From Bezos’s 24 “Letters to Shareholders” to see Amazon’s “long-termism”

This article combs through 24 “Letters to Shareholders” written by Amazon founder Bezos in the past 24 years, restoring his thinking and choices about “long-termism” at different stages of Amazon’s development.

In the global Internet technology circle, Bezos should be the first entrepreneur to propose and successfully practice “long-termism”. Since its establishment 27 years ago, Amazon has continued to expand its business. However, the unprofitable business model of the previous 20 years has made its business model quite controversial. However, Bezos has resisted the pressure of unprofitability and adhered to the concept of “long-termism” for Amazon and himself. In exchange for today’s results: One of the world’s most valuable technology companies, Bezos’ personal wealth ranks first in the world. Some media commented that Bezos created a new business philosophy, long-termism centered on user value.

What is Bezos’ “long-termism”? How does he realize the unity of knowledge and practice and practice “long-termism”? Especially in the darkest moment of Amazon, how does he balance long-term value and short-term performance?

In order to clarify these issues, Lishi Business Review combed through 24 “Letters to Shareholders” written by Bezos. Since Amazon went public in 1997, Bezos, as CEO, has written a “Letter to Shareholders” every year, introducing the achievements of Amazon that year and sharing his thoughts. By the time he stepped down as CEO this year, he has written 24 “Letters to Shareholders.” These letters restore Bezos’ thinking and choice of “long-termism” in the different stages of development of Amazon (we roughly divided into six stages of development). 

Bezos’ thinking and adherence to “long-termism” run through all aspects of Amazon, such as insisting on creating long-term value for shareholders rather than short-term benefits; such as unreserved user-centricity, even at the expense of temporary profits of the company; Aiming at short-term profitability, but continuously investing funds to develop new growth businesses… Bezos’ “long-termism” is also reflected in the view of cash flow, corporate innovation, technology development, competitive strategy, employee compensation, and corporate culture And so on.

1997-1999: rapid expansion stage

After Amazon went public, it established a “rapid expansion” strategy. It has grown from an American online retail company that sells books to the world’s leading e-commerce platform, covering electronic consumer products, music, auctions and other categories of goods.

In the first “Letter to Shareholders” in 1997, Bezos first mentioned “long-termism” and explained the core factors of “long-termism”. These core factors permeated the 23 “Letters to Shareholders” since then, which is why he insisted on attaching “Letters to Shareholders in 1997” after each letter. He said to investors, “I sincerely invite you to read the content of’everything with long-term value as the center’. This is what I know and the best way to help you determine whether Amazon is your ideal investment target. Just like me Said, this is not necessarily the most reasonable saying, but it belongs to our creed.”

1997: Everything is centered on long-term value 

1、Day 1

This is only the “Day 1” of the Internet industry, and it is also the “Day 1” of Amazon (if we get better and better in the future). Today, e-commerce saves users money and precious time. In the future, through “personalized” services, we will accelerate our journey of exploration in the field of e-commerce.

2. Long-term value and market leadership

We believe that the most fundamental way to measure our success is to create long-term value for shareholders. This value will be a direct result of our consolidation and expansion of market leadership.

The stronger our market leadership position is, the greater the power generated by this economic model. The market leadership position can be directly translated into higher income, higher profitability, higher capital turnover rate, and correspondingly higher return on capital rate.

We have determined Amazon’s leading position in the market through key indicators, including user and revenue growth, customer retention, and our brand quality. We have invested a lot of resources in our efforts to expand our customer base, enhance our brand image and consolidate our infrastructure, hoping to establish a sustainable leading position in the market. We will insist on doing this in the future.

3. Basic management and decision-making methods of “long-termism”

We will continue to focus on users without reservation.

Our investment decisions will continue to be made based on the long-term perspective of maintaining market leadership, rather than short-term profits or Wall Street’s response.

If we had to choose between beautiful accounting statements and maximizing the present value of unearned cash flow, we would choose cash flow.

We will balance the relationship between long-term profitability and capital management. At this stage, we will put market growth first, because we believe that a certain enterprise scale is the core foundation for realizing the potential of our business model.

