eBay 1998 Annual Report Download - page 13

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13
Company competes is characterized by rapidly changing technology, evolving industry standards, frequent new
service and product announcements, introductions and enhancements and changing customer demands. Accordingly,
the Company’ s future success will depend on its ability to adapt to rapidly changing technologies, to adapt its
services to evolving industry standards and to continually improve the performance, features and reliability of its
service in response to competitive service and product offerings and evolving demands of the marketplace. The
failure of the Company to adapt to such changes would harm the Company’ s business. In addition, the widespread
adoption of new Internet, networking or telecommunications technologies or other technological changes could
require substantial expenditures by the Company to modify or adapt its services or infrastructure. See “Risk
Factors—Our failure to manage growth could harm us;” “—We must keep pace with rapid technological change to
remain competitive” and “—We need to develop new services, features and functions in order to expand.”
Competition
The market for person-to-person trading over the Internet is new, rapidly evolving and intensely competitive,
and the Company expects competition to intensify in the future. Barriers to entry are relatively low, and current and
new competitors can launch new sites at a relatively low cost using commercially available software. The Company
currently or potentially competes with a number of other companies. Its direct competitors include various online
person-to-person auction services, including Yahoo! Auctions Powered by Onsale and Excite, Inc., both of which
are free to sellers and buyers, Auction Universe and a number of other small services, including those that serve
specialty or regional markets such as CityAuction. The Company also competes indirectly with business-to-
consumer online auction services such as Onsale, First Auction, Surplus Auction and uBid. A number of traditional
auction companies, including Butterfield & Butterfield and Sotheby’ s, are offering or have announced plans to
create Internet auction sites. The Company potentially faces competition from a number of large online communities
and services that have expertise in developing online commerce and in facilitating online person-to-person
interaction. Some of these potential competitors, including Amazon.com, AOL, Lycos, Inc. and Microsoft
Corporation, currently offer business-to-consumer trading services and classified ad services. Some of these
companies also may introduce person-to-person trading to their large user populations. Other large companies with
strong brand recognition and experience in online commerce, such as Cendant Corporation, QVC, USA Network
and large newspaper or media companies, also may seek to compete in the online auction market.
In order to respond to changes in the competitive environment, the Company may, from time to time, make
pricing, service or marketing decisions or acquisitions that could harm its business. For example, the Company
recently implemented a free insurance program that generally insures items up to a value of $200, with a $25
deductible, for users with a non-negative feedback rating. The financial impact of this insurance program is not yet
known. New technologies may increase competitive pressures on the Company by enabling its competitors to offer a
lower cost service. Some Web-based applications that direct Internet traffic to certain websites may channel users to
trading services that compete with the Company.
Although the Company has established Internet traffic arrangements with several large online services and
search engine companies, these arrangements may not be renewed on commercially reasonable terms. Even if these
arrangements are renewed, they may not result in increased usage of the Company’ s service. In addition, companies
that control access to transactions through network access or Web browsers could promote competitors of the
Company or charge it substantial fees for inclusion. See “Risk Factors—Our market is intensely competitive.”
Intellectual Property
The Company regards the protection of its copyrights, service marks, trademarks, trade dress and trade secrets
as critical to its success. The Company relies on a combination of patent, copyright, trademark, service mark and
trade secret laws and contractual restrictions to protect its proprietary rights in products and services. The Company
has entered into confidentiality and invention assignment agreements with its employees and contractors, and
nondisclosure agreements with parties with which its conducts business to limit access to and disclosure of its
proprietary information. These contractual arrangements and the other steps taken by the Company to protect its
intellectual property may not prevent misappropriation of its technology or deter independent third-party
development of similar technologies.