Amazon.com 2004 Annual Report Download - page 20

may affect our ability to integrate and deliver services under the relevant agreements. If we fail to implement,
maintain, and develop successfully the various components of such commercial relationships, which may include
fulfillment, customer service, inventory management, tax collection, payment processing, licensing of third party
software, hardware, and content, and engaging third parties to perform hosting and other services, these
initiatives may not be viable. The amount of compensation we receive under certain of these agreements is
partially dependent on the volume of sales that the other company makes. Therefore, if the other business’s
website or product or services offering 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 our commercial agreements
or encounter other parties that have difficulty meeting their contractual obligations to us, which could adversely
affect our operating results. As an example, we are currently in litigation with Toysrus.com over our commercial
agreement, and Toyrus.com’s parent, Toysrus, Inc., has experienced financial difficulties and announced that it
may sell its toy business. In the event of the early termination of our commercial agreement with Toysrus.com,
we would attempt to replace the product selection currently provided by Toysrus.com with owned inventory and
offerings from other parties, but our operating results could be negatively impacted.
Our present and future third-party services agreements, other commercial agreements, and strategic alliances
create additional risks such as:
•disruption of our ongoing business, including loss of management focus on existing businesses;
•impairment of other relationships;
•variability in revenue and income from entering into, amending, or terminating such agreements or
relationships; and
•difficulty integrating under the commercial agreements.
Our Business Could Suffer if We Are Unsuccessful in Making, Integrating, and Maintaining Acquisitions
and Investments
We have acquired and invested in a number of companies, including our acquisition of Joyo.com in
September 2004, and we may acquire or invest in (such as through joint ventures or other business combinations)
additional companies. Acquisitions and investments create risks such as:
•disruption of our ongoing business, including loss of management focus on existing businesses;
•declining employee morale and problems retaining key technical and managerial personnel, resulting
from, among other factors, changes in compensation, responsibilities, reporting relationships, future
prospects, and the direction of the business;
•additional operating losses and expenses of the businesses we acquired or in which we invested;
•the potential impairment of amounts capitalized as intangible assets as part of the acquisition;
•the potential impairment of relationships with customers and other parties of the company we acquired
or in which we invested or our own customers as a result of any integration of operations;
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