eBay 2002 Annual Report Download - page 66

Unauthorized break-ins or other assaults on our services could harm our business.
Our servers are vulnerable to computer viruses, physical or electronic break-ins and similar
disruptions, which could lead to interruptions, delays, loss of data, public release of conÑdential data or the
inability to complete customer transactions. In addition, unauthorized persons may improperly access our
data. eBay has experienced an unauthorized break-in by a ""hacker'' who has stated that he could, in the
future, damage or change our system or take conÑdential information. We have also experienced ""denial of
service'' type attacks on our system that have made all or portions of our websites unavailable for periods
of time. These and other types of attacks could harm us. Actions of this sort may be very expensive to
remedy and could damage our reputation and discourage new and existing users from using our services.
System failures could harm our business.
Our system has been designed around industry standard architectures to reduce downtime in the event
of outages or catastrophic occurrences. Our services provide 24 hours-a-day, seven days-a-week availability,
subject to a weekly scheduled two-hour maintenance period. Our systems and operations are vulnerable to
damage or interruption from earthquakes, Öoods, Ñres, power loss, telecommunication failures, terrorist
attacks, computer viruses, computer denial of service attacks and similar events. They are also subject to
break-ins, sabotage, intentional acts of vandalism and to potential disruption if the operators of these
facilities have Ñnancial diÇculties. Only some of our systems are fully redundant and we do not carry
business interruption insurance suÇcient to compensate us for losses that may occur. Despite any
precautions we may take, the occurrence of a natural disaster, a decision to close a facility we are using
without adequate notice for Ñnancial reasons or other unanticipated problems at our hosting facilities could
result in lengthy interruptions in our services. In addition, the failure by our hosting facilities to provide
our required data communications capacity could result in interruptions in our service. Any damage to or
failure of our systems could result in interruptions in our service. Interruptions in our service will reduce
our revenues and proÑts, and our future revenues and proÑts will be harmed if our users believe that our
system is unreliable.
We have experienced system failures from time to time. eBay's primary website has been interrupted
for periods of up to 22 hours. In addition to placing increased burdens on our engineering staÅ, these
outages create a Öood of user questions and complaints that need to be addressed by our customer support
personnel. Any unscheduled interruption in our services results in an immediate loss of revenues that can
be substantial and may cause some users to switch to our competitors. If we experience frequent or
persistent system failures on our websites, our reputation and brand could be permanently harmed. We
have been taking steps to increase the reliability and redundancy of our systems. These steps are expensive,
reduce our margins and may not be successful in reducing the frequency or duration of unscheduled
downtime.
Our infrastructure could prove unable to handle a larger volume of customer transactions. Any failure
to accommodate transaction growth could impair customer satisfaction, lead to a loss of customers, impair
our ability to add customers or increase its costs, all of which would harm our business.
Because our customers may use our products for critical transactions, any errors, defects or other
infrastructure problems could result in damage to our customers' businesses. These customers could seek
signiÑcant compensation from us for their losses. Even if unsuccessful, this type of claim likely would be
time consuming and costly for us to address.
We are exposed to Öuctuations in currency exchange rates.
Net revenues outside the United States accounted for approximately 15% of our net revenues in 2001
and 26% in 2002. Because a signiÑcant and growing portion of our business is conducted outside the
United States, we face exposure to adverse movements in non-U.S. currency exchange rates. The results of
operations of our internationally focused websites are exposed to foreign exchange rate Öuctuations as the
Ñnancial results of the applicable subsidiaries are translated from the local currency into U.S. dollars upon
consolidation. In connection with its multi-currency service, PayPal Ñxes exchange rates twice per day, and
64