Amazon.com 2005 Annual Report Download - page 68

AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
and customer service operations. Certain of our fulfillment-related costs that are incurred on behalf of other
businesses, such as Toysrus.com, Inc. and Target Corporation, are classified as cost of sales rather than
fulfillment.
Marketing
Marketing costs consist of primarily online advertising, including through our Associates and Syndicated
Stores programs, sponsored search, portal advertising, e-mail campaigns, and other initiatives. We pay
commissions to participants in our Associates program when their customer referrals result in product sales and
classify such costs as “Marketing” on our consolidated statements of operations.
We also participate in cooperative advertising arrangements with certain of our vendors, and other third
parties. To the extent co-operative marketing reimbursements decline in future periods, we may incur additional
expenses to continue certain promotions or elect to reduce or discontinue them.
Marketing expenses also consist of public relations expenditures; payroll and related expenses for personnel
engaged in marketing, business development, and selling activities; and to a lesser extent, traditional advertising
such as newspaper inserts.
Advertising and other promotional costs, which consist primarily of online advertising, are expensed as
incurred, and were $168 million, $141 million, and $109 million in 2005, 2004, and 2003. Prepaid advertising
costs were not significant at December 31, 2005 and 2004.
Technology and Content
Technology and content expenses consist principally of payroll and related expenses for employees involved
in research and development, including application development, editorial content, merchandising selection,
systems and telecommunications support, and costs associated with the systems and telecommunications
infrastructure.
Technology and content costs are expensed as incurred, except for certain costs relating to the development
of internal-use software and website development, including software used to upgrade and enhance our websites
and processes supporting our business, which are capitalized and depreciated over two years. During 2005, 2004,
and 2003 we capitalized $90 million (including $11 million of stock-based compensation), $44 million, and $30
million of costs associated with development of internal-use software, which is offset by amortization of
previously capitalized amounts of $50 million, $30 million, and $24 million. Fixed assets associated with
capitalized internal-use software, content, and website development, net of accumulated depreciation, were $87
million and $47 million at December 31, 2005 and 2004.
General and Administrative
General and administrative expenses consist of payroll and related expenses for employees involved in
general corporate functions, including accounting, finance, tax, legal, and human relations, among others; costs
associated with use by these functions of facilities and equipment, such as depreciation expense and rent;
professional fees and litigation costs; and other general corporate costs.
Stock-Based Compensation
Prior to January 1, 2005, we accounted for stock-based awards under the intrinsic value method, which
followed the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. The intrinsic value method of accounting resulted in compensation
60