Amazon.com 2008 Annual Report Download - page 23

Our Vendor Relationships Subject Us to a Number of Risks
We have significant vendors that are important to our sourcing, manufacturing and any related ongoing
servicing of merchandise and content. We do not have long-term arrangements with most of our vendors to
guarantee availability of merchandise, content, components or services, particular payment terms, or the
extension of credit limits. If our current vendors were to stop selling merchandise, content, components or
services to us on acceptable terms, including as a result of one or more vendor bankruptcies due to poor
economic conditions, we may be unable to procure from other vendors in a timely and efficient manner and on
acceptable terms, or at all.
We May Be Subject to Product Liability Claims if People or Property Are Harmed by the Products We Sell
Some of the products we sell or manufacture may expose us to product liability claims relating to personal
injury, death, or environmental or property damage, and may require product recalls or other actions. Certain
third parties also sell products using our e-commerce platform that may increase our exposure to product liability
claims, such as if these sellers do not have sufficient protection from such claims. Although we maintain liability
insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that
insurance will continue to be available to us on economically reasonable terms, or at all. In addition, some of our
agreements with our vendors and sellers do not indemnify us from product liability.
We Are Subject to Payments-Related Risks
We accept payments using a variety of methods, including credit card, debit card, credit accounts (including
promotional financing), gift certificates, direct debit from a customer’s bank account, consumer invoicing,
physical bank check and payment upon delivery. As we offer new payment options to our customers, we may be
subject to additional regulations, compliance requirements, and fraud. For certain payment methods, including
credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating
costs and lower our profit margins. We rely on third parties to provide payment processing services, including
the processing of credit cards, debit cards, electronic checks, and promotional financing, and it could disrupt our
business if these companies become unwilling or unable to provide these services to us. We are also subject to
payment card association operating rules, certification requirements and rules governing electronic funds
transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to
comply with these rules or requirements, we may be subject to fines and higher transaction fees and lose our
ability to accept credit and debit card payments from our customers, process electronic funds transfers, or
facilitate other types of online payments, and our business and operating results could be adversely affected. We
also offer co-branded credit card programs that represent a significant component of our services revenue and
generate high margins. If one or more of these agreements are terminated and we are unable to replace them on
similar terms, or at all, it could adversely affect our operating results.
In addition, we qualify as a money services business in certain jurisdictions because we enable customers to
keep account balances with us and transfer money to third parties, and because we provide services to third
parties to facilitate payments on their behalf. In these jurisdictions, we may be subject to requirements for
licensing, regulatory inspection, bonding, the handling of transferred funds and consumer disclosures. We are
also subject to or voluntarily comply with a number of other laws and regulations relating to money laundering,
international money transfers, privacy and information security and electronic fund transfers. If we were found to
be in violation of applicable laws or regulations, we could be subject to civil and criminal penalties or forced to
cease our payments services business.
We Could Be Liable for Breaches of Security on Our Websites
Although we have developed systems and processes that are designed to protect consumer information and
prevent fraudulent payment transactions and other security breaches, failure to prevent or mitigate such fraud or
breaches may adversely affect our operating results.
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