eBay 2007 Annual Report Download - page 35

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, computer 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.
There are many risks associated with our international operations.
Our international expansion has been rapid and our international business, especially in Germany and the U.K.,
has also become critical to our revenues and profits. Net revenues outside the U.S. accounted for approximately
48% and 51%, respectively, of our net revenues in fiscal year 2006 and fiscal 2007. Expansion into international
markets requires management attention and resources and requires us to localize our services to conform to local
cultures, standards, and policies. The commercial, Internet, and transportation infrastructure in lesser-developed
countries may make it more difficult for us to replicate our traditional Marketplace business model. In many
countries, we compete with local companies that understand the local market better than we do, and we may not
benefit from first-to-market advantages. We may not be successful in expanding into particular international
markets or in generating revenues from foreign operations. For example, in 2002 we withdrew our eBay
marketplace offering from the Japanese market, and in 2007 we contributed our business in China to a joint
venture with a local Chinese company. Even if we are successful in developing new markets, we often expect the
costs of operating new sites to exceed our net revenues for at least 12 months in most countries.
As we continue to expand internationally, including through the expansion of PayPal, Skype, Shopping.com,
and our classified businesses, we are increasingly subject to risks of doing business internationally, including the
following:
• strong local competitors;
• regulatory requirements, including regulation of Internet services, communications, auctioneering, profes-
sional selling, distance selling, data protection, banking, and money transmitting, that may limit or prevent
the offering of our services in some jurisdictions, prevent enforceable agreements between sellers and
buyers, prohibit the listing of certain categories of goods, require product changes, require special licensure,
subject us to various taxes, penalties or audits, or limit the transfer of information between eBay and our
affiliates;
• greater liability or legal uncertainty regarding our liability for the listings and other content provided by our
users, including uncertainty as a result of legal systems that are less developed with respect to the Internet,
unique local laws, conflicting court decisions and lack of clear precedent or applicable law;
• difficulties in integrating with local payment providers, including banks, credit and debit card associations,
and electronic fund transfer systems or with the local telecommunications infrastructure;
• differing levels of retail distribution, shipping, communications, and Internet infrastructures;
• different employee/employer relationships and the existence of workers’ councils and labor unions;
• difficulties in staffing and managing foreign operations;
• challenges associated with joint venture relationships, including dependence on our joint venture partners;
25