We will continue to attract and retain outstanding talents, and pay more attention to stock options rather than cash. Because we know that success will depend on the driving force of the team, they must remain one mind, which also means that they must become part of the enterprise.

1998: We are worried about users, not competition

We are committed to building the world’s most customer-centric company. Our users tell us that they choose and recommend Amazon because of our rich product categories, simple operations, low prices and high-quality services.

I repeatedly remind our employees that the first thing they think of when they wake up every morning should be a sense of crisis. What we worry about is not competition, but users. It is users who make us. Users are closely related to us, and we must do our best for them. Users will be loyal to us until another company can provide a better service than us.

1999: The most user-centric company

1. Do not build a physical store, choose a centralized management warehousing logistics model

In 1999, we continued to benefit from our business model, a streamlined and efficient use of capital. We do not need to establish physical stores and corresponding warehouses. Therefore, the centralized management of the warehousing logistics model allows us to obtain more than 2 billion US dollars in annual sales from only 220 million US dollars in storage costs and 318 million US dollars in plant and equipment investment. In the past 5 years, we have only used US$62 million in operating cash.

2. Economies of scale

I believe that we have reached a critical point, that is, compared with any other company, our platform allows us to launch new e-commerce services at a faster rate, provide a better user experience, and bear lower marginal costs. Gain greater chances of success, move toward economies of scale faster, and achieve profitability.

3. The most user-centric company

Our vision is to build the world’s most user-centric company through this platform. On this platform, users can find anything they want to buy online. We are not alone. We will work with thousands of suppliers of all sizes. We listen to the voices of customers, take their needs as the starting point, continue to innovate, provide customers with personalized store designs, and continue to strive to win their trust.

2000-2002: During the Internet bubble period, a butterfly broke through the cocoon in the darkest moments

The three-year “Letter to Shareholders” is worth reading many times, from which we can see how Bezos found a good strategy based on long-termism and turned against the wind.

In 2000, the Internet bubble burst, and the market value of many Internet companies fell by more than half. The global capital market generally looked down on the Internet’s prospects. In the past few years, Amazon has been implementing a rapid expansion strategy in pursuit of market leadership, so it has not yet made a profit. Now that the bubble bursts, Amazon’s stock price has shrunk by 80%, facing huge financial pressure, and it is a critical moment of life and death.

How to “spend money right” when “money is tight” is a test of an entrepreneur’s long-term thinking and strategic thinking.

Bezos is full of confidence in the Internet, “still firmly believes that about 15% of retail businesses should be moved to the Internet forever”, then he chose to focus on resources to achieve a balance: centering on user experience, controlling costs while accelerating growth. The strategy he chose is almost perfectly in line with the “three core elements of a good strategy” summarized by the author of “Good Strategy and Bad Strategy”: investigation and analysis of the situation, unified guidance methods and implementation.

On the one hand, Bezos uses technology to increase inventory turnover, increase capital turnover, and maximize free cash flow; on the other hand, it cuts down expenditures that are not conducive to increasing user experience and spends money on improving user experience to accelerate growth .

At that time, Bezos insisted on cutting prices and free shipping, cutting off Amazon’s advertising investment in other media channels. Ten years later, Bezos confessed in another “Letter to Shareholders” that in the first year of implementing free shipping, Amazon “lost millions of dollars in delivery revenue, and there is no data to prove that it is worth it.” There are significant financial risks in investing in these two projects.”

He insisted on only two pieces of information: positive feedback from users, and his intuition: after reaching a certain scale, it will naturally lead to user growth.

In the first quarter of 2002, Amazon achieved quarterly profit for the first time, proving that its self-hematopoietic ability was strong enough. Within two or three years of implementing this strategy, Amazon’s business has been built into a virtuous circle, that is, the “growth flywheel”, which has laid the foundation for the subsequent exponential growth of Amazon.

