Overstock.com 2006 Annual Report Download - page 23

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the excess inventory of third parties. Competitive pressures created by any one of our competitors, or by our competitors collectively,
could harm our business, prospects, financial condition and results of operations.
Further, as a strategic response to changes in the competitive environment, we may from time to time make certain pricing,
service or marketing decisions or acquisitions that could harm our business, prospects, financial condition and results of operations.
For example, to the extent that we enter new lines of businesses such as third-party logistics, or discount brick and mortar retail, we
would be competing with large established businesses such as APL Logistics, and Ltd., Ross Stores, Inc., respectively. We have
recently entered the online auctions and car listing businesses in which we compete with large established businesses including
eBay, Inc. and AutoTrader.com, Inc.
Many of our current and potential competitors described above have longer operating histories, larger customer bases, greater
brand recognition and significantly greater financial, marketing and other resources than we do. In addition, online retailers and
liquidation e-tailers may be acquired by, receive investments from or enter into other commercial relationships with larger, well-
established and well-financed companies. Some of our competitors may be able to secure merchandise from manufacturers on more
favorable terms, devote greater resources to marketing and promotional campaigns, adopt more aggressive pricing or inventory
availability policies and devote substantially more resources to Website and systems development than we do. Increased competition
may result in reduced operating margins, loss of market share and a diminished brand franchise. We cannot assure you that we will be
able to compete successfully against current and future competitors.
Our operating results depend on our Websites, network infrastructure and transaction-processing systems. Capacity
constraints or system failures would harm our business, prospects, results of operations and financial condition.
Any system interruptions that result in the unavailability of our Websites or reduced performance of our transaction systems
would reduce our transaction volume and the attractiveness of the services that we provide to suppliers and third parties and would
harm our business, prospects, operating results and financial condition.
We use internally developed systems for our Websites and certain aspects of transaction processing, including customer profiling
and order verifications. We have experienced periodic systems interruptions due to server failure, which we believe will continue to
occur from time to time. If the volume of traffic on our Websites or the number of purchases made by customers substantially
increases, we will need to further expand and upgrade our technology, transaction processing systems and network infrastructure. We
have experienced and expect to continue to experience temporary capacity constraints due to sharply increased traffic during sales or
other promotions and during the holiday shopping season. Capacity constraints can cause unanticipated system disruptions, slower
response times, and degradation in levels of customer service, impaired quality and delays in reporting accurate financial information.
Our transaction processing systems and network infrastructure may be unable to accommodate increases in traffic in the future.
We may be unable to project accurately the rate or timing of traffic increases or successfully upgrade our systems and infrastructure to
accommodate future traffic levels on our Websites. In addition, we may be unable to upgrade and expand our transaction processing
systems in an effective and timely manner or to integrate any newly developed or purchased functionality with our existing systems.
For example, in the third quarter 2005 we experienced difficulties with our implementation of infrastructure upgrades, which resulted
in our inability to upload new products to our website for a period of approximately five weeks. Any such difficulties with our
transaction processing systems or other difficulties upgrading, expanding or integrating various aspects of our systems may cause
unanticipated system disruptions, slower response times, and degradation in levels of customer service,
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