Amazon V. Toys R US Report

1. In 1999 both Amazon and Toys R Us experienced some difficulties in sales of their toy products. In hopes that combining their skill sets would lead to improved profit for both, they agreed to a cooperative alliance to last 10 years in which Toys R Us would be Amazon’s exclusive provider of toy products. The alliance deteriorated when Toys R Us noticed that toy products of other retailers on the Amazon site. In 2004, Toy R Us sued Amazon for breach of contract (Verified Complaint, 2004). Amazon counter-sued alleging that Toys R Us’ failure to provide product adversely affected Amazon revenues. While the judge found that Amazon did breach its contract and allowed Toys R Us to terminate the contract, Toys R Us was not awarded damages. Amazon appealed the ruling but the appellate court confirmed the trial court’s decision. Based on the facts of the case, I agree with the ruling. First it makes sense to allow each to “walk-away” from a relationship that was clearly not going to work out further into the future. I disagree with not awarding damages to Toys R Us, however, as it seems Amazon was truly knew it was breaching the terms of the deal yet continued in its actions.
2. Cleary, being one of the world largest toy stores with a loyal following, Toy R Us fit the Amazonian idea of niche business that it could use to reach a wider segment of the toy buying public. Accordingly, as long as Toys R Us could supply the product, Amazon could make money. The disadvantage that should have been consider was the exclusivity requirement, because while large, Toys R Us was not the only toy seller in the world but by agreeing to sell only Toys R Us products, Amazon limited its options. Based on Bezos’ strategy for starting Amazon, namely being the middleman between producers and customers, their decision to cut-off their options by agreeing to the exclusivity terms was a mistake especially considering that it locked in exclusivity for ten years. Perhaps a better deal would have to been to agree to a one year deal that is renewable at will. Accordingly, if it did not work out both parties could get out in a short period of time.
3. According to reports, Amazon apparently offered a plan to Toys R Us that, I think was reasonable. According to the plan, in return for Toys R Us’ relaxation of its exclusivity requirement, Amazon would offer them a percentage of every sale of a toy product that was made by a producer other than Toys R Us (Toys R Us, 2009). This plan seems to solve the problems of both sides. First, Amazon would not be locked out of other toy selling sources thereby increasing its ability to sell product to the widest audience possible. Second, Toy R Us would not only have a prominent pace on the Amazon site but also receive remuneration from sales that its rivals make. If its products sold well, it would make money. If its products sold poorly, it would also make money. That plan was clearly a win-win situation for both sides.
4. In response to Upper Management’s request to consider the integration of the Zappos.com website into the main Amazon.com website, we recommend against integration for the following reasons. First, taking into account brand loyalty, we feel that while integration might boost “hits” to Amazon’s main site, it may also lead to the loss of Zappos loyal customers that do not like Amazon. By keeping the sites separate on the front-end, we can keep those loyal Zappos customers. In addition through the creative use of linking and advertisement to Zappos on the main Amazon site we potentially can increase the number of Amazon visitors that also visit the Zappos. From a technical point of view (navigation, layout, customer reviews), both sites are essential the same but most likely each attracts a different type of shopper. Keeping them separate preserves those shoppers’ loyalty.

References

Toys R Us v. Amazon: Plaintiff’s Verified Compliant. (2004, May 21). Retrieved on April 4, 2015, from http://news.findlaw.com/hdocs/docs/amazon/toysamzn42104cmp.html
Toys R Us v. Amazon, A-3391-06T23391-06T2 (2009). Retrieved on April 4, 2015, from http://law.justia.com/cases/new-jersey/appellate-divison-unpublished/2009/a3391-06-opn.html