2000: The stock is a weighing machine, still maintaining confidence 

1. The stock is a weighing machine

Benjamin Graham, a well-known investment expert, said: “In the short term, the stock market is a voting machine; in the long term, it is a weighing machine.” Obviously, we were “voted” by a large number of stock prices during the surge in 1999. Instead of “weighing.” We are a company that wants to be on the scale. We bury our heads in work and want to make our company fatter, heavier, and stronger.

2. Reluctant to give up love, because it would be a bigger mistake to use our own blood to infuse these companies

Online retail, compared to traditional retail, is a business with high fixed costs and low floating costs. So for small and medium-sized e-commerce companies, this will be very difficult. If the financing runway is longer, perhaps and can acquire enough users to reach the required scale. But when the capital market closes the door to Internet companies, these companies can only close their doors. We have to reluctantly give up love, because it would be a bigger mistake to use our own blood to infuse these companies.

3. Maintain confidence in e-commerce

Let us look forward to the future, why should we still maintain confidence in e-commerce and Amazon? Industrial development and the addition of new users will promote a brutal improvement in the user experience of the online shopping industry in the future . This improvement and innovation are driven by technological development, especially the increase in available bandwidth, the increase in hard disk space and the increase in processor performance, all of which become faster and cheaper.

In the real world, traditional retailers will continue to use technology to reduce costs, but they cannot disrupt the user experience like we do. We also use new technology to reduce costs, but the role of technology for us is more to drive the increase in user volume and revenue. We still firmly believe that about 15% of retail businesses should be moved online forever.

2001: Cost control, a virtuous circle

1. Control costs and accelerate growth

In July last year, Amazon reached an important stage. After four years of focusing on growth and spending two more years on cost reduction, we can finally achieve a balanced allocation of resources for growth and cost control. Our big price cut in July showed this change, and books over $20 were all sold at a 30% discount.

This balance showed results in the fourth quarter. We exceeded our cost control goals while accelerating growth. So we lowered the price again in January (January 2002): Free shipping for orders over US$99 within this year.

2. A virtuous circle

The improvement of the cost structure allows us to provide lower prices, thereby driving more growth. The increased revenue can further amortize costs, provide more preferential possibilities, and complete a virtuous circle. Customers like discounts, and shareholders can make money. Everyone is happy. Hope we can keep repeating this closed loop. As I mentioned earlier, we exceeded our target in the fourth quarter: an estimated profit of 59 million US dollars and an estimated net profit of 35 million US dollars.

3. Adhere to the user first

Prior to July 2001, Amazon had provided customers with a diverse and convenient shopping experience. In July, we established a third important experience for consumers-crazy price cuts.

Our users are our most important asset, and we will continue to nourish this treasure through innovation and hard work.

4. Open the platform and increase the turnover rate

Hundreds of thousands of small businesses and self-employed individuals sell their new products or transfer second-hand products through our platform, thus creating considerable revenue. In the fourth quarter, these orders accounted for 15% of the total order volume in the United States, which greatly exceeded our expectations when we launched the “Marketplace” platform in 2000; Inventory turns increased from 12 in 2000 to 2001 Of 16.

5. Cash flow is king

Why should we focus on cash flow? Because each stock represents a company’s future cash flow, compared with other single variables, cash flow can better interpret a company’s long-term stock price. We hope that the company can control fixed costs and other large investments. We believe that in the next few years, Amazon will generate stable and free cash flow, and our 2002 goal reflects this.

2002: Low price and high-quality user experience, positive cash flow

1. How to provide high-quality user experience and low-priced products at the same time?

For many people, achieving this dual goal, although not completely unrealistic, at least seems contradictory. Traditional stores face long-standing trade-offs, either to provide a high-quality user experience, or to provide low-priced products. How does Amazon achieve the best of both worlds?

The answer is that we convert most of the user experience features, such as unparalleled product diversity, rich product information, personalized recommendations, and other new software features, into fixed fees. With the user experience cost basically fixed and more like a publishing model rather than a retail model, our operating costs as a percentage of sales are rapidly shrinking as our business develops.

In addition, the variable part of the user experience cost, such as the variable part of the logistics operation cost, is also improving as our business model continues to improve. Eliminating business defects can improve costs and bring better user experience.

