Digital River 2006 Annual Report Download - page 28

advent of the Internet, and do not contemplate or address the unique issues raised thereby. Those laws that do
reference the Internet, such as the Digital Millennium Copyright Act, are only beginning to be interpreted by
the courts, and their applicability and reach are therefore uncertain.
Failure to develop our technology to accommodate increased traffic could reduce demand for our services
and impair the growth of our business.
We periodically enhance and expand our technology and transaction-processing systems, network
infrastructure and other technologies to accommodate increases in the volume of traffic on our technology
platforms. Any inability to add software and hardware or to develop and upgrade existing technology,
transaction-processing systems or network infrastructure to manage increased traffic on this platform may
cause unanticipated systems disruptions, slower response times and degradation in client services, including
impaired quality and speed of order fulfillment. Failure to manage increased traffic could harm our reputation
and significantly reduce demand for our services, which would impair the growth of our business. We may be
unable to improve and increase the capacity of our network infrastructure sufficiently or anticipate and react to
expected increases in the use of the platform to handle increased volume. Further, additional network capacity
may not be available from third-party suppliers when we need it. Our network and our suppliers’ networks
may be unable to maintain an acceptable data transmission capability, especially if demands on the platform
increase.
To remain competitive, we must continue to enhance and improve the responsiveness, functionality and
features of our e-commerce platforms and the underlying network infrastructure. If we incur significant costs
without adequate results, or are unable to adapt rapidly to technological changes, we may fail to achieve our
business plan. The Internet and the e-commerce industry are characterized by rapid technological changes,
changes in user and client requirements and preferences, frequent new product and service introductions
embodying new technologies and the emergence of new industry standards and practices that could render our
technology and systems obsolete. To be successful, we must adapt to rapid technological changes by licensing
and internally developing leading technologies to enhance our existing services, developing new products,
services and technologies that address the increasingly sophisticated and varied needs of our clients, and
responding to technological advances and emerging industry standards and practices on a cost-effective and
timely basis. The development of our proprietary technologies involves significant technical and business risks.
We may fail to use new technologies effectively or fail to adapt our proprietary technology and systems to
client requirements or emerging industry standards.
System failures could reduce the attractiveness of our service offerings.
We provide commerce, marketing and delivery services to our clients and end-users through our
proprietary technology transaction processing and client management systems. These systems also maintain an
electronic inventory of products and gather consumer marketing information. The satisfactory performance,
reliability and availability of the technology and the underlying network infrastructure are critical to our
operations, level of client service, reputation and ability to attract and retain clients. We have experienced
periodic interruptions, affecting all or a portion of our systems, which we believe will continue to occur from
time-to-time. Any systems damage or interruption that impairs our ability to accept and fill client orders could
result in an immediate loss of revenue to us, and could cause some clients to purchase services offered by our
competitors. In addition, frequent systems failures could harm our reputation.
Although we maintain system redundancies in multiple physical locations, our systems and operations are
vulnerable to damage or interruption from:
• Fire, flood and other natural disasters;
• Operator negligence, improper operation by, or supervision of, employees, physical and electronic
break-ins, misappropriation, computer viruses and similar events; and
• Power loss, computer systems failures, and Internet and telecommunications failure.
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