eBay 2005 Annual Report Download - page 23

our cash, or incur debt, liabilities, or amortization expenses related to intangible assets, any of which could
reduce our profitability and harm our business.
System failures could harm our business.
We have experienced system failures from time to time, and any interruption in the availability of our
websites will reduce our current revenues and profits, could harm our future revenues and profits, and could
subject us to regulatory scrutiny. eBay's primary website has been interrupted for periods of up to 22 hours,
and our PayPal site suffered intermittent unavailability over a five-day period in October 2004. Any
unscheduled interruption in our services results in an immediate, and possibly substantial, loss of revenues.
Frequent or persistent interruptions in our services could cause current or potential users to believe that our
systems are unreliable, leading them to switch to our competitors or to avoid our sites, and could permanently
harm our reputation and brands. These interruptions increase the burden on our engineering staff, which, in
turn, could delay our introduction of new features and services on our sites. Because PayPal is a regulated
financial entity, frequent or persistent site interruptions could lead to regulatory inquiries. These inquiries
could result in fines, penalties, or mandatory changes to PayPal's business practices, and ultimately could
cause PayPal to lose existing licenses it needs to operate or prevent it from obtaining additional licenses that it
needs to expand. Finally, because our customers may use our products for critical transactions, any system
failures could result in damage to our customers' businesses. These customers could seek significant
compensation from us for their losses. Even if unsuccessful, this type of claim likely would be time consuming
and costly for us to address.
Although our systems have been designed around industry-standard architectures to reduce downtime in
the event of outages or catastrophic occurrences, they remain vulnerable to damage or interruption from
earthquakes, floods, fires, power loss, telecommunication failures, terrorist attacks, computer viruses, com-
puter denial-of-service attacks, and similar events. Some of our systems, including our Shopping.com and
Skype websites, are not fully redundant, and our disaster recovery planning is not sufficient for all
eventualities. Our systems are also subject to break-ins, sabotage, and intentional acts of vandalism. Despite
any precautions we may take, the occurrence of a natural disaster, a decision by any of our third-party hosting
providers to close a facility we use without adequate notice for financial or other reasons, or other
unanticipated problems at our hosting facilities could result in lengthy interruptions in our services. We do not
carry business interruption insurance sufficient to compensate us for losses that may result from interruptions
in our service as a result of system failures.
Our growth will depend on our ability to develop our brands, and these efforts may be costly.
Our historical growth has been largely attributable to word of mouth, and to frequent and high visibility
national and local media coverage. We believe that continuing to strengthen our brands will be critical to
achieving widespread acceptance of our services, and will require an increased focus on active marketing
efforts. The demand for and cost of online and traditional advertising have been increasing, and may continue
to increase. Accordingly, we will need to spend increasing amounts of money on, and devote greater resources
to, advertising, marketing, and other efforts to create and maintain brand loyalty among users. During 2004
and 2005, we significantly increased the number of brands we are supporting, adding Rent.com, Shop-
ping.com, Kijiji, and Skype, among others. Each of these brands requires its own resources, increasing the
costs of our branding efforts. Brand promotion activities may not yield increased revenues, and even if they do,
any increased revenues may not offset the expenses incurred in building our brands. If we do attract new users
to our services, they may not conduct transactions using our services on a regular basis. If we fail to promote
and maintain our brands, or if we incur substantial expenses in an unsuccessful attempt to promote and
maintain our brands, our business would be harmed.
Our business and users may be subject to sales tax and other taxes.
The application of indirect taxes (such as sales and use tax, value added tax, or VAT, goods and services
tax, business tax, and gross receipt tax) to e-commerce businesses such as eBay and our users is a complex
and evolving issue. Many of the fundamental statutes and regulations that impose these taxes were established
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