While paying attention to the user experience, we also fully reduce the price. Our price cuts cover a wide range of products, from books to electronic products. For orders over $25, we provide free shipping around the clock, and Amazon online stores in each country adopt similar preferential measures.

2. Free cash flow turns positive for the first time

Our determination to provide both low prices and high-quality user experience at the same time has brought considerable results. In 2002, Amazon’s net sales increased by 26% to a record 3.9 billion U.S. dollars, and product sales grew even faster, reaching 34%. Our most important financial indicator, free cash flow, turned positive for the first time, reaching US$135 million, an increase of US$305 million from the same period in 2001.

2003-2007: Accelerating the “growth flywheel” phase

After achieving profitability for the first time and getting rid of financial pressure, Amazon continued to maximize free cash flow to consolidate its “growth flywheel.”

A financial indicators can be seen, Amazon now cycle period (Cash Conversion Cycle, a company regarded as a negative cash flow positive cash flow how long it takes) has been extended from the first quarter of 2001 of 8 days Extend to more than 20 days in the third quarter of 2005. This means that Amazon has nearly 3 weeks to run the flow of funds in its hands. This explains from one perspective why Amazon is not profitable but still has funds to improve user experience and grow its business without worrying about short-term profitability problems.

Based on the judgment of long-term value, Bezos continued to invest money to promote the “growth flywheel”, expand the scale of Amazon retail business, “grow” the pillar businesses of Amazon retail: Prime, Marketplace and FBA; launched the e-book hardware product Kindle, Reformed the publishing industry and the global e-book market; created a new type of business at a low price: cloud computing AWS, which is at least 4 years earlier than Google’s cloud computing business.

2003: Long-term thinking helps us make the right decision 

1. Long-term thinking is both the prerequisite and the result of truly owning something

We emphasized our long-term thinking in the “Letter to Shareholders in 1997” because this is really the way of thinking that drives us to make specific decisions. I want to use “user experience” as an example to discuss a few specific decisions we made with this way of thinking.

At Amazon, we always use the term “user experience”, which encompasses everything we present to users-from product prices to product selection, from web interface to packaging and delivery. The user experience we create has become the most important driving force for our business. When we design the user experience, we think from the perspective of the long-term holder. We try our best to make all user experience decisions within this framework, regardless of the importance of the decision.

The most costly and painful decisions we made to improve the user experience were free shipping and price reduction activities. It is a long-term decision to reduce mistakes, improve efficiency, and then transfer the cost we save to users. It takes a certain amount of time for the increased volume to reflect the benefits, but the behavior of price cuts will always immediately affect the current financial results. But in the long run, continuously completing the “cost reduction-price reduction structure cycle” can make our business model stronger and more valuable.

Because many of our costs, such as software engineering costs, are relatively fixed, many variable costs can also be better controlled under the scale The proportion of costs paid for one dollar is declining. For example, the cost of the “instant order update” function used by 40 million users is far less than 40 times the cost of the same function used by 1 million users.

2. Pricing strategy

Our pricing strategy is not to maximize profit margins, but to provide users with the greatest value, thereby creating greater long-term profits.

2004: The most important financial indicator: Free cash flow per share

1. The most important financial indicator: free cash flow per share

The ultimate indicator that we measure the company’s financial information is also an indicator that we use to drive the company’s long-term growth, which is free cash flow per share.

Why not focus on profit first, like many other companies? Our answer is that profit cannot be directly reflected as cash flow, and the value of stock reflects the discounted value of the company’s future cash flow, not the discounted value of future earnings. Future profitability is an important component of measuring future cash flow, but it is not the only component. Working capital, capital expenditures and future equity dilution are all important indicators.

Although it sounds very counter-intuitive, sometimes, the company’s profit can hurt the interests of shareholders. When the investment required for growth exceeds the discounted value of the cash flow derived from these investments, the interests of shareholders are actually impaired.

2. The growth of free cash flow per share

Amazon’s free cash flow mainly comes from increasing operating profits, effectively managed working capital and capital expenditures. We drive sales by improving the user experience in an all-round way, while controlling the cost structure and promoting two-phase promotion to increase operating profit.

