eBay 2005 Annual Report Download - page 41

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Conversely, other companies and government agencies have in the past and may in the future allege that
our actions violate the antitrust or competition laws of the U.S. or other countries, or otherwise constitute
unfair competition. Such claims, even if without foundation, typically are very expensive to defend, involve
negative publicity and diversion of management time and effort, and could result in significant judgments
against us.
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 profitability. For example, we have
implemented a buyer protection 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. PayPal has implemented a
similar buyer protection program covering losses from selected eBay sellers up to $1,000, with no deductible.
Depending on the amount and size of claims we receive under these programs, these product offerings could
harm our profitability. In addition, certain competitors may offer or continue to offer free shipping or other
transaction related services, which could be impractical or inefficient for eBay users to match. New
technologies may increase the competitive pressures by enabling our competitors to offer a lower cost service.
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 or these
companies may decide to promote competitive services. Even if these arrangements are renewed, they may not
result in increased usage of our services. In addition, companies that control user access to transactions
through network access, Internet browsers, or search engines, could promote our competitors, channel current
or potential users to their vertically integrated electronic commerce sites or their advertisers' sites, attempt to
restrict our access, or charge us substantial fees for inclusion.
PayPal
The market for PayPal's product is emerging, intensely competitive, and characterized by rapid technological
change. PayPal competes with existing online and off-line payment methods, including, among others:
‚ credit card merchant processors that offer their services to online merchants, including Cardservice
International, Chase Paymentech, First Data, iPayment and Wells Fargo; and payment gateways,
including CyberSource and Authorize.net;
‚ Money remitters such as MoneyGram and Western Union, a subsidiary of First Data;
‚ Bill payment services, including CheckFree;
‚ processors that provide online merchants the ability to offer their customers the option of paying for
purchases from their bank account, including Certegy, PayByTouch and TeleCheck, a subsidiary of
First Data, or to pay on credit, including Bill Me Later;
‚ providers of traditional payment methods, particularly credit cards, checks, money orders, and
Automated Clearing House transactions; and
‚ issuers of stored value targeted at online payments, including VisaBuxx, NetSpend and Next Estate.
In addition, Google has stated it is developing a new payment service.
Some of these competitors have longer operating histories, significantly greater financial, technical,
marketing, customer service and other resources, greater name recognition, or a larger base of customers in
affiliated businesses than PayPal. PayPal's competitors may respond to new or emerging technologies and
changes in customer requirements faster and more effectively than PayPal. They may devote greater resources
to the development, promotion, and sale of products and services than PayPal, and they may offer lower prices.
PayPal may be forced to lower its prices in response. Competing services tied to established banks and other
financial institutions may offer greater liquidity and engender greater consumer confidence in the safety and
efficacy of their services than PayPal.
Overseas, PayPal faces competition from similar channels and payment methods. In each country,
numerous banks provide standard online credit card acquiring and processing services, and these banks
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