Amazon.com 2011 Annual Report Download - page 54

Cost of Sales
Cost of sales consists of the purchase price of consumer products and digital content where we are the seller
of record, inbound and outbound shipping charges, and packaging supplies. Shipping charges to receive products
from our suppliers are included in our inventory, and recognized as cost of sales upon sale of products to our
customers. Payment processing and related transaction costs, including those associated with seller transactions,
are classified in “Fulfillment” on our consolidated statements of operations.
Vendor Agreements
We have agreements to receive cash consideration from certain of our vendors, including rebates and
cooperative marketing reimbursements. We generally consider amounts received from our vendors as a reduction
of the prices we pay for their products and, therefore, record such amounts as a reduction of the cost of inventory
we buy from them. Vendor rebates are typically dependent upon reaching minimum purchase thresholds. We
evaluate the likelihood of reaching purchase thresholds using past experience and current year forecasts. When
volume rebates can be reasonably estimated, we record a portion of the rebate as we make progress towards the
purchase threshold.
When we receive direct reimbursements for costs incurred by us in advertising the vendor’s product or
service, the amount we receive is recorded as an offset to “Marketing” on our consolidated statements of
operations.
Fulfillment
Fulfillment costs represent those costs incurred in operating and staffing our fulfillment and customer
service centers, including costs attributable to buying, receiving, inspecting, and warehousing inventories;
picking, packaging, and preparing customer orders for shipment; payment processing and related transaction
costs, including costs associated with our guarantee for certain seller transactions; responding to inquiries from
customers, and supply chain management for our manufactured Kindle devices. Fulfillment costs also include
amounts paid to third parties that assist us in fulfillment and customer service operations.
Marketing
Marketing costs consist primarily of targeted online advertising, television advertising, public relations
expenditures; and payroll and related expenses for personnel engaged in marketing, business development, and
selling activities. 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.
Advertising and other promotional costs, are expensed as incurred, and were $1.4 billion, $890 million, and
$593 million in 2011, 2010, and 2009. Prepaid advertising costs were not significant at December 31, 2011 and
2010.
Technology and Content
Technology and content expenses consist principally of technology infrastructure expenses and payroll and
related expenses for employees involved in application, product, and platform development, category expansion,
editorial content, buying, merchandising selection, and systems support, digital initiatives, as well as costs
associated with the compute, storage and telecommunications infrastructure used internally and supporting AWS.
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 applications supporting our business, which are capitalized and amortized over two years.
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