3. High inventory turnover rate brings business cycle

We have cash to generate the operating cycle (operating cycle = inventory turnover days + accounts receivable turnover days-accounts payable turnover days). The reason is that we can digest the inventory quickly and pay the supplier only after receiving the payment from the customer. Our high inventory turnover rate means that we can maintain a relatively low inventory investment-at the end of the year was 480 million U.S. dollars, and sales in the same period were close to 7 billion U.S. dollars.

2005: Data analysis is good, but long-term judgment is more important

Not all important decisions can be made based on mathematical calculations. Sometimes we simply don’t have historical data or conditions for experimentation. Although data analysis and mathematics have made a great contribution, the most important thing to make a decision is long-term judgment.

In fact, our decision to cut prices has violated our mathematical model, which shows that the smart approach should be to raise prices. We have a lot of data related to price elasticity. Through accurate calculations, we can predict that reducing the price by a certain amount will result in a certain percentage increase in product sales. Only in a few exceptional cases, the increase in product sales in the short term can compensate for the loss of price cuts.

We made this decision based on a judgment. While we spare no effort to improve efficiency and scale, we will lower prices to give back to users, and let this virtuous circle continue, so that we can have more free cash flow in the long run, and This also means that Amazon’s value continues to increase.

We made the decision to launch free postage and Prime projects for similar reasons. These seemingly costly short-term decisions may bring us immeasurable value in the long-term.

Decisions based on mathematical calculations will gain broad consensus, while decisions based on judgments are usually controversial, at least until they are practiced and demonstrated.

Any institution that cannot tolerate controversy must limit its decision to the first type. In our view, this can not only limit disputes, but also greatly limit innovation and long-term value creation.

2006: About investing in new business

1. Standards for new business

When we want to invest in a new business, we must ensure that this business can create sufficient capital returns for our shareholders, and we must also ensure that it can grow to a certain scale and become an important part of the entire company system.

2. FBA is like an API interface

Fulfillment by Amazon is like the API interface of Amazon Web Services. It turns our 12 million square feet logistics center network into a large and complex computer peripheral device.

As long as you pay us a certain fee, the monthly rent per cubic foot of logistics center space is 45 cents, and you can store your goods in our network. You can notify us through the Internet that the goods used for inventory are about to arrive, tell us how to sort and package, and where to ship. You don’t need to talk to us directly in this process.

3. AWS new business: service developers

We are using Amazon Web Services AWS to serve another new user group-software developers. We now provide more than 10 web interface services and have built a developer community with more than 24,000 people registered. We provide services for the general needs of developers, including storage capacity and computing performance.

These are all headaches for developers, and it happens that Amazon has accumulated a lot of experience in the process of rapid expansion.

So this is exactly what we should do, it’s very different, it can do a lot, and it’s very profitable.

4. A corporate culture that supports new businesses

Our company culture requires these new businesses to have great potential, innovation and differentiation, but it does not require them to have a large scale from the beginning. In our experience, even if a new business grows rapidly, it will take at least 3 to 7 years to occupy a place in the company’s overall business level.

We will follow the rules: keep an eye on the expected return, potential size, and whether to create a valuable and differentiated experience for users. We cannot always be right, nor can we succeed forever, but we will be very picky, hardworking, and patiently incubating these new businesses.

2007: Kindle, born for “real reading”

1. You can never surpass the physical book by imitating the physical book

Kindle started with a bold goal we had to say for ourselves: to improve the physical book. We did not make this decision lightly. If anything has maintained roughly the same appearance for 500 years without major changes, it is not easy to improve it.

When we started product design, we made it clear that the most important feature of a book is that it will disappear. When you read a book, you will not notice its paper, ink glue or gutter. All of these have disappeared, and what is left is just the world described by the author.

We know that Kindle will find a breakthrough from here like a physical book, so that readers can concentrate on the text and forget that they are reading on a certain device. We also know that we should not attempt to replicate every feature of a physical book. We can never surpass physical books by imitating physical books. We must add new functions that traditional books can never achieve.

