Amazon.com 2001 Annual Report Download - page 24

that businesses in non-EU countries selling digital products and services to EU resident consumers collect and
remit VAT in the country of the consumer’s residence. If this directive is ratified by the EU Council of Ministers,
it would likely become effective on January 1, 2003. It is possible that this and other future VAT legislation or
changes to our business model may result in additional VAT collection obligations and administrative burdens.
We Source a Significant Portion of Our Inventory from a Few Vendors
Although we continue to increase our direct purchasing from manufacturers, we still source a significant
amount of inventory from relatively few vendors. During 2001, approximately 21% of all inventory purchases
were made from three major vendors, of which Ingram Book Group accounts for over 10%. We do not have
long-term contracts or arrangements with most of our vendors to guarantee the availability of merchandise,
particular payment terms or the extension of credit limits. Our current vendors may stop selling merchandise to
us on acceptable terms. If that were the case, we may not be able to acquire merchandise from other suppliers in
a timely and efficient manner and on acceptable terms.
We May Be Subject to Product Liability Claims if People or Property Are Harmed by the Products We
Sell
Some of our products, such as toys, tools, hardware, computers, cell phones and kitchen and houseware
products, may expose us to product liability claims relating to personal injury, death or property damage caused
by such products, and may require us to take actions such as product recalls. Companies with which we have
formed strategic alliances also may sell products that may indirectly increase our exposure to product liability
claims. Although we maintain liability insurance, we cannot be certain that our coverage will be adequate for
liabilities actually incurred or that insurance will continue to be available to us on economically reasonable
terms, or at all. In addition, some of our vendor agreements with our suppliers do not indemnify us from product
liability.
We Could Be Liable for Breaches of Security on Our Web Site and Fraudulent Activities of Users of Our
Amazon Payments Program
A fundamental requirement for e-commerce is the secure transmission of confidential information over
public networks. Although we have developed systems and processes that are designed to prevent fraudulent
credit card transactions and other security breaches, failure to mitigate such fraud or breaches may adversely
affect our financial results.
The law relating to the liability of providers of online payment services is currently unsettled. We guarantee
payments made through Amazon Payments up to certain limits for both buyers and sellers, and we may be unable
to prevent users of Amazon Payments from fraudulently receiving goods when payment may not be made to a
seller or fraudulently collecting payments when goods may not be shipped to a buyer. Our liability risk will
increase as a larger fraction of our sellers use Amazon Payments. Any costs we incur as a result of liability
because of our guarantee of payments made through Amazon Payments or otherwise could harm our business. In
addition, the functionality of Amazon Payments depends on certain third-party vendors delivering services. If
these vendors are unable or unwilling to provide services, Amazon Payments will not be viable (and our
businesses that use Amazon Payments may not be viable).
We May Not Be Able to Adapt Quickly Enough to Changing Customer Requirements and Industry
Standards
Technology in the e-commerce industry changes rapidly. We may not be able to adapt quickly enough to
changing customer requirements and preferences and industry standards. Competitors often introduce new
products and services with new technologies. These changes and the emergence of new industry standards and
practices could render our existing Web sites and proprietary technology obsolete.
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