expense	(2		)	(2		)	n/m		(3		)	(6		)	n/m
Other income (expense)	(31		)	(208		)	n/m		(87		)	(190		)	n/m
Total interest and other income (expense), net	$	885		$	519		(41	)%	$	1,713		$	1,457		(15	)%

Interest income decreased 21% in the second quarter of 2008 from the second quarter of 2007 due to declining investment yields driven by the periodic decreases in the federal funds rate. For the six months ended June 30, 2008, interest income decreased $.3 million, or 15%, from the comparable 2007 period. Our investment portfolio consists primarily of investment-grade government, corporate debt instruments, and auction-rate securities. Other income (expense) consists primarily of losses on the remeasurement of non-monetary liabilities denominated in non-functional currencies.

Provision for Income Taxes

The provision for income taxes of $87,000 in the six months ended June 30, 2008, consists primarily of state minimum taxes and foreign taxes withheld. Our effective tax rate differs from the federal statutory rate primarily due to the utilization of net operating loss carryforwards, foreign rate differentials, and non-deductible meal and entertainment expenses.Our effective tax rate in 2008 will depend on a number of factors, such as the amount and mix of stock-based compensation expense to be recorded under SFAS 123R, the level of business in state and foreign tax jurisdictions, management’s expectation of the realization of deferred tax assets and the associated valuation allowance, and other factors.

Liquidity and Capital Resources

	Three Months Ended June 30,						Six Months Ended June 30,
(Amounts in thousands)	2007		2008		Percent Change		2007		2008		Percent Change

Cash, cash equivalents and short-term investments	$	86,753	$	94,321	9	%	$	86,753	$	94,321	9	%
Long-term investments	—		11,925		100	%	—		11,925		100	%
Cash provided by operating activities	4,763		8,574		80	%	10,123		12,244		21

At June 30, 2008, cash, cash equivalents, and short-term investments totaled $94.3 million. In addition to our cash and short-term investments, other sources of liquidity at June 30,

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2008 included a $3.0 million bank line of credit facility, under which there have been no borrowings.

Operating activities provided $8.6 million and $12.2 million of cash during the three and six months ended June 30, 2008, respectively, as compared to $4.8 and $10.1 million during the three and six months ended June 30, 2007. Cash flow from operations can vary significantly from quarter-to-quarter for many reasons, including the timing of business in a given period, and customer payment preferences and patterns. The collections of receivables and growth in deferred revenue were the primary drivers in the growth in cash provided by operating activities during the quarter ended June 30, 2008.

We have generated cash from operations from increasing sales and the upfront billing of our sales arrangements, which is typically reflected in accounts receivable and deferred revenue. Beginning in 2007, our change to subscriptions from license arrangements requires that we no longer record additions to term receivables, and consequently, we expect term receivables to gradually decline on our balance sheet.

The allowance for uncollectible accounts receivable represented approximately 6% of current accounts and term receivables at June 30, 2008 and 5% at December 31, 2007, respectively. We regularly assess the adequacy of the allowance for doubtful accounts. Actual write-offs could exceed our estimates and adversely affect operating cash flows in the future.

Investing activities used $0.8 million and $4.3 million in the quarter and six months ended June 30, 2008, respectively. Second quarter 2008 investing activities consisted of net sales of short-term investments of $748,000 and $1.5 million of purchased capital expenditures. Capital asset additions consisted primarily of equipment acquisitions for our hosting operations and employee growth.

Financing activities provided $0.2 and $0.6 million in the three and six months ended June 30, 2008, respectively, and relates to employee purchases of RightNow stock under our equity incentive plans.

As of June 30, 2008, we held approximately $12.4 million in par value auction rate securities with investment grades of AAA or AA. The auction rate state and municipal securities are comprised of federally insured student loan bonds, and the auction ate preferred securities are comprised of preferred shares of closed end mutual funds. Auction rate securities are long-term bonds or preferred stocks that act like short-term debt, where interest rates reset in Dutch auctions held daily, weekly or monthly which have historically provided liquidity for these investments. Despite the long-term contractual maturities of the underlying securities, all of these securities were considered available for sale and were available to fund the Company’s current operations as of December 31, 2007. Since February 2008, uncertainties in the credit markets caused substantially all auctions of these securities held by us to be unsuccessful. An unsuccessful auction is an event when there are fewer securities bid for than are available for sale. Upon an unsuccessful auction, the interest rate is reset at a predetermined rate. Given that substantially all of the auctions were unsuccessful since February, we reclassified the investments from short-term to long-term investments, and recorded a temporary impairment on these securities of approximately $425,000 in accumulated other comprehensive loss. Our determination of fair

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency Exchange Risk

Our results of operations and cash flows are subject to fluctuation due to changes in foreign currency exchange rates, particularly changes in the Euro, British pound, Australian dollar and Japanese yen, because our contracts are frequently denominated in local currency. In the future, we may utilize foreign currency forward and option contracts to manage currency exposures. We do not currently have any such contracts in place, nor did we enter into any such contracts during the quarters ended June 30, 2007 or June 30, 2008.

Interest Rate Sensitivity

Our investments consist of short-term and long-term interest-bearing securities, which are subject to credit and interest rate risk. Our portfolio is investment-grade and diversified among issuers and security types to reduce credit risk. We manage our interest rate risk by maintaining a large portion of our investment portfolio in instruments with short maturities or frequent interest rate resets. We also manage interest rate risk by maintaining sufficient cash and cash equivalents such that we are able to hold investments until maturity. If market interest rates were to increase by 100 basis points from the level at June 30, 2008, the fair value of our portfolio would decline by approximately $379,000.

Liquidation and Valuation Risk

Our long-term investments consist of approximately $12.4 million in par value auction rate securities with investment grades of AAA or AA, as of June 30, 2008. Despite the long-term contractual maturities of the auction rate securities, all of these securities are considered available for sale. Since February 2008 uncertainties in the credit markets caused substantially all auctions of these securities held by us to be unsuccessful. As a result, we recorded a temporary impairment on these securities of approximately $425,000 as of June 30, 2008. If auctions continue to be unsuccessful, or if credit ratings deteriorate, we may be required to record a permanent impairment charge on these investments. Based on our expected operating cash flows, and other sources and uses of cash, we do not anticipate that the lack of liquidity on these investments will affect our ability to execute our current business plan. We will continue to monitor the state of the credit markets and its potential impact, if any, on the recoverability of our portfolio of auction rate securities.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission and (ii) accumulated

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Part II. Other Information

Item 1. Legal Proceedings

From time to time, we are involved in legal proceedings in the ordinary course of business. We believe that the resolution of these matters will not have a material effect on our consolidated financial position, results of operations or liquidity.

Item 1A. Risk Factors

A restated description of the risk factors associated with our business is set forth below. This description includes any and all changes (whether or not material) to, and supersedes, the description of the risk factors associated with our business previously disclosed in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2007.

Before deciding to purchase, hold or sell our common stock, you should carefully consider the risks described below, in addition to the other cautionary statements and risks described elsewhere and the other information contained in this Report and in our other filings with the SEC, including our reports on Forms 10-Q and 8-K. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business. If any of these known or unknown risks or uncertainties actually occurs with material adverse effects on RightNow, our business, financial condition and results of operations could be seriously harmed. In that event, the market price for our common stock could decline and you may lose all or part of your investment.

We may not be able to achieve, sustain or increase profitability in the future.

We incurred a net loss of $6.5 million in the first half of 2008, and as of June 30, 2008, we had an accumulated deficit of $63.5 million. We expect to continue to incur significant professional services, sales and marketing, research and development and general and administrative expenses as we expand our operations and, as a result, we will need to generate significant revenue to achieve profitability. In 2007, we changed our business model to substantially eliminate sales of perpetual licenses, which materially and adversely affected our operating margin. Although we improved second quarter operating margins in 2008 compared to each of the quarters in 2007, we may not be able to continue to improve our operating results at the rate that has occurred in the past. Even if we achieve profitability, we may not be able to increase profitability on a quarterly or annual basis in the future, which may cause the price of our stock to decline.

If our efforts to enhance existing solutions, introduce new solutions or expand the applications for our products and solutions to broader CRM markets do not succeed, our ability to grow our business will be adversely affected.

Approximately 80% to 90% of our revenue is derived from RightNow Service, a suite of solutions used to optimize customer service operations. If we are unable to successfully develop and sell new and enhanced versions of RightNow Service, or introduce new products and solutions for the customer service market, our financial performance will suffer. Although to date the majority of business has been focused on providing solutions for customer service operations, we have introduced sales, marketing, feedback and voice-enabled applications to expand our solution offerings. Our efforts to expand beyond the customer service market may not be successful because certain of our competitors have far greater experience and brand recognition

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in the broader segments of the CRM market. In addition, our efforts to expand our on demand software solutions beyond the customer service market may divert management resources from our existing operations and require us to commit significant financial resources to a market where we are less proven, which may harm our business, financial condition and results of operations.

We face intense competition, and our failure to compete successfully could make it difficult for us to add and retain clients and could reduce or impede the growth of our business.

The market for CRM solutions is highly competitive and fragmented, and is subject to rapidly changing technology, shifting client requirements, frequent introductions of new products and services, and increased marketing activities of other industry participants. Increased competition could result in commoditization, pricing pressure, reduced sales, lower margins or the failure of our solutions to achieve or maintain broad market acceptance. If we are unable to compete effectively, it will be difficult for us to add and retain clients, and our business, financial condition and results of operations will be seriously harmed.

We face competition from:

· Companies currently providing customer service solutions, some of whom offer hosted services, including BMC Software Corporation, Inc., eGain Communications Corporation, Kana Software, Inc., Microsoft Corporation, Netsuite, Oracle Corporation, SAP AG, salesforce.com, and Talisma;

· CRM systems that are developed and maintained internally by businesses;

· CRM products or services that are developed, or bundled with other products or services, and installed on a client’s premises by software vendors;

· outsourced contact center providers who bundle solutions and agent labor in their service offerings;

· new companies who may enter CRM software market, the on demand applications market and the on demand CRM market, or expanding from any one of these markets to the others; and

·voice system integrators and voice-enabled IVR technology providers, such as Apptera, Intervoice, Microsoft, TuVox, Voxify, and Unveil Technologies.

Many of our current and potential competitors have longer operating histories and larger presence in the general CRM market, greater name recognition, access to larger customer bases and substantially greater financial, technical, sales and marketing, management, service, support and other resources than we have. As a result, such competitors may be able to respond more quickly than we can to new or changing opportunities, technologies, standards or client requirements or devote greater resources to the promotion and sale of their products and services than we can. To the extent our competitors have an existing relationship with a potential client, that client may be unwilling to switch vendors due to the time and financial commitments already made with our competitors.

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In addition, many of our current and potential competitors have established or may establish business, financial or strategic relationships among themselves or with existing or potential clients, alliance partners or other third parties, or may combine and consolidate to become more formidable competitors with better resources. For example, in January 2006, Oracle Corporation completed its acquisition of Siebel Systems, Inc. We also expect that new competitors, such as enterprise software vendors and online service providers that have traditionally focused on enterprise resource planning or back office applications, will continue to enter the on demand CRM market with competing products as the on demand CRM market develops and matures.

The market for our on demand application services is at an early stage of development, and if it does not develop or develops more slowly than we expect, our business will be harmed.

The market for on demand application services is at an early stage of development, and it is uncertain whether these application services will achieve and sustain high levels of demand and market acceptance. Our success will depend to a substantial extent on the willingness of companies to increase their use of on demand application services in general and for on demand customer relationship management applications in particular. The willingness of companies to increase their use of any on demand application services is in part dependent on the actual and perceived reliability of hosted solutions. In addition, many companies have invested substantial personnel and financial resources to integrate traditional enterprise software into their businesses, and therefore may be reluctant or unwilling to migrate to on demand application services. While we have supported traditional on site deployment of our software applications, widespread market acceptance of our on demand software solutions is critical to the success of our business. Other factors that may affect the market acceptance of our solutions include:

· on demand security capabilities and reliability;

· concerns with entrusting a third party to store and manage critical customer data;

· our ability to meet the needs of broader segments of the CRM market or other on demand markets;

· the level of customization we offer;

· our ability to continue to achieve and maintain high levels of client satisfaction;

· concerns with purchasing critical CRM solutions from a company with a history of operating losses;

· customer acceptance of our subscription sales arrangements beginning in 2007; and

· the price, performance and availability of competing products and services.

If businesses do not perceive the benefits of on demand solutions in general, or our on demand solutions in particular, then the market for these solutions may not develop further, or it may develop more slowly than we expect, either of which would adversely affect our business, financial condition and results of operations.

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Our quarterly results of operations may fluctuate in the future.

Our quarterly revenue and results of operations may fluctuate as a result of a variety of factors, many of which are outside of our control. 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. Fluctuations in our results of operations may be due to a number of factors, including, but not limited to, those listed below and identified throughout this “Risk Factors” section:

· our ability to retain and increase sales to existing clients, attract new clients and satisfy our clients’ requirements;

· the mix of revenue between license arrangements, professional services and subscription arrangements as sales commissions are generally expensed when invoiced for license arrangements and professional services, and expensed ratably over the term of an agreement for subscription services;

· changes in the mix of revenue between professional services and software, hosting and support, because the gross margin on professional services is typically lower than the gross margin on software, hosting and support;

· changes in the mix of voice self service applications sold and/or usage volume, because the gross margin on voice self service applications is typically lower than the gross margin on our sales, marketing, feedback and service applications;

· the timing and success of new product introductions or upgrades by us or our competitors;

· the timing of professional service sales and our ability to appropriately staff and train professional service resources without negatively impacting professional service margins changes in our pricing policies or those of our competitors;

· the amount and timing of expenditures related to expanding our operations;

· changes in our assumptions of stock price volatility, employee exercise behaviors, and option forfeiture rates, or changes in the number of stock options granted and vesting requirements in any particular period, which effects the amount of stock-based compensation expense;

· changes in the payment terms for our products and services, including changes in the mix of payment options chosen by our customers;

· the purchasing and budgeting cycles of our clients changes in the mix of subscription and perpetual licenses sold in a particular quarter, because perpetual license revenue is recorded into revenue upon delivery whereas subscriptions are recorded into revenue ratably over the contractual period;

· changes in credit market conditions associated with auction rate securities, which could permanently impair the recoverability of these investments; and

· general economic, industry and market conditions.

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Because the sales cycle for the evaluation and implementation of our solutions typically ranges from 60 to 180 days, we may also experience a delay between increasing operating expenses and the generation of corresponding revenue, if any. Moreover, because most of the revenue from new sales agreements is recognized over time, downturns or upturns in sales may not be immediately reflected in our operating results. Additionally, our professional service margins may be negatively impacted by training requirements for new professional service resources and/or customer scheduling issues. Most of our expenses, such as salaries and third-party hosting co-location costs, are relatively fixed in the short-term, and our expense levels are based in part on our expectations regarding future revenue levels. As a result, if revenue for a particular quarter is below our expectations, we may not be able to proportionally reduce operating expenses for that quarter, causing a disproportionate effect on our expected results of operations for that quarter.

Due to the foregoing factors, and the other risks discussed in this report, you should not rely on quarter-to-quarter comparisons of our results of operations as an indication of our future performance.

Failure to effectively develop and expand our sales and marketing capabilities could harm our ability to increase our client base and achieve broader market acceptance of our solutions.

Increasing our client base and achieving broader market acceptance of our solutions will depend to a significant extent on our ability to expand our sales and marketing operations. We plan to continue to expand our sales and marketing resources and engage additional third-party channel partners, both domestically and internationally. This expansion will require us to invest significant financial and other resources. Our business will be seriously harmed if our efforts do not generate a corresponding significant increase in revenue. We may not achieve anticipated revenue growth from expanding our sales and marketing resources if we are unable to hire and develop talented sales and marketing personnel, if our new sales personnel are unable to achieve desired productivity levels in a reasonable period of time, or if we are unable to retain our existing sales and marketing personnel. We also may not achieve anticipated revenue growth from our third-party channel partners if we are unable to attract and retain additional motivated channel partners, if any existing or future channel partners fail to successfully market, resell, implement or support our solutions for their customers, or if they represent multiple providers and devote greater resources to market, resell, implement and support competing products and services.

The majority of our solutions are sold pursuant to time-based agreements, and if our existing clients elect not to renew or to renew on terms less favorable to us, our business, financial condition and results of operations will be adversely affected.

Our solutions are generally sold pursuant to time-based agreements that are typically subject to renewal every two years or less and our clients have no obligation to renew. Because our clients may elect not to renew, we may not be able to consistently and accurately predict future renewal rates. Our clients’ renewal rates may decline or fluctuate as a result of a number of factors, including their level of satisfaction with our solutions, their ability to continue their operations or invest in customer service, their acceptance of a change from term license

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agreements to subscription service agreements, or the availability and pricing of competing products. If large numbers of existing clients do not renew, or renew on terms less favorable to us, and if we cannot replace or supplement those non-renewals with new agreements generating the same or greater level of revenue, our business, financial condition and results of operations will be adversely affected.

We have experienced rapid growth in recent periods. If we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of service or adequately address competitive challenges.

To achieve our business objectives, we will need to continue to expand our business at a rapid pace. This expansion has placed, and is expected to continue to place, a significant strain on our managerial, administrative, operational, financial and other resources. We anticipate that this expansion will require substantial management effort and significant additional investment in our infrastructure. If we are unable to successfully manage our growth, our business, financial condition and results of operations will be adversely affected.

Part of the challenge that we expect to face in the course of our expansion is to maintain the high level of customer service to which our clients have become accustomed. To date, we have focused on providing personalized account management and customer service on a frequent basis to ensure our clients are effectively leveraging the capabilities of our solution. We believe that much of our success to date has been the result of high client satisfaction, attributable in part to this focus on client service. To the extent our client base grows, we will need to expand our account management, client service and other personnel, and third-party channel partners, in order to enable us to continue to maintain high levels of client service and satisfaction. If we are not able to continue to provide high levels of client service, our reputation, as well as our business, financial condition and results of operations, could be harmed.

If there are interruptions or delays in our hosting services through third-party error, our own error or the occurrence of unforeseeable events, delivery of our solutions could become impaired, which could harm our relationships with clients and subject us to liability.

As of June 30, 2008, approximately 90% of our clients were using our hosting services for deployment of our software applications. We generally provide our hosting services for our non-voice applications through computer hardware that we own and that is currently located in third-party web hosting co-location facilities maintained and operated in California, Illinois, Massachusetts, New Jersey and London, England. Our voice applications for several international customers are hosted by third parties who also own and operate the hardware on which our applications reside. We do not maintain long-term supply contracts with any of our hosting providers, and providers do not guarantee that our clients’ access to hosted solutions will be uninterrupted, error-free or secure. Our operations depend on our providers’ ability to protect their and our systems in their facilities against damage or interruption from natural disasters, power or telecommunications failures, criminal acts and similar events. Our back-up computer hardware and systems have not been tested under actual disaster conditions and may not have sufficient capacity to recover all data and services in the event of an outage occurring simultaneously at all hosting facilities. In the event that our hosting facility arrangements were terminated, or there was a lapse of service or accidental or willful damage to such facilities, we could experience lengthy interruptions in our hosting service as well as delays and/or additional expense in arranging new facilities and services. Any or all of these events could cause our clients to lose access to their important data. In addition, the failure by our third-party hosting facilities to meet our capacity

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requirements could result in interruptions in our service or impede our ability to scale our operations.

Design and mechanical errors, spikes in usage volume and failure to follow system protocols and procedures could cause our systems to fail, resulting in interruptions in our clients’ service to their customers. Any interruptions or delays in our hosting services, whether as a result of third-party error, our own error, natural disasters or security breaches, whether accidental or willful, could harm our relationships with clients and our reputation. This in turn could reduce our revenue, subject us to liability, cause us to issue credits or pay penalties or cause clients to fail to renew their licenses, any of which could adversely affect our business, financial condition and results of operations. In the event of damage or interruption, our insurance policies may not adequately compensate us for any losses that we may incur.

If the security of our clients’ confidential information contained in our systems or stored by use of our software is breached or otherwise subjected to unauthorized access, our hosting service or our software may be perceived as not being secure and clients may curtail or stop using our hosting service and our solutions.

Our hosting systems and our software store and transmit proprietary information and critical data belonging to our clients and their customers. Any accidental or willful security breaches or other unauthorized access could expose us to a risk of information loss, litigation and other possible liabilities. If security measures are breached because of third-party action, employee error, malfeasance or otherwise, or if design flaws in our software are exposed and exploited, and, as a result, a third party obtains unauthorized access to any of our clients’ data, our relationships with clients and our reputation will be damaged, our business may suffer and we could incur significant liability. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until launched against a target, we and our third-party hosting co-location facilities may be unable to anticipate these techniques or to implement adequate preventative measures.

We have significant international sales and are subject to risks associated with operating in international markets.

International sales comprised 28% and 33% of our revenue for the quarters ended June 30, 2007 and 2008, respectively. We intend to continue to pursue and expand our international business activities. Adverse political and economic conditions could make it difficult for us to increase our international sales or to operate abroad. International operations are subject to many inherent risks, including:

· political, social and economic instability, including conflicts in the Middle East and elsewhere abroad, terrorist attacks and security concerns in general;

· adverse changes in tariffs and other protectionist laws and business practices that favor local competitors;

· fluctuations in currency exchange rates;

· longer collection periods and difficulties in collecting receivables from foreign entities;

· exposure to different legal standards and burdens of complying with a variety of foreign laws, including employment, tax, privacy and data protection laws and regulations;

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· reduced protection for our intellectual property in some countries;

· expenses associated with localizing products for foreign countries, including translation into foreign languages; and

· import and export license requirements and restrictions of the United States and each other country in which we operate.

We believe that international sales will continue to represent a significant portion of our revenue for the foreseeable future, and that continued growth will require further expansion of our international operations. A substantial percentage of our international sales are denominated in the local currency. As a result, an increase in the relative value of the dollar could make our products more expensive and potentially less price competitive in international markets. We have not historically entered into transactions designed to hedge against risks of loss due to foreign currency fluctuations; but if we were to enter into any transactions we cannot guarantee that any such transactions would be effective. Any of these factors may adversely affect our future international sales and, consequently, affect our business, financial condition and results of operations.

If we fail to respond effectively to rapidly changing technology and evolving industry standards, particularly in the on demand CRM industry, our solutions may become less competitive or obsolete.

The CRM industry is characterized by rapid technological advances, changes in client requirements, frequent new product and service introductions and enhancements, changes in protocols and evolving industry standards. Our hosted business model and the on demand CRM market are relatively new and may evolve even more rapidly than the rest of the CRM market. Competing products and services based on new technologies or new industry standards may perform better or cost less than our solutions and could render our solutions less competitive or obsolete. In addition, because our solutions are designed to operate on a variety of network hardware and software platforms using a standard Internet web browser, we will need to continuously modify and enhance our solutions to keep pace with changes in Internet-related hardware, software, communication, browser and database technologies and to integrate with our clients’ systems as they change and evolve. Furthermore, uncertainties about the timing and nature of new network platforms or technologies, or modifications to existing platforms or technologies, could increase our research and development expenses.

Our software incorporates use of Microsoft’s .NET Framework, and its Smart Client methodology. The .NET Framework is core functionality that Microsoft incorporates into operating systems, while the Smart Client methodology enables development and deployment of software applications using the .NET Framework. We believe that the .NET Framework and Smart Client enable us to provide users with a richer experience and better functionality than would be possible using a pure Web-based application. However, the .NET Framework has not been universally adopted. If software users do not adopt the .NET Framework or if the .NET Framework is superseded, the potential market for our solutions will be reduced and we may need to develop an alternative architecture.

If we are unable to successfully develop and market new and enhanced solutions that respond in a timely manner to changing technology and evolving industry standards, and if we are

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unable to satisfy the diverse and evolving technology needs of our clients, our business, financial condition and results of operations will suffer.

Our failure to attract and retain qualified or key personnel may prevent us from effectively developing, marketing, selling, integrating and supporting our products.

Our success and future growth depends to a significant degree upon the skills, experience, performance and continued service of our senior management, engineering, sales, marketing, service, support and other key personnel. Specifically, we believe that our future success is highly dependent on Greg Gianforte, our founder, Chairman and Chief Executive Officer. In addition, we do not have employment agreements with any of our senior management or key personnel that require them to remain our employees and, therefore, they could terminate their employment with us at any time without penalty. If we lose the services of Mr. Gianforte or any of our other key personnel, our business will be severely disrupted and we may be unable to operate effectively. We do not maintain “key person” life insurance policies on any of our key employees except Mr. Gianforte. This life insurance policy would not be sufficient to compensate us for the loss of his services. Our future success also depends in large part upon our ability to attract, train, integrate, motivate and retain highly skilled employees, particularly sales, marketing and professional services personnel, software engineers, product trainers, and senior personnel. Competition for these personnel is intense, especially for engineers with high levels of expertise in designing and developing software and for senior sales executives.

Our failure to attract, manage, support and retain qualified partners may prevent us from effectively deploying product and professional services.

Our success and future growth depends in part upon the skills, experience, performance and continued service of our partners. We engage with partners in a number of ways, including to assist us to identify prospective customers, to distribute our solutions, to develop complementary solutions, and to help us to fulfill professional services engagements. We believe that our future success depends in part upon our ability to develop strategic, long term and profitable partnerships. If we do not acquire and retain the right partners, our products might become uncompetitive, we may be unable to take full advantage of the potential demand for our solutions, or our ability to rapidly deliver our solutions may be impaired. The use of partners to fulfill customer requirements may impact our normal margins, and affect the profitability of customer transactions.

If our solutions fail to perform properly or if they contain technical defects, our reputation will be harmed, our market share would decline and we could be subject to product liability claims.

Our software products may contain undetected errors or defects that may result in product failures, slow response times, or otherwise cause our products to fail to perform in accordance with client expectations. Because our clients use our products for important aspects of their business, any errors or defects in, or other performance problems with, our products could hurt our reputation and may damage our clients’ businesses. If that occurs, we could lose future sales, or our existing clients could elect to not renew or to delay or withhold payment to us, which could result in an increase in our provision for doubtful accounts and an increase in collection cycles for

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accounts receivable. Clients also may make warranty or other claims against us, which could result in the expense and risk of litigation. Product performance problems could result in loss of market share, failure to achieve market acceptance and the diversion of development resources. If one or more of our products fails to perform or contains a technical defect, a client may assert a claim against us for substantial damages, whether or not we are responsible for the product failure or defect. We do not currently maintain any warranty reserves.

Product liability claims could require us to spend significant time and money in litigation or to pay significant settlements or damages. Although we maintain general liability insurance, including coverage for errors and omissions, this coverage may not be sufficient to cover liabilities resulting from such product liability claims. Also, our insurer may disclaim coverage. Our liability insurance also may not continue to be available to us on reasonable terms, in sufficient amounts, or at all. Any product liability claims successfully brought against us would cause our business to suffer.

If we are unable to protect our intellectual property rights, our competitive position could be harmed or we could be required to incur significant expenses to enforce our rights.

Our success depends to a significant degree upon the protection of our software and other proprietary technology rights. We rely on trade secret, copyright and trademark laws, patents and confidentiality agreements with employees and third parties, all of which offer only limited protection. The steps we have taken to protect our intellectual property may not prevent misappropriation of our proprietary rights or the reverse engineering of our solutions. We may not be able to obtain any further patents or trademarks, and our pending applications may not result in the issuance of patents or trademarks. Any of our issued patents may not be broad enough to protect our proprietary rights or could be successfully challenged by one or more third parties, which could result in our loss of the right to prevent others from exploiting the inventions claimed in those patents. Furthermore, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights in other countries are uncertain and may afford little or no effective protection of our proprietary technology. Consequently, we may be unable to prevent our proprietary technology from being exploited abroad, which could diminish international sales or require costly efforts to protect our technology. Policing the unauthorized use of our products, trademarks and other proprietary rights is expensive, difficult and, in some cases, impossible. Litigation may be necessary in the future to enforce or defend our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. Such litigation could result in substantial costs and diversion of management resources, either of which could harm our business. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property.

Our product development efforts may be constrained by the intellectual property of others, and we may become subject to claims of intellectual property infringement, which could be costly and time-consuming.

The software and Internet industries are characterized by the existence of a large number of patents, trademarks and copyrights, and by frequent litigation based upon allegations of infringement or other violations of intellectual property rights. As we seek to extend our CRM product and service offerings, we may be constrained by the intellectual property rights of others. We have in the past been named as a defendant in a lawsuit alleging intellectual property infringement, and we may again in the future have to defend against intellectual property lawsuits. We may not prevail in any future intellectual property infringement litigation given the

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complex technical issues and inherent uncertainties in litigation. Any claims, regardless of their merit, could be time-consuming and distracting to management, result in costly litigation or settlement, cause product development delays, or require us to enter into royalty or licensing agreements. If any of our products violate third-party proprietary rights, we may be required to re-engineer our products or seek to obtain licenses from third parties, which may not be available on reasonable terms or at all. Because our sales agreements typically require us to indemnify our clients from any claim or finding of intellectual property infringement, any such litigation or successful infringement claims could adversely affect our business, financial condition and results of operations. Any efforts to re-engineer our products, obtain licenses from third parties on favorable terms or license a substitute technology may not be successful and, in any case, may substantially increase our costs and harm our business, financial condition and results of operations. Further, our software products contain open source software components that are licensed to us under various public domain licenses. While we believe we have complied with our obligations under the various applicable licenses for open source software that we use, there is little or no legal precedent governing the interpretation of many of the terms of certain of these licenses and therefore the potential impact of such terms on our business is somewhat unknown. Use of open source standards also may make us more vulnerable to competition because the public availability of open source software could make it easier for new market entrants and existing competitors to introduce similar competing products quickly and cheaply.