2. Kindle is built for “real reading”

We change tools, and then tools change us. People will do more things that have no obstacles and make them feel comfortable. If tools make it easier to obtain fragmented information, we will stay away from real reading. Kindle is built for “real reading”.

We hope that Kindle and subsequent versions can gradually bring us into an era of wider attention bandwidth to resist the erosion of fragmented information acquisition tools.

2008-2015: Amazon’s soaring stage

In 2007, the Apple iPhone came out, and the era of mobile Internet quietly started. In 2008, the global financial crisis broke out and the global economy was in depression. But Amazon did not experience life and death again, but seized the opportunity in the crisis to develop rapidly.

Under the guidance of Bezos’s “long-termism”, the virtuous circle “growth flywheel” that Amazon built during the Internet bubble burst crisis in 2000 has accelerated. This is not only enough for Amazon to survive the crisis, but also has the ability to seize “Territory” and continued expansion. During this period, Amazon’s layout in the retail field is no longer limited to online, but both online and offline layouts, truly moving towards the “all-goods store”. It acquired Zappos, the largest online shoe-selling website in the United States, and started Amazon’s fresh food business.

Amazon’s “growth flywheel” does not achieve market leadership in all areas. For example, the iPhone has robbed Amazon of a lot of market share in online books and music. Amazon has introduced hardware products such as smartphones to meet Apple’s “offensive”, but the effect was not good and ultimately failed.

However, the “lost East and the harvest of the mulberry”, the failure experience of these hardware has accumulated experience for the development of the smart speaker business Echo. Bezos wrote in the 2013 “Letter to Shareholders”, “We have understood the meaning of failure very early, and believe that failure can bring gains, so we will continue to try.”

2008: “Reverse Working Method” based on customer needs 

1. Reverse working method vs. technology-oriented method

The “Working backwards” approach from customer needs is in sharp contrast to the “Skills-forward” approach.

The “skills-oriented approach” uses existing technology and capabilities to navigate business opportunities. Skills-oriented theorists say “We are good at doing X, what else can we do with X?” This is indeed a useful and effective business model to a certain extent. However, if the company is immersed in this, it will lose the motivation for R&D and innovation, and eventually the existing skills will become the yellow flower of yesterday.

The “reverse working method” that starts from the needs of customers often requires us to explore new skills and hone them. No matter how embarrassing the first step we take, we will stick to it.

2. The core of user experience

In our retail business, we firmly believe that what customers value is preferential prices, abundant product choices, and fast and convenient logistics. These demands will become more stable over time. We can’t imagine that customer demand will no longer be affected by low prices, choices, and delivery speeds in the next ten years.

It is precisely based on the understanding of these long-term needs that we are confident and will continue to increase our long-term investment in customer experience. The investment we are paying now will surely get rich returns in the future.

3. Low price strategy

Our price goal is to win the trust of customers, not just to maximize short-term benefits.

We take pricing based on this perspective as the best way to obtain long-term profits and regard it as our work creed. We may have limited profits on a single product, but we always believe that based on the long-term trust of consumers in Amazon, we More goods will be sold. Therefore, we implement a low-price strategy throughout the entire product line.

4. A win-win FBA business

We started to provide outsourced logistics services Fulfillment by Amazon (FBA) to third-party sellers in 2007. With FBA, sellers placed their inventory in our global logistics operations network network in the product sorting, packaging by our customers and representatives delivered to the end customer.

FBA products are also applicable to Amazon Prime and Super Saver Shipping services. Purchasing this kind of goods enjoys the same service as buying Amazon’s own inventory goods. As a result, FBA not only improves customer experience, but also promotes sellers’ sales.

2009: Out of 452 goals, 360 goals are directly related to user experience

1. Among the 452 goals, 360 goals will directly affect the user experience

For 2010, we set 452 specific targets. Through the evaluation of our current goals, we can find some interesting data: out of 452 goals, 360 goals will directly affect the user experience. In these goals, the term “revenue” was used 8 times, “free cash flow” was only used 4 times, and the terms “net profit”, “gross margin” or “operating profit margin” were not used once.

