eBay 1998 Annual Report Download - page 40

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technology licensed from third parties to provide the security and authentication technology to effect secure
transmission of confidential information, including customer credit card numbers. Advances in computer
capabilities, new discoveries in the field of cryptography, or other developments may result in a compromise or
breach of the technology used by us to protect customer transaction data. Any such compromise of our security
could harm our reputation and, therefore, our business. In addition, a party who is able to circumvent our security
measures could misappropriate proprietary information or cause interruptions in our operations. An individual
recently claimed to have misappropriated some of our confidential information by breaking into our computer
system. We may need to expend significant resources to protect against security breaches or to address problems
caused by breaches. Security breaches like the recent one could damage our reputation and expose us to a risk of
loss or litigation and possible liability. Our insurance policies carry low coverage limits, which may not be adequate
to reimburse us for losses caused by security breaches.
We must keep pace with rapid technological change to remain competitive.
The market in which we compete is characterized by rapidly changing technology, evolving industry standards,
frequent new service and product introductions and enhancements and changing customer demands. These market
characteristics are worsened by the emerging nature of the Internet and the apparent need of companies from a
multitude of industries to offer Web-based products and services. Our future success therefore will depend on our
ability to adapt to rapidly changing technologies, to adapt our services to evolving industry standards and to
continually improve the performance, features and reliability of our service. Our failure to adapt to such changes
would harm our business. In addition, the widespread adoption of new Internet, networking or telecommunications
technologies or other technological changes could require substantial expenditures to modify or adapt our services or
infrastructure.
We need to develop new services, features and functions in order to expand.
We plan to expand our operations by developing new or complementary services, products or transaction
formats or expanding the breadth and depth of services. We may be unable to expand our operations in a cost-
effective or timely manner. Even if we do expand, we may not maintain or increase our overall market acceptance.
If we launch a new business or service that is not favorably received by consumers, it could damage our reputation
and diminish the value of our brand. We anticipate that future services may include pre- and post-trade services,
including the following:
• the scanning and uploading of photographs of listed items;
• authentication and appraisal;
• arrangements to facilitate shipment of products; and
• methods to facilitate buyers’ payments to sellers, such as credit card services.
We may pursue strategic relationships with third parties to provide many of these services. By using third
parties to deliver these services, we may be unable to control the quality of these services and our ability to address
problems if any of these third parties fails to perform adequately will be reduced. Expanding our operations in this
manner also will require significant additional expenses and development, operations and other resources and will
strain our management, financial and operational resources. The lack of market acceptance of any new services
could harm our business.
Our growth will depend on our ability to develop our brand.
We believe that our historical growth has been largely attributable to word of mouth. We have benefited from
frequent and high visibility media exposure both nationally and locally. We do not expect the frequency or quality of
this media exposure to continue. However, we believe that continuing to strengthen our brand will be critical to
achieving widespread acceptance of our service. Promoting and positioning our brand will depend largely on the
success of our marketing efforts and our ability to provide high quality services. In order to promote our brand, we