eBay 2010 Annual Report Download - page 47

time frames. As part of PayPal’s program to reduce fraud losses and prevent money laundering, it may
temporarily restrict the ability of customers to withdraw their funds if those funds or the customer’s account
activity are identified by PayPal’s risk models as suspicious. PayPal has in the past received negative publicity
with respect to its customer support and account restrictions, and has been the subject of purported class action
lawsuits and state attorney general inquiries alleging, among other things, failure to resolve account restrictions
promptly. In the second quarter of 2010, two putative class-action lawsuits (Devinda Fernando and Vadim Tsigel
v. eBay Inc. and PayPal, Inc.; and Moises Zepeda v. PayPal, Inc.) were filed in the U.S. District Court in the
Northern District of California. These lawsuits contain allegations that PayPal improperly held user’s funds or
otherwise improperly limited user’s accounts. These lawsuits seek damages as well as changes to PayPal’s
practices among other remedies. A determination that there have been violations of laws relating to PayPal’s
practices can expose PayPal to significant liability. Changes to PayPal’s practices that may result from these
lawsuits could require PayPal to incur significant costs and to expend product resources, which could cause delay
to other planned product improvements, which would further harm our business. If PayPal is unable to provide
quality customer support operations in a cost-effective manner, PayPal’s users may have negative experiences,
PayPal may receive additional negative publicity, its ability to attract new customers may be damaged, and it
could become subject to additional litigation. As a result, current and future revenues could suffer, losses could
be incurred, and its operating margins may decrease.
In addition, negative publicity about, or negative experiences with, customer support for any of our businesses
could cause our reputation to suffer or affect consumer confidence in our brands individually or as a whole.
Our industries are intensely competitive.
Marketplaces
Our Marketplaces businesses currently or potentially compete with a large number of companies providing
particular categories of goods and/or broader ranges of goods. The Internet provides new, rapidly evolving and
intensely competitive channels for the sale of all types of goods. We expect competition to intensify in the future.
The barriers to entry into these channels can be relatively low and current offline and new competitors, including
small businesses who want to create and promote their own stores, can easily launch online sites at nominal cost
using commercially available software or partnering with any one of a number of successful ecommerce
companies. Moreover, online and offline business increasingly are competing with each other. Consumers who
purchase or sell goods and services through our Marketplaces businesses have more and more alternatives.
Our competitors include the vast majority of traditional department, warehouse, discount, and general
merchandise stores (as well as the online operations of these traditional retailers), emerging online retailers,
online classified services, and other shopping channels such as offline and online home shopping networks. In
the U.S., these include Wal-Mart, Target, Sears, Macy’s, JC Penney, Costco, Office Depot, Staples, OfficeMax,
Sam’s Club, Amazon.com, Buy.com, AOL.com, Yahoo! Shopping, MSN, QVC, and Home Shopping Network,
among others.
A number of companies offer a variety of services that provide channels for buyers to find and buy items
from sellers of all sizes, including online aggregation and classifieds websites such as craigslist (in which we
own a minority equity stake), Google Merchant Center, Oodle.com and a number of international websites
operated by Schibsted ASA. In certain markets, our fixed-price listing and traditional auction-style listing
formats are increasingly being challenged by other formats, such as classifieds. Our classifieds websites,
including eBay Classifieds, Kijiji, Marktplaats, mobile.de, Gumtree, Den Blå Avis and BilBasen, offer classifieds
listings in the U.S. and a variety of local international markets. In many markets in which they operate, including
in the U.S., our classified platforms compete against more established online and offline classifieds platforms.
Our online shopping comparison site, Shopping.com, competes with sites such as Buy.com, Google’s
Product Search, Nextag.com, Pricegrabber.com, Shopzilla, and Yahoo! Product Search, which offer shopping
search engines that allow consumers to search the Internet for specified products. Recent legal developments may
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