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Filter - Cynthia L. Webb
Divorce Court, Toy Story Style

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_____About Filter_____
Filter looks at the day's top technology news through snapshots and analysis of what the world's media outlets are covering. Washingtonpost.com's new Mon.-Fri. feature is penned by technology reporter Cynthia L. Webb. If a technology story breaks, a company falters or triumphs, or there's a new trend in technology, Filter wants you to know about it.

_____Filter Archive_____
Court Pours Cold Water on Porn Law (washingtonpost.com, Jun 30, 2004)
Microsoft's Momentary Reprieve (washingtonpost.com, Jun 28, 2004)
WWW.Danger.Net (washingtonpost.com, Jun 25, 2004)
AOL Orders the Spam Special (washingtonpost.com, Jun 24, 2004)
SBC Bets $6 Billion Against Cable (washingtonpost.com, Jun 23, 2004)
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By Cynthia L. Webb
washingtonpost.com Staff Writer
Tuesday, June 29, 2004; 9:58 AM

When Amazon.com and Toys "R" Us tied the knot during the dot-com golden era, one wonders if they were reminded that all good marriages must endure good times and bad ... For richer, for poorer; in sickness and in health, etc.

This marriage, like so many, is failing. Toys "R" Us went to the lawyers first in May, charging that Amazon was being unfaithful by partnering with other toy vendors. Toys "R" Us, reminding the court that it dumped its online retailing operation when it went "exclusive" with Amazon, asked that Amazon pay back $200 million the toy store chain had already paid to Amazon under the companies' 10-year deal.

Now Amazon.com's high-priced divorce attorneys are firing back. The company filed a countersuit against Toysrus.com, seeking to break off the two companies' online retailing deal and asking for $750 million in damages.

The Seattle Times was the first to report the development on Saturday, reporting that Amazon's "countersuit attempts to prick holes in a partnership universally lauded for allowing Amazon and Toysrus.com to remain competitive online at a time when Wall Street began doubting the viability of e-commerce. ... Toysrus.com paid handsomely for the right to exclusivity -- more than $200 million since the start of the agreement, according to Toysrus' lawsuit. But in Amazon's counterclaim, the Seattle-based online retailer said Toysrus.com has failed to effectively choose the top toys and baby products and to keep products in stock. During peak holiday buying weeks last year, Toysrus.com was out of stock on more than 20 percent of its most popular products, the countersuit said." CNET's News.com reported that Amazon "asked that the court move quickly to end the partnership, thereby giving it sufficient time to recruit additional toy vendors in time for this year's holiday buying blitz."
The Seattle Times: Amazon Suit Tells Toysrus: Let's Quit
CNET's News.com: Amazon Says 'Game's Over' To Toysrus.com

The Wall Street Journal has more details on the Amazon countersuit: "In unusually harsh language directed at a once-close partner, Amazon's complaint, filed in New Jersey Superior Court in Passaic County, refers to Toys 'R' Us's 'chronic failure' to live up to obligations under the two companies' contract. ... In its counterclaim, Amazon, of Seattle, denies that it breached its agreement with Toys 'R' Us, saying the language of their contract allows for exceptions that permit Amazon and other merchants to sell products that compete with offerings from Toys 'R' Us. Amazon further alleges that it urgently needs other merchants to list competitive products on Amazon because Toys 'R' Us has failed to keep toys and other items in stock. ... Amazon also alleges that Toys 'R' Us has failed to provide Amazon with a comprehensive selection of toys for sale on the Amazon site -- in particular, low-priced toys."
The Wall Street Journal: Amazon Countersues, Seeking To End Toys 'R' Us Partnership (Subscription required)
Copy of Amazon.com Response to Toys 'R' Suit, courtesy of The Wall Street Journal (PDF)

The Associated Press said Amazon's claims that popular items weren't available during the holidays hurt "efforts to compete with Wal-Mart Stores Inc., the nation's top toy seller. Both Amazon.com and Toys R Us seek a judgment that the other is violating the agreement. Toys R Us seeks unspecified monetary damages for breach of contract, or a ruling that would void the contract and force Amazon.com to return the $200 million."
The Associated Press via washingtonpost.com: Amazon Countersues Toys 'R' Us (Registration required)
USA Today: Amazon Sues Toysrus.com

Toys "R" Us is just one of slew of retailers that Amazon.com has partnered with. "Amazon began hosting Web stores for Toys 'R' Us in 2000 as part of a 10-year agreement. The deal was the first major alliance Amazon struck with a brick-and-mortar retailer. Since then, the company has signed deals with Target, Circuit City and other companies to host their online stores," TheStreet.com explained. The Financial Times also reported on Amazon's partnership strategy: "Amazon has moved from its roots as an online bookstore to become an online shopping centre, selling goods from other retailers. This strategy, launched with its partnership with Toys R Us, has been a key element of Amazon's growth. Unlike its books business, Amazon does not hold these products in its warehouses and fulfil [sic] customers' orders: its partners do that. Amazon handles the orders and takes a commission."
TheStreet.com: Amazon Hits Back At Toys 'R' Us
The Financial Times: Amazon Sues To Cut Toys 'R' Us Ties

Chance For Reconciliation?

Now, even if Toys "R" Us doesn't like the way Amazon handles who gets to sell what on its site, the toy store chain might not be able to afford a permanent break-up. A statement from the company indicated some hope that the companies can patch things up: "We believe this counterclaim has no merit," said Toys "R" Us spokeswoman Susan McLaughlin in a statement, according to The Wall Street Journal. "We are currently engaged in mediation, and have agreed to avoid additional commentary."

Amazon.com plans to talk to analysts about its second quarter earnings for this year in a July 22 conference call. Expect the fight with Toysrus.com to be among the topics of discussion. The call will be webcast.

The Jungle Book

Ex-Amazon insider James Marcus is out with a book on the company titled "Amazonia." The Seattle Post-Intelligencer interviewed the author, explaining that Marcus, who was the 55th employee at the company, "wrote book reviews as senior editor for the Internet retailer between 1996 and 2001." Marcus told the newspaper that the company's culture became rather Dilbert-like as it grew: "It's straight out of Dilbert. And of course in its early phase, Amazon had laughed at companies like that. Maybe the real turning point was that initially we were laughing with Dilbert and by 2001 we were being the people Dilbert was laughing at. I don't think Amazon ever totally relinquished the feeling of an entrepreneurial, freewheeling operation, but it became less like that," Marcus said.
The Seattle Post-Intelligencer: A Moment With ... 'Amazonia' Author James Marcus

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