Overstock.com 2005 Annual Report Download - page 28

Risks Relating to the Internet Industry
Our success is tied to the continued use of the Internet and the adequacy of the Internet infrastructure.
Our future revenues and profits, if any, substantially depend upon the continued widespread use of the Internet as an effective
medium of business and communication. Factors which could reduce the widespread use of the Internet include:
• actual or perceived lack of security of information or privacy protection;
• possible disruptions, computer viruses or other damage to the Internet servers or to users' computers; and
• excessive governmental regulation.
Customers may be unwilling to use the Internet to purchase goods.
Our long-term future depends heavily upon the general public's willingness to use the Internet as a means to purchase goods. E-
commerce remains a relatively new concept, and large numbers of customers may not begin or continue to use the Internet to purchase
goods. The demand for and acceptance of products sold over the Internet are highly uncertain, and most e-commerce businesses have
a short track record. If consumers are unwilling to use the Internet to conduct business, our business may not develop profitably.
The security risks or perception of risks of e-commerce may discourage customers from purchasing goods from us.
In order for the e-commerce market to develop successfully, we and other market participants must be able to transmit
confidential information securely over public networks. Third parties may have the technology or know-how to breach the security of
customer transaction data. Any breach could cause customers to lose confidence in the security of our Websites and choose not to
purchase from our Websites. If someone is able to circumvent our security measures, he or she could destroy or steal valuable
information or disrupt our operations. Concerns about the security and privacy of transactions over the Internet could inhibit the
growth of the Internet and e-commerce. Our security measures may not effectively prohibit others from obtaining improper access to
our information. Third parties may target our customers directly with fraudulent identity theft schemes designed to appear as
legitimate communications from us. Any security breach or fraud perpetrated on our customers could expose us to increased costs and
to risks of loss, litigation and liability and could seriously disrupt our operations.
Credit card fraud could adversely affect our business.
We do not carry insurance against the risk of credit card fraud, so the failure to adequately control fraudulent credit card
transactions could reduce our net revenues and our gross margin. We have implemented technology to help us detect the fraudulent
use of credit card information. However, we may in the future suffer losses as a result of orders placed with fraudulent credit card data
even though the associated financial institution approved payment of the orders. Under current credit card practices, we may be liable
for fraudulent credit card transactions because we do not obtain a cardholder's signature. If we are unable to detect or control credit
card fraud, our liability for these transactions could harm our business, results of operation or financial condition.
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