Digital River 2006 Annual Report Download - page 27

• Web hosting, web services and infrastructure companies that offer portions of our solution and are
seeking to expand the range of their offering, such as Network Solutions, LLC, Akamai Technologies,
Inc., Yahoo! Inc., eBay Inc. and Hostopia.com Inc.
We believe that the principal competitive factors for a participant in our market are the breadth of
products and services offered, the number of clients and online channel partnerships a participant has, brand
recognition, system reliability and scalability, price, customer service, ease of use, speed to market,
convenience and quality of delivery. The online channel partners and the other companies described above
may compete directly with us by adopting a similar business model. Moreover, while some of these companies
also are clients or potential clients of ours, they may compete with our e-commerce outsourcing solution to the
extent that they develop e-commerce systems or acquire such systems from other software vendors or service
providers.
Many of our competitors have, and new potential competitors may have, more experience developing
Internet-based software and e-commerce solutions, larger technical staffs, larger customer bases, more
established distribution channels and customer relationships, greater brand recognition and greater financial,
marketing and other resources than we have. In addition, competitors may be able to develop services that are
superior to our services, achieve greater customer acceptance or have significantly improved functionality as
compared to our existing and future products and services. Our competitors may be able to respond more
quickly to technological developments and changes in customers’ needs. Our inability to compete successfully
against current and future competitors could cause our revenue and earnings to decline.
Changes in government regulation could limit our Internet activities or result in additional costs of doing
business over the Internet.
We are subject to the same international, federal, state and local laws as other companies conducting
business over the Internet. Today, there are relatively few laws specifically directed towards conducting
business over the Internet. The adoption or modification of laws related to the Internet could harm our
business, operating results and financial condition by increasing our costs and administrative burdens. Due to
the increasing popularity and use of the Internet, many laws and regulations relating to the Internet are being
debated at the international, federal and state levels. These laws and regulations could cover issues such as:
• User privacy with respect to adults and minors;
• Our ability to collect and/or share necessary information that allows us to conduct business on the
Internet;
• Export compliance;
• Pricing and taxation;
• Fraud;
• Advertising;
• Intellectual property rights;
• Information security; and
• Quality of products and services.
Applicability to the Internet of existing laws governing issues, such as property ownership, copyrights and
other intellectual property issues, taxation, libel, obscenity and personal privacy also could harm our operating
results and substantially increase the cost to us of doing business. For example, numerous state legislatures
have proposed that tax rules for Internet retailing and catalog sales correspond to enacted tax rules for sales
from physical stores. Any requirement that we collect sales tax for each online purchase and remit the tax to
the appropriate state authority would be a significant administrative burden to us, and would likely depress
online sales. This and any other change in laws applicable to the Internet also might require significant
management resources to respond appropriately. The vast majority of these laws was adopted prior to the
23