eBay 2006 Annual Report Download - page 35

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• processors that provide online merchants the ability to offer their customers the option of paying for
purchases from their bank account, including Certegy, PayByTouch and TeleCheck, a subsidiary of First
Data, or to pay on credit, including Bill Me Later;
• providers of traditional payment methods, particularly credit cards, checks, money orders, and Automated
Clearing House transactions;
• issuers of stored value targeted at online payments, including VisaBuxx, NetSpend and Next Estate; and
• Google Checkout, which enables the online payment of merchants using credit cards.
Some of these competitors have longer operating histories, significantly greater financial, technical, mar-
keting, customer service and other resources, greater name recognition, or a larger base of customers in affiliated
businesses than PayPal. PayPal’s competitors may respond to new or emerging technologies and changes in
customer requirements faster and more effectively than PayPal. They may devote greater resources to the
development, promotion, and sale of products and services than PayPal, and they may offer lower prices. For
example, Google Checkout recently extended its free payment processing promotion through the end of 2007.
Promotions such as this may force PayPal to lower its prices in response. Competing services tied to established
banks and other financial institutions may offer greater liquidity and engender greater consumer confidence in the
safety and efficacy of their services than PayPal.
Overseas, PayPal faces competition from similar channels and payment methods. In each country, numerous
banks provide standard online credit card acquiring and processing services, and these banks typically have leading
market share. In addition, PayPal faces competition from Visa’s Visa Direct, MasterCard’s MoneySend, and Royal
Bank of Scotland’s World Pay and Webpay International’s Click & Buy in the European Community, NOCHEX,
Moneybookers, NETeller and FirePay in the United Kingdom, CertaPay and HyperWallet in Canada, Paymate in
Australia, Alipay and 99Bill in China and Inicis in South Korea. In addition, in certain countries, such as Germany
and Australia, electronic funds transfer is a leading method of payment for both online and offline transactions. As
in the U.S., established banks and other financial institutions that do not currently offer online payments could
quickly and easily develop such a service.
Skype
The market for Skype’s products is also emerging, intensely competitive, and characterized by rapid
technological change. Many traditional telecommunications carriers and cable providers offer, or have indicated
that they plan to offer, VoIP products or services that compete with the software Skype provides. In addition, many
established Internet companies, including AOL, Google, Microsoft, and Yahoo, as well as newer companies, offer,
or have indicated that they plan to offer in the near future, products that are similar to Skype’s. We expect
competitors to continue to improve the performance of their current products and introduce new products, software,
services, and technologies. If Skype’s competitors successfully introduce new products or enhance their existing
products, this could reduce the market for Skype’s products, increase price competition, or make Skype’s products
obsolete, which could lower Skype’s adoption rates, decrease its ability to attract new users or cause its current users
to migrate to a competing company. In addition, some of Skype’s competitors, such as telecommunications carriers
and cable television providers, may be able to bundle services and products that Skype does not offer. These could
include various forms of wireless communications, voice and data services, Internet access, and cable television.
This form of bundling would put Skype at a competitive disadvantage if these providers can combine a variety of
service offerings at a single attractive price. Furthermore, competitors may choose to make their services
interoperable with one another, rather than proprietary, which could increase the attractiveness of their services
relative to Skype and decrease the value of Skype’s network of users.
Many of Skype’s current and potential competitors have longer operating histories, are substantially larger, and
have greater financial, marketing, technical, and other resources. Some also have greater name recognition and a
larger installed base of customers than Skype has. As a result of their greater resources, many current and potential
competitors may be able to lower their prices substantially, thereby eroding some or all of Skype’s cost advantage.
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