Stamps.com 2005 Annual Report Download - page 15

Risks Related to Our Industry
US Postal Service regulations or fee assessments may cause disruptions or discontinuance of our business.
We are subject to continued US Postal Service scrutiny and other government regulations. The 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 or suspend the approval of one or more of our services 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.
The US Postal Service could decide to suspend or cancel the current market test of PhotoStamps, and may do so in the event that there is
sufficient cause to believe that the market test presents unacceptable risk to US Postal Service revenues, degrades the ability of the US Postal
Service to process or deliver mail produced by the test participants, exposes the US Postal Service or its customers to legal liability, or causes
public or political embarrassment or harm to the US Postal Service in any way. If the US Postal Service decides to suspend or cancel the
market test of PhotoStamps, our revenues and operating results will likely suffer.
Additionally, the US Postal Service could decide to amend, renegotiate or terminate our credit card cost sharing agreement, which is a key
agreement that governs the allocation of credit card fees paid by the US Postal Service and us for the postage purchased by our customers. If
the US Postal Service decides to amend, renegotiate or terminate our credit card cost sharing agreement, our revenues and operating results will
likely 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 and Zazzle.com offers a competitive product to PhotoStamps using
Pitney Bowes technology. 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 than us. This increased competition may result in reduced operating margins, loss of market share and a diminished brand. We
may from time to time make pricing, service or marketing decisions or acquisitions as a strategic response to changes in the competitive
environment. These actions could result in reduced margins and seriously harm our business.
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