eBay 2002 Annual Report Download - page 73

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Internet may be harmed by increased number of users or bandwidth requirements or by ""viruses,''
""worms'' and similar programs. The backbone computers of the Internet have been the targets of such
programs. The Internet 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. These outages and delays
could reduce the level of Internet usage as well as the level of traÇc and the processing transactions on
our service.
Our business is subject to online commerce security risks.
To succeed, online commerce and communications must provide a secure transmission of conÑdential
information over public networks. Our security measures may not prevent security breaches. Our failure to
prevent security breaches could harm our business. Currently, a signiÑcant number of our users authorize
us to bill their credit card accounts directly for all transaction fees charged by us. PayPal's and Billpoint's
users routinely provide credit card and other Ñnancial information. We rely on encryption and
authentication technology licensed from third parties to provide the security and authentication technology
to eÅect secure transmission of conÑdential information, including customer credit card numbers. Advances
in computer capabilities, new discoveries in the Ñeld of cryptography or other developments may result in a
compromise or breach of the technology used by us to protect customer transaction data. A number of
websites have reported breaches of their security. Any 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. We may
need to expend signiÑcant resources to protect against security breaches or to address problems caused by
breaches. These issues are likely to become more diÇcult as we expand the number of places where we
operate. Our users may also be targeted by parties attempting to misappropriate passwords, credit card
numbers or other personal information by using fraudulent emails and websites appearing to be sent or
operated by us. We actively pursue the parties responsible for these attempts at misappropriation and
encourage our users to divulge sensitive information only after they have veriÑed that they are on our
legitimate websites, but we cannot entirely eliminate these types of activities.
Security breaches 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.
Our competitive space is characterized by rapidly changing technology, evolving industry standards,
frequent new service and product introductions and enhancements and changing customer demands. These
characteristics are caused in part by the emerging and changing nature of the Internet. 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 improve the performance, features and reliability of our service. Our
failure to adapt to such changes would harm our business. New technologies, such as the development of a
peer-to-peer personal trading technology, could adversely aÅect us. 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-eÅective or timely manner. Even if we do expand, we may not maintain or increase
our overall 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 will
include pre-trade and post-trade services.
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