eBay 1998 Annual Report Download - page 39

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Some current and many potential competitors have longer company operating histories, larger customer bases
and greater brand recognition in other business and Internet markets than we do. Some of these competitors also
have significantly greater financial, marketing, technical and other resources. Other online trading services may be
acquired by, receive investments from or enter into other commercial relationships with larger, well established and
well financed companies. As a result, some of our competitors with other revenue sources may be able to devote
more resources to marketing and promotional campaigns, adopt more aggressive pricing policies and devote
substantially more resources to website and systems development than we are able to. Increased competition may
result in reduced operating margins, loss of market share and diminished value of our brand. Some of our
competitors have offered services for free and others may do this as well. We may be unable to compete
successfully against current and future competitors.
In order to respond to changes in the competitive environment, we may, from time to time, make pricing,
service or marketing decisions or acquisitions that could harm our business. For example, we recently implemented
an insurance program that generally insures items up to a value of $200, with a $25 deductible, for users with a non-
negative feedback rating at no cost to the user. The financial impact of this insurance program is not yet known.
New technologies may increase the competitive pressures by enabling our 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 us.
Although we have 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 our service. In addition, companies that control access to
transactions through network access or Web browsers could promote our competitors or charge us substantial fees
for inclusion.
Our business is dependent on the development and maintenance of the web infrastructure.
The success of our service will depend largely on the development and maintenance of the Web infrastructure.
This includes maintenance of a reliable network backbone with the necessary speed, data capacity and security, as
well timely development of complementary products such as high speed modems, for providing reliable Web access
and services. Because global commerce and the online exchange of information is new and evolving, we cannot
predict whether the Web will prove to be a viable commercial marketplace in the long term. The Web has
experienced, and is likely to continue to experience, significant growth in the numbers of users and amount of
traffic. If the Web continues to experience increased numbers of users, increased frequency of use or increased
bandwidth requirements, the Web infrastructure may be unable to support the demands placed on it. In addition, the
performance of the Web may be harmed by increased users or bandwidth requirements.
The Web has experienced a variety of outages and other delays as a result of damage to portions of its
infrastructure, and it could face outages and delays in the future. This might include outages and delays resulting
from the “Year 2000” problem. See “—Our business could be harmed by Year 2000 compliance issues.” These
outages and delays could reduce the level of Web usage as well as the level of traffic and the processing of auctions
on our service. In addition, the Web could lose its viability due to delays in the development or adoption of new
standards and protocols to handle increased levels of activity or due to increased governmental regulation. The
infrastructure and complementary products or services necessary to make the Web a viable commercial marketplace
for the long term may not be developed successfully or in a timely manner. Even if these products or services are
developed, the Web may not become a viable commercial marketplace for services such as those that we offer.
Our business is subject to online commerce security risks.
A significant barrier to online commerce and communications is the secure transmission of confidential
information over public networks. Our security measures may not prevent security breaches. Our failure to prevent
security breaches could harm our business. Currently, a significant number of our users authorize us to bill their
credit card accounts directly for all transaction fees charged by us. We rely on encryption and authentication