On the advice of Bing Gordon, I recently spent an afternoon reading through the last 17 years’ worth of Amazon shareholder letters, written by the somewhat strange and mostly wonderful Jeff Bezos. This was an interesting experience; if you like entrepreneurship, or business in general, I highly recommend it!
Here are some of my favorite excerpts.
1997
Humble beginnings:
“We brought [customers] much more selection than was possible in a physical store (our store would now occupy 6 football fields).”
1998
“I constantly remind our employees to be afraid, to wake up every morning terrified. Not of our competition, but of our customers.”
“Many people have unique skills, interests, and perspectives that enrich the work environment for all us. It’s often something that’s not even related to their jobs. One person here is a National Spelling Bee champion (1978, I believe). I suspect it doesn’t help her in her everyday work, but it does make working here more fun if you can occasionally snag her in the hall with a quick challenge: “onomatopoeia!””
2001
Mr. Bezos has a wry sense of humor:
“Focus on cost improvement makes it possible for us to afford to lower prices, which drives growth. Growth spreads fixed costs across more sales, reducing cost per unit, which makes possible more price reductions. Customers like this, and it’s good for shareholders. Please expect us to repeat this loop.”
2002
On competing with a certain physical bookstore chain to sell that chain’s own 100 bestselling books. Or, why I’d have been selling my shares in Borders, had I owned any shares at the age of nine:
“We priced all 100 titles by visiting their superstores in both Seattle and New York City. It took us six hours in four of their different superstores to find all 100 books on their list. When we added up everything we spent, we discovered that:
- At their stores, these 100 bestselling books cost $1,561. At Amazon.com, the same books cost $1,195 for a total savings of $366, or 23%.
- For 72 of the 100 books, our price was cheaper. On 25 of the books, our price was the same. On 3 of the 100, their prices were better. We subsequently reduced our prices on these three books.”
2003
“Shortly after launching Amazon.com in 1995, we empowered customers to review products. At the time we received complaints from a few vendors, basically wondering if we understood our business: ‘You make money when you sell things—why would you allow negative reviews on your website?'”
2007
“It was tempting [in Amazon’s early days] to believe that an online bookstore should have all the features of a physical bookstore. I was asked about a particular feature dozens of times: ‘How are you going to do electronic book signings?’ Thirteen years later, we still haven’t figured that one out!”
“If our tools make information snacking easier, we’ll shift more toward information snacking and away from long-form reading. Kindle is purpose-built for long-form reading. We hope Kindle and its successors may gradually and incrementally move us over years into a world with longer spans of attention, providing a counterbalance to the recent proliferation of info-snacking tools. I realize my tone here tends toward the missionary, and I can assure you it’s heartfelt […] I’ll also point out that, while I’m convinced books are on the verge of being improved upon, Amazon has no sinecure as that agent. It will happen, but if we don’t execute well, it will be done by others.”
2009
This passage hinted at Amazon’s financial future, including the incredible feat of barely making a profit on $61 billion in sales in the year 2012. Not that Amazon actually needs profits.
“A review of our current goals reveals some interesting statistics:
- 360 of the 452 goals will have a direct impact on customer experience.
- The word revenue is used eight times and free cash flow is used only four times.
- In the 452 goals, the terms net income, gross profit or margin, and operating profit are not used once.”
2010
“Random forests, naïve Bayesian estimators, RESTful services, gossip protocols, eventual consistency, data sharding, anti-entropy, Byzantine quorum, erasure coding, vector clocks … walk into certain Amazon meetings, and you may momentarily think you’ve stumbled into a computer science lecture.
As a Kindle customer, of course, we hide all this technology from you. So when you open your Kindle, it’s in sync and on the right page. To paraphrase Arthur C. Clarke, like any sufficiently advanced technology, it’s indistinguishable from magic.”
2011
After a testimonial from a Kindle author whose life changed when Amazon helped him start selling books online:
“I am emphasizing the self-service nature of these [self-publishing] platforms because it’s important for a reason I think is somewhat non-obvious: even well-meaning gatekeepers slow innovation. When a platform is self-service, even the improbable ideas can get tried, because there’s no expert gatekeeper ready to say ‘that will never work!’ And guess what – many of those improbable ideas do work, and society is the beneficiary of that diversity.”
“A typical selling price for a KDP book is a reader-friendly $2.99 – authors get approximately $2 of that! With the legacy royalty of 17.5%, the selling price would have to be $11.43 to yield the same $2 per unit royalty. I assure you that authors sell many, many more copies at $2.99
than they would at $11.43.”
2012
On treating customers unreasonably well:
“When you pre-order something from Amazon, we guarantee you the lowest price offered by us between your order time and the end of the day of the release date […] Most customers are too busy themselves to monitor the price of an item after they pre-order it, and our policy could be to require the customer to contact us and ask for the refund. Doing it proactively is more expensive for us, but it also surprises, delights, and earns trust.”
On what differentiates Amazon from Apple:
“Though the research was taxing, I struggled through, and am happy to report that I recently saw many Kindles in use at a Florida beach. There are five generations of Kindle, and I believe I saw every generation in use except for the first. Our business approach is to sell premium hardware at roughly break-even prices. We want to make money when people use our devices – not when people buy our devices. We think this aligns us better with customers. For example, we don’t need our customers to be on the upgrade treadmill. We can be very happy to see people still using four-year-old Kindles!”
2013
My very favorite letter (seriously, go read the whole thing).
“Bringing joy to air travelers, the FAA approved the use of electronic devices during takeoff and landing. Our public policy team, with the help of many allies, worked patiently for four years on this, at one point loading a test plane with 150 active Kindles. Yes, it all worked fine!”
“Career Choice is a program where we pre-pay 95% of tuition for our employees to take courses for in-demand fields, such as airplane mechanic or nursing, regardless of whether the skills are relevant to a career at Amazon. The goal is to enable choice. We know that for some of our fulfillment center employees, Amazon will be a career. For others, Amazon might be a stepping stone on the way to a job somewhere else – a job that may require new skills. If the right training can make the difference, we want to help.”
“Another program is called Pay to Quit. It was invented by the clever people at Zappos, and the Amazon fulfillment centers have been iterating on it. Pay to Quit is pretty simple. Once a year, we offer to pay our associates to quit. The first year the offer is made, it’s for $2,000. Then it goes up one thousand dollars a year until it reaches $5,000. The headline on the offer is ‘Please Don’t Take This Offer.’ We hope they don’t take the offer; we want them to stay.”
“Why do we make this offer? The goal is to encourage folks to take a moment and think about what they really want. In the long-run, an employee staying somewhere they don’t want to be isn’t healthy for the employee or the company.”
“I feel super lucky to be a part of the Amazon team. As always, I attach a copy of our original 1997 letter. Our approach remains the same, and it’s still Day 1.”