Amazon.com 2007 Annual Report Download - page 20

commercial agreements, we maintain the inventory of other companies, thereby increasing the complexity of
tracking inventory and operating our fulfillment centers. Our failure to properly handle such inventory or the
inability of these other companies to accurately forecast product demand would result in unexpected costs and
other harm to our business and reputation.
The Seasonality of Our Business Places Increased Strain on Our Operations
We expect a disproportionate amount of our net sales to occur during our fourth quarter. If we do not stock
or restock popular products in sufficient amounts such that we fail to meet customer demand, it could
significantly affect our revenue and our future growth. If we overstock products, we may be required to take
significant inventory markdowns or write-offs, which could reduce gross profits. We may experience an increase
in our net shipping cost due to complimentary upgrades, split-shipments, and additional long-zone shipments
necessary to ensure timely delivery for the holiday season. If too many customers access our websites within a
short period of time due to increased holiday demand, we may experience system interruptions that make our
websites unavailable or prevent us from efficiently fulfilling orders, which may reduce the volume of goods we
sell and the attractiveness of our products and services. In addition, we may be unable to adequately staff our
fulfillment and customer service centers during these peak periods and delivery and other fulfillment companies
and customer service co-sourcers may be unable to meet the seasonal demand. We also face risks described
elsewhere in this Item 1A relating to fulfillment center optimization and inventory.
We generally have payment terms with our vendors that extend beyond the amount of time necessary to
collect proceeds from our customers. As a result of holiday sales, at December 31 of each year, our cash, cash
equivalents, and marketable securities balances typically reach their highest level (other than as a result of cash
flows provided by or used in investing and financing activities). This operating cycle results in a corresponding
increase in accounts payable at December 31. Our accounts payable balance generally declines during the first
three months of the year, resulting in a corresponding decline in our cash, cash equivalents, and marketable
securities balances.
Our Business Could Suffer if We Are Unsuccessful in Making, Integrating, and Maintaining Commercial
Agreements, Strategic Alliances, and Other Business Relationships
We provide e-commerce services to other businesses, such as through our marketplace programs, Amazon
Enterprise Solutions, Website by Amazon and Fulfillment by Amazon program initiatives, as well as other
commercial agreements, strategic alliances and business relationships. Under these agreements, we provide
technology, fulfillment and other services, as well as enable sellers to offer products or services through our
websites and power their websites. These arrangements are complex and require substantial personnel and
resource commitments by us, which may limit the agreements we are able to enter into and our ability to
integrate and deliver services under them. If we fail to implement, maintain, and develop the components of these
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 the other company’s sales.
Therefore, if the other company’s offering is not successful, the compensation we receive may be lower than
expected or the agreement may be terminated. Moreover, we may not be able to enter into additional commercial
relationships and strategic alliances on favorable terms. We also may be subject to claims from businesses to
which we provide these services if we are unsuccessful in implementing, maintaining or developing these
services.
As our commercial agreements terminate, we may be unable to renew or replace these agreements on
comparable terms, or at all. Some of our agreements involve high margin services, such as marketing and
promotional agreements, and as they expire they may be replaced, if at all, by agreements involving lower
margin services. We may in the future enter into amendments on less favorable terms or encounter parties that
have difficulty meeting their contractual obligations to us, which could adversely affect our operating results.
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