On the whole, the process of setting goals is the elaboration of our basic business methods: starting with customer needs, starting with customers, and work backwards, and listening to customers’ opinions, but it is not limited to this, but also To be innovative on this basis.

2010: Innovative technology tools to improve user experience

1. Technology is deeply embedded in everything we do

If the technology was directly stuffed into a department such as research and development, the investment we made in technology might not have produced such powerful results as it is now. Technology has penetrated into every team, into our every process, our decision, and every one of our business innovations.

2. Service-oriented technical architecture

Our technology is applied to services almost without exception. Service-oriented architecture (SOA) is the fundamental abstract structure of Amazon technology.

Thanks to a team of thoughtful and visionary engineers and architects, we have been doing this before the word SOA became popular. Our e-commerce platform is a combination of hundreds of services, which complement each other to complete a series of tasks from personalized recommendation to order processing to inventory tracking.

The storage system we have developed has demonstrated very good scale capabilities while maintaining strict control over performance, availability, and cost. The advanced nature of data management developed by Amazon engineers is the starting point for cloud storage computing and data management services provided by AWS. For example, our simple storage service (Simple Storage Service), elastic storage (Elastic Block Store), and SimpleDB are all based on their basic algorithms derived from Amazon technology.

3. Service “module” “building blocks”

Our technology is almost only implanted in the form of services: it is like a packaged module that packages the data that needs to be processed, and only provides some external interfaces to call functions.

This approach is like building Lego blocks, services and services will not affect each other, so that each service can develop on its own without affecting the overall structure.

2011: Innovation to empower others

1. Innovation to empower others

Innovation will appear in various forms in many dimensions. The most disruptive innovation is often to empower others, liberate their imagination, and enable others to pursue their dreams. This is exactly what Amazon Web Services, Fulfillment by Amazon and Kindle Direct Publishing are doing.

2. The self-service nature of the platform

I have been emphasizing the self-service nature of these platform services because I think it is very important. On a fully self-service platform, any idea that seems deviant can be tried, without a professional janitor telling you: “It’s definitely not possible!” Guess what? Many of these deviant ideas have really succeeded, and they have also benefited society.

3. KDP disrupts the publishing industry

KDP is very friendly to the author. KDP authors can own their copyrights and other derived rights, and they can publish at their own pace.

In traditional publishers, works have to wait for a long time to be published, and some even have to be delayed for a year. The most important thing is that the author can get 70% of the income, and in the largest publishing house, you can only get 17.5% of every e-book sold.

KDP’s share policy is revolutionary. We sell each book at a very low price. For example, the book sells for $2.99, and the author can get about $2. If in a traditional publishing house, the author also wants to get $2, and the book will sell for $11.43. I can assure you that the number of books that the author sells for $2.99 ​​will far exceed the number of books for $11.43.

KDPs are also good for readers because they are cheaper, and more importantly, readers can access richer content, because traditional publishers may reject the content that the author wants to write and make it unpublishable. And now these authors can fairly let the market make choices.

2012: Always focus on customers, not competitors

1. Focusing on users, paying attention to competitors is also for inspiration

Our motivation for working at Amazon comes from continuously pleasing customers, not from defeating competitors. We will not comment on the methods that may maximize the success of the company. There are pros and cons to doing so. We do pay attention to our competitors, but we are more inspired by them. For us, user-centricity is deeply embedded in our culture.

2. User-driven

User-driven has a very subtle benefit, which is to provide us with initiative. In the best field we do, we don’t need any external pressure. We keep innovating instead of innovating when we have to. Our investment is driven by users, not competitors.

3. Long-term thinking forms a virtuous circle

In general, our large investments in membership services, Amazon Web Services, Kindle, digital media, and customer experience give people the impression of being too generous, indifferent to shareholder interests, and even going against the principles of being a for-profit company. An external commenter said: In my opinion, Amazon is a charity that invests in many areas for the benefit of users.

