Stamps.com 2004 Annual Report Download - page 13

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A significant barrier to electronic commerce and communications is the secure transmission of confidential
information over public networks. Anyone who is able to circumvent our security measures could misappropriate
confidential information or cause interruptions in our operations. We may be required to expend significant capital
and other resources to protect against potential security breaches or to alleviate problems caused by any breach. We
rely on specialized technology from within our own infrastructure to provide the security necessary for secure
transmission of postage and other confidential information. Advances in computer capabilities, new discoveries in
security technology, or other events or developments may result in a compromise or breach of the algorithms we use
to protect customer transaction data. Should someone circumvent our security measures, our reputation, business,
financial condition and results of operations could be seriously harmed. Security breaches could also expose us to a
risk of loss or litigation and possible liability for failing to secure confidential customer information. As a result, we
may be required to expend a significant amount of financial and other resources to protect against security breaches
or to alleviate any problems that they may cause.
Risks Related to Our Industry
US Postal Service regulations and fee assessments may cause disruptions or discontinuance of our business,
may increase the cost of our service and may affect the adoption of PC Postage as a method of mailing and
shipping.
We are subject to continued US Postal Service scrutiny and other government regulations. The continued
availability of our services is dependent upon our service continuing to meet US Postal Service performance
specifications and regulations. The US Postal Service could change its certification requirements or specifications
for PC Postage or revoke the approval of our service at any time. If at any time our service fails to meet US Postal
Service requirements, we may be prohibited from offering this service and our business would be severely and
negatively impacted. In addition, the US Postal Service could suspend or terminate our approval or offer services
which compete against us, any of which could stop or negatively impact the commercial adoption of our service.
Any changes in requirements or specifications for PC Postage could adversely affect our pricing, cost of revenues,
operating results and margins by increasing the cost of providing our service.
The US Postal Service could also decide that PC Postage should no longer be an approved postage service
due to security concerns or other issues. Our business would suffer dramatically if we are unable to adapt our
services to any new requirements or specifications or if the US Postal Service were to discontinue PC Postage as an
approved postage method. Alternatively, the US Postal Service could introduce competitive programs or amend PC
Postage requirements to make certification easier to obtain, which could lead to more competition from third parties
or the US Postal Service itself. If we are unable to compete successfully, particularly against large, traditional
providers of postage products like Pitney Bowes who enter the online postage market, our revenues and operating
results will suffer.
In addition, US Postal Service regulations may require that our personnel with access to postal information
or resources receive security clearance prior to doing relevant work. We may experience delays or disruptions if our
personnel cannot receive necessary security clearances in a timely manner, if at all. The regulations may limit our
ability to hire qualified personnel. For example, sensitive clearance may only be provided to US citizens or aliens
who are specifically approved to work on US Postal Service projects.
If we are unable to compete successfully, particularly against large, traditional providers of postage products
such as Pitney Bowes, our revenues and operating results will suffer.
The PC Postage segment of the market for postage is relatively new and is competitive. At present, Pitney
Bowes and Endicia.com are authorized PC Postage providers with commercially available software. If any more
providers become authorized, or if Pitney Bowes or Endicia.com provide enhanced offerings, our operations could
be adversely impacted. We also compete with other forms of postage, including traditional postage meters, provided
by companies such as Pitney Bowes, postage stamps and permit mail.
We may not be able to establish or maintain a competitive position against current or future competitors as
they enter the market. Many of our competitors have longer operating histories, larger customer bases, greater brand
recognition, greater financial, marketing, service, support, technical, intellectual property and other resources than
us. As a result, our competitors may be able to devote greater resources to marketing and promotional campaigns,
adopt more aggressive pricing policies and devote substantially more resources to web site and systems development