Overstock.com 2008 Annual Report Download - page 22

Table of Contents
relationships with us. Failure to achieve sufficient traffic or generate sufficient revenue from purchases originating from third parties
may result in termination of these relationships by these third parties. Without these relationships, our revenues, business, prospects,
financial condition and results of operations could suffer.
We may not be able to compete successfully against existing or future competitors.
The online liquidation services market is rapidly evolving and intensely competitive. Barriers to entry are minimal, and current
and new competitors can launch new Websites at a relatively low cost. Our consumer Website currently competes with:
• liquidation e-tailers such as SmartBargains;
• online retailers with discount departments such as Amazon.com, Inc., eBay, Inc. and Buy.com, Inc.; and
• online specialty retailers such as BlueNile and BackCountry; and
• traditional retailers and liquidators such as Ross Stores, Inc., Walmart Stores, Inc., TJX Companies, Inc., Costco
Wholesale Corporation, Target Corporation, Best Buy Co., Inc., and Barnes and Noble, Inc., most of which also have an
online presence.
Our Website competes with liquidation "brokers" and retailers and online marketplaces such as eBay, Inc.
We expect the online liquidation services market to become even more competitive as traditional liquidators and online retailers
continue to develop services that compete with our services. In addition, manufacturers and retailers may decide to create their own
Website to sell their own excess inventory and 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 provide assurance that we
will be able to compete successfully against current and future competitors.
Our operating results depend on our Website, 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 Website 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 Website and certain aspects of transaction processing, including customer profiling
and order verifications. We have experienced periodic systems interruptions due to server failure and power failure, which we believe
will continue to occur from time to time. If the volume of traffic on our Website 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 Website. 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
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