However, I don’t think so. As far as I am concerned, improving only after encountering a problem is actually being smart instead of being smart. The world we live in is rapidly evolving and changing, so this approach is very dangerous.

I think long-term thinking forms a virtuous circle. Please take the initiative to win user trust, trust bring more heavy complex Bo Yi, also attracted new customers, even in the new area. In the long run, the interests of shareholders and users are consistent.

2013: Early understanding of the meaning of failure

It is inevitable to experience failure in the process of innovation, which is unavoidable. We understand the meaning of failure very early, and believe that failure can bring gains, so we will continue to try until we succeed. This model did work, allowing us to keep our failures on a small scale (most attempts started on a small scale).

When we can really serve our customers, we will double our bets, hoping to achieve greater success. However, it is not always possible to see such a clear path. Invention and creation is a tedious task, and over time, we will inevitably encounter failures on some large projects.

2014: Amazon’s three business pillars

After 20 years of adventure and teamwork, and the generous help of good luck along the way, we are now happily “married” with three “life partners”: Marketplace, Prime and AWS. At first, these products were a bold bet, and wise people (often) worried that they would not succeed.

We will use the tools we use to handle this job: customer first rather than competitor-centric, passion for innovation, commitment to operational excellence, and willingness to think long-term.

1. The beginning of Marketplace

Marketplace was not easy in the early days. First, we launched Amazon Auctions. If you count my parents and siblings, I think seven people have been here. Later, Amazon auctions became zShops, which were basically the fixed price version of Amazon auctions. Still later, not a guest user. Later we turned zShops into a Marketplace. Internally, Marketplace is called SDP (Single Detail Page). Our idea is to use our most valuable “retail real estate”, which is our product detail page, to allow third-party sellers to compete with our own retail category. This is more convenient for customers. Within a year, it accounted for 5% of sales. Today, more than 40% of our products are sold by more than 2 million third-party sellers worldwide. In 2014, consumers ordered more than 2 billion items from sellers.

The success of this hybrid model has accelerated the development of “Amazon Flywheel”. Customers were initially attracted by our fast-growing selection of products sold on Amazon, which are inexpensive and have a good customer experience. By allowing third parties to provide products, we become more attractive to customers, which attracts more sellers. This also strengthens our economies of scale. We increase the economies of scale by lowering prices and free shipping. In the United States launched this project, then we push immediately generalized to other areas. As a result, Marketplace has become a seamlessly connected market for global websites.

2. Prime members

Ten years ago, we launched Amazon Prime, which was originally designed as an “all you can-eat” (all you can-eat) free fast delivery program. People keep telling us that this is a risky move, and in some respects it is true. In the first year, we lost millions of dollars in distribution revenue, and there is no data that proves it is worth it.

Our decision to continue is based on the positive results we got when we launched the Free Super Saver Shopping service, and also based on intuition: users may soon realize that this will bring them an unprecedented shopping experience.

In addition, after analysis, if we reach a certain scale, we will be able to significantly reduce the cost of fast transportation.

While building a retail team to create individual categories, we also built a large-scale system to automate the process of inventory replenishment, inventory placement, and item pricing. The promise of accurate delivery requires us to use a new way to do logistics management, and the innovation of this entire system is a great achievement.

Amazon designs and manufactures hardware devices, from Kindle to Fire TV to Echo. It also empowers businesses such as PIV and Prime Music, and to a large extent promotes the development of the Amazon ecosystem.

3. The importance of FBA

FBA is very important because it glues Marketplace and Prime together . With FBA, Marketplace and Prime are no longer two things. Their economic benefits and user experience are deeply integrated.

From the perspective of Prime members, every time a seller joins FBA, Prime members will have more choices and the value of members will increase. This makes Amazon flywheel faster and faster. FBA completes this cycle: Marketplace injects energy into Prime, and Prime injects energy into Marketplace.

4. AWS: The market scale has no ceiling

Cheap is always just raw materials, not steaks.

It is attractive to have lower IT costs, and sometimes the cost savings are very substantial. But cost savings alone can never overcome performance or functional defects. