Digital River 2006 Annual Report Download - page 26

Claims against us related to the software products that we deliver electronically and the tangible goods
that we deliver physically could require us to expend significant resources.
We may become more vulnerable to third party claims as laws such as the Digital Millennium Copyright
Act, the Lanham Act and the Communications Decency Act are interpreted by the courts. Claims may be
made against us for negligence, copyright or trademark infringement, products liability or other theories based
on the nature and content of software products or tangible goods that we deliver electronically and physically.
Because we did not create these products, we are generally not in a position to know the quality or nature of
the content of these products. Although we carry general liability insurance and require that our customers
indemnify us against end-user claims, our insurance and indemnification measures may not cover potential
claims of this type, may not adequately cover all costs incurred in defense of potential claims, or may not
reimburse us for all liability that may be imposed. Any costs or imposition of liability that are not covered by
insurance or indemnification measures could be expensive and time-consuming to address, distract manage-
ment and delay product deliveries, even if we are ultimately successful in the defense of these claims.
The growth of the market for our services depends on the development and maintenance of the Internet
infrastructure.
Our business is based on highly reliable Internet delivery of services. The success of our business
therefore depends on the development and maintenance of a sound Internet infrastructure. This includes
maintenance of a reliable network backbone with the necessary speed, data capacity and security, as well as
timely development of complementary products, such as routers, for providing reliable Internet access and
services. Our ability to increase the speed and scope of our services is limited by, and depends upon, the speed
and reliability of both the Internet and our clients’ internal networks. Consequently, as Internet usage increases,
the growth of the market for our services depends upon improvements made to the Internet as well as to
individual clients’ networking infrastructures to alleviate overloading and congestion. In addition, any delays
in the adoption of new standards and protocols required to govern increased levels of Internet activity or
increased governmental regulation may have a detrimental effect on the Internet infrastructure.
Because the e-commerce industry is highly competitive and has low barriers to entry, we may be unable
to compete effectively.
The market for e-commerce solutions is extremely competitive and we may find ourselves unable to
compete effectively. Because there are relatively low barriers to entry in the e-commerce market, we expect
continued intense competition as current competitors expand their product offerings and new competitors enter
the market. In addition, our clients may become competitors in the future. Increased competition is likely to
result in price reductions, reduced margins, longer sales cycles and a decrease or loss of our market share, any
of which could negatively impact our revenue and earnings. We face competition from the following sources:
• In-house development of e-commerce capabilities using tools or applications from companies, such as
Art Technology Group, Inc. and IBM Corporation;
• E-Commerce capabilities custom-developed by companies, such as IBM Global Services and Accenture,
Inc.;
• Other providers of outsourced e-commerce solutions, such as GSI Commerce, Inc., Macrovision
Corporation, and asknet Inc.;
• Companies that provide technologies, services or products that support a portion of the e-commerce
process, such as payment processing, including CyberSource Corporation and PayPal Corp.;
• Companies that offer various online marketing services, technologies and products, including Value-
Click, Inc. and aQuantive, Inc.;
• High-traffic, branded websites that generate a substantial portion of their revenue from e-commerce and
may offer or provide to others the means to offer their products for sale, such as Amazon.com, Inc.; and
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