Future acquisitions could disrupt our business and harm our financial condition and results of operations.

In order to expand our addressable market, we may decide to acquire additional businesses, products and technologies. In May 2005, we acquired the assets of Convergent Voice and in May 2006, we acquired Salesnet, Inc. Acquisitions could require significant capital infusions and could involve many risks, including, but not limited to, the following:

• an acquisition may negatively impact our results of operations because it may require incurring large one-time charges, substantial debt or liabilities; it may require the amortization or write down of amounts related to deferred compensation, goodwill and other intangible assets; or it may cause adverse tax consequences, substantial depreciation or deferred compensation charges;

• we may encounter difficulties in assimilating and integrating the business, technologies, products, personnel or operations of companies that we acquire, particularly if key personnel of the acquired company decide not to work for us;

• our existing and potential clients and the customers of the acquired company may delay purchases due to uncertainty related to an acquisition;

• an acquisition may disrupt our ongoing business, divert resources, increase our expenses and distract our management;

• the acquired businesses, products or technologies may not generate sufficient revenue to offset acquisition costs;

• we may have to issue equity securities to complete an acquisition, which would dilute our stockholders and could adversely affect the market price of our common stock; and

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• acquisitions may involve the entry into a geographic or business market in which we have little or no prior experience.

We cannot assure you that we will be able to identify or consummate any future acquisitions on favorable terms, or at all. If we do pursue any future acquisitions, it is possible that we may not realize the anticipated benefits from the acquisitions or that the financial markets or investors will negatively view the acquisitions. Even if we successfully complete an acquisition, it could adversely affect our business, financial condition and results of operations.

Changes to financial accounting standards may affect our results of operations and financial condition.

Generally accepted accounting principles and accompanying accounting pronouncements, implementation guidelines and interpretations for many aspects of our business, such as software revenue recognition, accounting for stock-based compensation, and income tax uncertainties, are complex and involve subjective judgments by management. Changes to generally accepted accounting principles, their interpretation, or changes in our products or business could significantly change our reported earnings and financial condition and could add significant volatility to those measures. For example, since our inception in 1997, we have used stock options as a fundamental component of our employee compensation programs. New accounting requirements that began January 1, 2006 make the use of stock-based compensation much more expensive and introduce additional volatility in our results of operations. See Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies in this report for additional information on recently enacted changes to generally accepted accounting principles.

The required adoption of SFAS 123R makes stock options a less attractive form of employee compensation, and our use of alternative forms of employee compensation in response to SFAS 123R could adversely affect our ability to attract and retain personnel.

We have historically used stock options as a key component of our employee compensation because we believe it aligns employees’ interests with our stockholders’ interest, encourages employee retention, and provides a competitive component of our overall compensation program. Due to the required adoption of SFAS 123R, and the recording of stock option expense on our operating statements, we may determine that it is in our best interest to reduce the number or size of our stock-based awards, or change the type of awards granted. In doing so, we may not be able to attract, retain and motivate our employees.

With the recent volatility in the capital markets, there is a risk that we could suffer a loss of principal in our cash and cash equivalents and short term investments and suffer a reduction in our interest or in our return on investments. Additionally funds associated with auction rate securities may be inaccessible in excess of 12 months, which may result in an other-than-temporary decline in the value of these investments.

We invest our cash and cash equivalents and short-term investments pursuant to our investment policy in cash, money market funds, commercial paper, corporate bonds and government agency securities, which are of investment grade quality. Prior to March 3, 2008 our investment policy had allowed us to invest cash in auction-rate securities. Certain of these investments are subject to general credit, liquidity, market, and interest rate risks, which may be

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exacerbated by U.S. sub-prime mortgage defaults that have affected various sectors of the financial markets and caused credit and liquidity issues. To date, we believe that any declines in the market value of our investments have been temporary. There could be future declines in the value of these investments, however, which we may determine to be other-than-temporary. If we record an other-than-temporary impairment charge, we will record a loss in our statement of operations, which could have a material impact on our operating results in the period it is recognized. These market risks associated with our investment portfolio may have a material adverse effect on our results of operations, liquidity, and financial condition.

At December 31, 2007 and June 30, 2008, we had approximately $18.3 million and $12.4 million, respectively, in par value auction rate securities with investment grades of AAA or AA. Recent uncertainties in the credit market caused substantially all auctions of the auction rate securities we hold to fail. An auction failure means that the parties wishing to sell securities could not. Given the recent failures in the auctions, we reclassified these investments from short-term investments to long-term investments on the balance sheet due to illiquidity. Additionally, we have recorded a temporary impairment charge of approximately $425,000 in other comprehensive income due to our inability to liquidate these securities at par. If the issuers of these securities are unable to successfully close future auctions and their credit ratings deteriorate, we may in the future be required to record an other-than temporary impairment charge on these investments. Determining whether there has been an other-than-temporary impairment of our short-term investments requires significant judgment. With the recent volatility in the capital markets, the funds associated with these investments may not be accessible for in excess of twelve months and there is a risk that we could suffer a loss of principal and suffer a reduction in our interest or in our return on these and other investments, which could result in a permanent impairment charge and harm our operating results and financial condition.

We may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs.

