Amazon.com 2002 Annual Report Download - page 16

positions. As various Internet market segments obtain large, loyal customer bases, participants in those
segments may expand into the market segments in which we operate. In addition, new and expanded Web
technologies may further intensify the competitive nature of online retail. The nature of the Internet as an
electronic marketplace facilitates competitive entry and comparison shopping and renders it inherently
more competitive than conventional retailing formats. This increased competition may reduce our sales,
operating proÑts, or both.
Our Business Could SuÅer if We Are Unsuccessful in Making, Integrating and Maintaining
Commercial Agreements, Strategic Alliances and Other Business Relationships
We may enter into commercial agreements, strategic alliances and other business relationships with
other companies. We have entered into agreements to provide e-commerce services to other businesses and
we plan to enter into similar agreements in the future. Under such agreements, we may perform services
such as: providing our technology services such as search, browse and personalization; permitting other
businesses and individuals to oÅer products or services through our Web sites; and powering third-party
Web sites, either with or without providing accompanying fulÑllment services. These arrangements are
complex and initially require substantial personnel and resource commitments by us, which may constrain
the number of such agreements we are able to enter into and may aÅect our ability to deliver services
under the relevant agreements. If we fail to implement, maintain and develop successfully the various
components of such arrangements, which may include fulÑllment, customer service, inventory manage-
ment, tax collection, payment processing and licensing of third party software, hardware and content, these
initiatives may not be viable. The amount of compensation we receive under certain of these agreements is
dependent on the volume of sales that the other company makes. Therefore, if the other business's Web
site or product or services oÅering is not successful, we may not receive all of the compensation we are
otherwise due under the agreement or may not be able to maintain the agreement. Moreover, we may not
be able to succeed in our plans to enter into additional commercial relationships and strategic alliances on
favorable terms.
As our commercial agreements expire or otherwise terminate, we may be unable to renew or replace
these agreements on comparable terms, or at all. In the past, we amended several of our commercial
agreements to reduce future cash proceeds to be received by us, shorten the term of our commercial
agreements, or both. Some of our agreements involve high margin services, such as marketing and
promotional agreements, and as such agreements expire they may be replaced, if at all, by agreements
involving lower margin services. In addition, several past commercial agreements were with companies that
experienced business failures and were unable to meet their obligations to us. We may in the future enter
into further amendments of these agreements or encounter other parties that have diÇculty meeting their
contractual obligations to us, which could adversely aÅect our operating results.
In addition, our present and future third-party services agreements, other commercial agreements,
joint ventures, investments and business combinations create risks such as:
‚ disruption of our ongoing business, including loss of management focus on existing businesses;
‚ impairment of relationships with existing employees, customers and companies with which we have
formed strategic alliances;
‚ variability in revenue and income from entering into, amending or terminating such agreements or
relationships;
‚ diÇculty assimilating the operations, technology and personnel of combined companies;
‚ problems retaining key technical and managerial personnel; and
‚ additional operating losses and expenses of acquired businesses.
7