eBay 2007 Annual Report Download - page 45

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.
Our business may be adversely affected by factors that cause our users to spend less time on our websites,
including seasonal factors, national events and increased usage of other websites.
Anything that diverts our users from their customary level of usage of our websites could adversely affect our
business. We would therefore be adversely affected by geopolitical events such as war, the threat of war, or terrorist
activity, and natural disasters, such as hurricanes or earthquakes. Similarly, our results of operations historically
have been seasonal because many of our users reduce their activities on our websites with the onset of good weather
during the summer months, and on and around national holidays. In addition, increased usage of social networking
or other entertainment websites may decrease the amount of time users spend on our websites, which could
adversely affect our financial results.
Our failure to manage growth could harm our business.
We have expanded our headcount, facilities, and infrastructure in the U.S. and internationally, and anticipate
that further expansion will be required as we continue to expand into new lines of business and geographic areas.
This expansion has placed, and we expect it will continue to place, a significant strain on our management,
operational, and financial resources. The areas that are put under strain by our growth include the following:
•Website Usability. User activity rates on our websites depend in part on the quality of our users’
experiences on those sites. The rapid growth in the number and complexity of products and features on
our sites has occasionally caused users to become confused or overwhelmed or has otherwise impaired
users’ experiences on those sites. We are in the process of making numerous improvements to our eBay
websites, including an attempt to improve the user experience on those websites. These attempts at
improvement could fail, or could decrease activity among users who had grown used to or preferred the
existing experience on our sites. Any impairment of customer satisfaction as a result of site usability issues
could lead to a loss of customers or impair our ability to add customers, either of which would harm our
business.
•Website Stability. We must constantly add new hardware, update software and add new engineering
personnel to accommodate the increased use of our and our subsidiaries’ websites and the new products and
features we regularly introduce. This upgrade process is expensive, and the increased complexity of our
websites and the need to support multiple platforms as our portfolio of brands grows increases the cost of
additional enhancements. Failure to upgrade our technology, features, transaction processing systems,
security infrastructure, or network infrastructure to accommodate increased traffic or transaction volume
could harm our business. Adverse consequences could include unanticipated system disruptions, slower
response times, degradation in levels of customer support, impaired quality of users’ experiences of our
services, impaired quality of services for third-party application developers using our externally accessible
Application Programming Interface, or API, and delays in reporting accurate financial information. We may
be unable to effectively upgrade and expand our systems in a timely manner or smoothly integrate any newly
developed or purchased technologies or businesses with our existing systems, and any failure to do so could
result in problems on our sites. For example, in October 2004, we experienced unscheduled downtime on the
PayPal website over a period of five days related to system upgrades, and in the second quarter of 2007,
PayPal experienced an interruption during which many of PayPal’s services were unavailable for approx-
imately four hours. In August 2007, Skype experienced an interruption to its services during which the
majority of Skype’s users were unable to use its products for approximately two days. Despite our efforts to
increase site scalability and reliability, our infrastructure could prove unable to handle a larger volume of
customer transactions. Some of our more recently acquired businesses may be particularly subject to this risk
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