We may require additional capital to respond to business challenges, including the need to develop new solutions or enhance our existing solutions, enhance our operating infrastructure, fund expansion, respond to competitive pressures and acquire complementary businesses, products and technologies. Absent sufficient cash flow from operations, we may need to engage in equity or debt financings to secure additional funds to meet our operating and capital needs. In addition, even though we may not need additional funds, we may still elect to sell additional equity or debt securities or obtain credit facilities for other reasons. We may not be able to secure additional debt or equity financing on favorable terms, or at all, at the time when we need such funding. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution in their percentage ownership of our company, and any new equity securities we issue could have rights, preferences and privileges senior to those of holders of our common stock. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital, to pay dividends and to pursue business opportunities, including potential acquisitions. In addition, if we decide to raise funds through debt or convertible debt financings, we may be unable to meet our interest or principal payments.

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The success of our products and our hosted business depends on the continued growth and acceptance of the Internet as a business and communications tool, and the related expansion of the Internet infrastructure.

The future success of our products and our hosted business depends upon the continued and widespread adoption of the Internet as a primary medium for commerce, communication and business applications. Our business growth would be impeded if the performance or perception of the Internet, or companies providing hosted solutions, was harmed by security problems such as “viruses,” “worms” and other malicious programs, reliability issues arising from outages and damage to Internet infrastructure, delays in development or adoption of new standards and protocols to handle increased demands of Internet activity, increased costs, decreased accessibility and quality of service, or increased government regulation and taxation of Internet activity.

Federal, state or foreign government bodies or agencies have in the past adopted, and may in the future adopt, laws or regulations affecting data privacy, the solicitation, collection, processing or use of personal or consumer information, the use of the Internet as a commercial medium and the use of email for marketing or other consumer communications. In addition, government agencies or private organizations may begin to impose taxes, fees or other charges for accessing the Internet or for sending commercial email. These laws or charges could limit the growth of Internet-related commerce or communications generally, result in a decline in the use of the Internet and the viability of Internet-based services such as ours and reduce the demand for our products, particularly our RightNow Marketing solution.

The Internet has experienced, and is expected to continue to experience, significant user and traffic growth, which has, at times, caused user frustration with slow access and download times. If Internet activity grows faster than Internet infrastructure or if the Internet infrastructure is otherwise unable to support the demands placed on it, or if hosting capacity becomes scarce, our business growth may be adversely affected.

Privacy concerns and laws or other domestic or foreign regulations may adversely affect our business or reduce sales of our solutions.

Businesses using our solutions collect personal information regarding their customers when those customers contact them with customer service inquiries. A valuable component of our solutions is their ability to allow our clients to use and analyze their customers’ information to increase sales, marketing and up-sell or cross-sell opportunities. Federal, state and foreign government bodies and agencies, however, have adopted and are considering adopting laws and regulations regarding the collection, use and disclosure of personal information obtained from consumers. The costs of compliance with, and other burdens imposed by, such laws and regulations that are applicable to the businesses of our clients may limit the use and adoption of this component of our solutions and reduce overall demand for our solutions. Furthermore, even where a client desires to make full use of these features in our solutions, privacy concerns may cause our clients’ customers to resist providing the personal data necessary to allow our clients to use our solutions most effectively. Even the perception of privacy concerns, whether or not valid, may inhibit market acceptance of our products.

European Union members have imposed restrictions on the collection and use of personal data that are far more stringent, and impose more significant burdens on subject businesses, than current privacy standards in the United States. All of these domestic and international legislative and regulatory initiatives may adversely affect our clients’ ability to collect and/or use

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demographic and personal information from their customers, which could reduce demand for our solutions.

In addition to government activity, privacy advocacy groups and the technology and direct marketing industries are considering various new, additional or different self-regulatory standards that may place additional burdens on us. If the gathering of profiling information were to be curtailed in this manner, customer service CRM solutions would be less effective, which would reduce demand for our solutions and harm our business.

Non-solicitation concerns, laws or regulations may adversely affect our clients’ ability to perform outbound marketing and other email communications, which could reduce sales of our solutions.

In January 2004, the federal Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003, or CAN-SPAM Act, became effective. The CAN-SPAM Act regulates the transmission and content of commercial emails and, among other things, obligates the sender of such emails to provide recipients with the ability to opt-out of receiving future emails from the sender, and establishes penalties for the transmission of email messages which are intended to deceive the recipient as to source or content. Many state legislatures also have adopted laws that impact the delivery of commercial email, and laws that regulate commercial email practices have been enacted in many of the international jurisdictions in which we do business, including Europe, Australia, and Canada. In addition, Internet service providers and licensors of software products have introduced a variety of systems and products to filter out certain types of commercial email, without any common protocol to determine whether the recipient desired to receive the email being blocked. As a result, it is difficult for us to determine in advance whether or not emails generated by our clients using our solutions will be permitted by spam filters to reach the intended recipients.

Our RightNow Marketing solution specifically serves the market for mass distribution marketing and other email communications. The increasing regulation of email delivery, both domestically and internationally, and the spam filtering practices of Internet service providers and email users generally, will place significant additional burdens on our clients who have outbound communication programs, and may cause those clients to substantially change their outbound communications programs or abandon them altogether. These factors may lead to a reduction in sales of our RightNow Marketing solution, may make it necessary to redesign our RightNow Marketing solution to make it easier for our clients to conform to the requirements of such laws and standards, which would increase our expenses, or may make it necessary for us to redefine the market for and use of our RightNow Marketing solution, which could reduce our revenue.

General economic conditions could adversely affect our clients’ ability or willingness to purchase our products, which could materially and adversely affect our results of operations.

Our clients consist of large and small companies in nearly all industry sectors and geographies. Potential new clients or existing clients could defer purchases of our products because of unfavorable macroeconomic conditions, which have recently deteriorated significantly in many industry sectors and geographies. These unfavorable macroeconomic conditions may include rising interest rates, fluctuations in currency exchange rates, industry or national economic downturns, industry purchasing patterns, and other factors. Our ability to grow revenues may be adversely affected by unfavorable economic conditions.

