Amazon.com 2008 Annual Report Download - page 18

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 seller programs, including
Webstore by Amazon and Fulfillment by Amazon, as well as through 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 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.
Our present and future e-commerce 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.
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