Overstock.com 2004 Annual Report Download - page 23

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increases, we will need to further expand and upgrade our technology, transaction processing systems and network infrastructure. We have experienced and
expect to continue to experience temporary capacity constraints due to sharply increased traffic during sales or other promotions and during the holiday
shopping season. Capacity constraints can cause unanticipated system disruptions, slower response times, degradation in levels of customer service, impaired
quality and delays in reporting accurate financial information.
Our transaction processing systems and network infrastructure may be unable to accommodate increases in traffic in the future. We may be unable to
project accurately the rate or timing of traffic increases or successfully upgrade our systems and infrastructure to accommodate future traffic levels on our
Websites. In addition, we may be unable to upgrade and expand our transaction processing systems in an effective and timely manner or to integrate any
newly developed or purchased functionality with our existing systems. Any inability to do so may cause unanticipated system disruptions, slower response
times, degradation in levels of customer service, impaired quality and speed of order fulfillment or delays in reporting accurate financial information.
If the facilities where substantially all of our computer and communications hardware is located fail, our business, results of operations and financial
condition will be harmed.
Our success, and, in particular, our ability to successfully receive and fulfill orders and provide high-quality customer service, largely depends on the
efficient and uninterrupted operation of our computer and communications systems. Substantially all of our computer and communications hardware is
located at a single co-location facility in Salt Lake City, Utah, with a partially redundant back-up system located at our corporate headquarters in Salt Lake
City. Although we have designed our back-up system in an effort to avoid or minimize service interruptions in the event of a failure of our main facility, our
systems and operations are vulnerable to damage or interruption from fire, flood, power loss, telecommunications failure, terrorist attacks, acts of war, break-
ins, earthquake and similar events. We do not have a formal disaster recovery plan and our business interruption insurance may be insufficient to compensate
us for losses that may occur. Despite the implementation of network security measures, our servers are vulnerable to computer viruses, physical or electronic
break-ins and similar disruptions, which could lead to interruptions, delays, loss of critical data or the inability to accept and fulfill customer orders. The
occurrence of any of the foregoing risks could harm our business, prospects, financial condition and results of operations.
We may be unable to protect our proprietary technology or keep up with that of our competitors.
Our success depends to a significant degree upon the protection of our software and other proprietary intellectual property rights. We may be unable to
deter misappropriation of our proprietary information, detect unauthorized use and take appropriate steps to enforce our intellectual property rights. In
addition, our competitors could, without violating our proprietary rights, develop technologies that are as good as or better than our technology.
Our failure to protect our software and other proprietary intellectual property rights or to develop technologies that are as good as our competitors' could
put us at a disadvantage to our competitors. In addition, the failure of the third parties whose products we offer for sale on our Websites to protect their
intellectual property rights, including their domain names, could impair our operations. These failures could harm our business, results of operations and
financial condition.
If we do not respond to rapid technological changes, our services could become obsolete and we could lose customers.
To remain competitive, we must continue to enhance and improve the functionality and features of our e-commerce businesses. We may face material
delays in introducing new services, products and enhancements. If this happens, our customers may forgo the use of our Websites and use those of our
competitors. The Internet and the online commerce industry are rapidly changing. If competitors
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