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The significant control over stockholder voting matters and our office leases that may be exercised by our founder and Chief Executive Officer will limit your ability to influence corporate actions and may require us to find alternative office space to lease or buy in the future.

At June 30, 2008, Greg Gianforte, our founder and Chief Executive Officer, and his spouse, Susan Gianforte, have voting power over approximately 25.0% of our outstanding common stock and, together with other officers and directors, have voting power over approximately 27.8% of our outstanding common stock. In addition, none of the shares of common stock over which Mr. Gianforte and Mrs. Gianforte have voting power are subject to vesting restrictions. As a result, Mr. Gianforte and Mrs. Gianforte, acting together with some of our other officers and directors, may be able to control matters requiring stockholder approval, including the election of directors, management changes and approval of significant corporate transactions. This concentration of voting power may have the effect of delaying, preventing or deterring a change in control of RightNow, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of RightNow and might reduce the market price of our common stock.

In addition, Mr. Gianforte beneficially owns, directly or indirectly, a 50% membership interest in Genesis Partners, LLC, our landlord from whom we lease our principal offices in Bozeman, Montana. Consequently, Mr. Gianforte has significant control over any decisions by Genesis Partners regarding renewal, modification or termination of our Bozeman, Montana leases. In the event that our current leases with Genesis Partners were terminated or otherwise could not be renewed, or came up for renewal on commercially unreasonable terms, we would be required to find alternative office space to lease or buy.

Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or prevent a change in control of our company and may affect the trading price of our common stock.

Provisions of our certificate of incorporation and bylaws and Delaware law may discourage, delay or prevent a merger or acquisition that a stockholder may consider favorable and may limit the market price of our common stock. These provisions include the following:

· establishing a classified board in which only a portion of the total board members will be elected at each annual meeting;

· authorizing the board to issue preferred stock;

· providing the board with sole authority to set the number of authorized directors and to fill vacancies on the board;

· limiting the persons who may call special meetings of stockholders;

· prohibiting certain transactions under certain circumstances with interested stockholders;

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· requiring supermajority approval to amend certain provisions of the certificate of incorporation; and

· prohibiting stockholder action by written consent.

It is possible that the provisions contained in our certificate of incorporation and bylaws, the voting rights held by insiders and the ability of our board of directors to issue preferred stock without stockholder action may have the effect of delaying, deferring or preventing a change in control of our company without further action by the stockholders, may discourage bids for our common stock at a premium over the market price of our common stock and may adversely affect the market price of our common stock and the voting and other rights of the holders of our common stock.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) Sales of Unregistered Securities

None.

(b) Use of Proceeds from Sales of Registered Securities

On August 5, 2004, the Securities and Exchange Commission declared effective our Registration Statement on From S-1 (Reg. File No. 333-115331) under the Securities Act of 1933, as amended, in connection with the initial public offering of our common stock, par value $.0001 per share. We sold 6.4 million shares, including shares sold upon exercise of the underwriters’ over-allotment option, for an aggregate offering price of $44.9 million, and 321,945 shares, including shares sold upon exercise of the underwriters’ over-allotment option, were sold by a selling stockholder for an aggregate offering price of $2.3 million. After deducting $3.3 million in underwriting discounts and commissions and $1.8 million in other offering costs, we received net proceeds from the offering of approximately $40 million. None of the expenses and none of our net proceeds from the offering were paid directly or indirectly to any director, officer, general partner of RightNow or their associates, persons owning 10% or more of any class of equity securities of RightNow, or an affiliate of RightNow.

In May 2005, we spent $1 million of the offering proceeds for the acquisition of the assets of Convergent Voice. In May 2006, we spent $8.7 million of the offering proceeds to acquire Salesnet, Inc. We currently intend to use the remaining proceeds for general corporate purposes as described in the prospectus for the offering. Pending these uses, the net proceeds from the offering are invested in short and long-term, interest-bearing, investment-grade securities.

(c) Purchases of Equity Securities.

Not applicable.

Item 3. Defaults Upon Senior Securities.

None.

Director Candidate		For		Withheld
William J. Lansing		32,045,937		69,463

For		32,048,483
Against		35,324
Abstain		31,593

Exhibit 3.1	Amended and Restated Certificate of Incorporation of the Registrant. (1)

Exhibit 3.2	Amended and Restated Bylaws of the Registrant. (2)

Exhibit 31.1	Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) or 15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31.2	Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a) or 15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.1	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

Dated: August 8, 2008

RightNow Technologies, Inc.
(Registrant)

By:	/s/ Jeffrey C. Davison
	Jeffrey C. Davison
	Chief Financial Officer, Vice President and,
	Treasurer
	(Principal Financial and Accounting Officer)

				Page

Part I.			FINANCIAL INFORMATION	3

Item 1.	Financial Statements			3
	a)		Condensed consolidated balance sheets (unaudited)	3
	b)		Condensed consolidated statements of operations (unaudited)	4
	c)		Condensed consolidated statements of cash flows (unaudited)	5
	d)		Notes to condensed consolidated financial statements (unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			16

Item 3.	Quantitative and Qualitative Disclosures About Market Risk			31

Item 4.	Controls and Procedures			31

Part II.			OTHER INFORMATION	33

Item 1.	Legal Proceedings			33

Item 1A.		Risk Factors		33

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			49

Item 3.	Defaults Upon Senior Securities			49

Item 4.	Submission of Matters to a Vote of Security Holders			50

Item 5.	Other Information			50

Item 6.	Exhibits			51

SIGNATURES				52

(1)	Incorporated by reference to Exhibit 4.2 to the Company’s registration statement on Form S-8 (File No. 333-118515) filed with the Securities and Exchange Commission on August 24, 2004.
(2)	Incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K (File No. 000-31321) filed with the Securities and Exchange Commission on January 25, 2006.

FORM 10-Q

For the quarterly period ended June 30, 2008

For the transition period from to

Delaware

81-0503640

Bozeman, Montana 59718-9300

Item 1. Financial Statements

Sales and Marketing Expenses

Contractual Obligations and Commitments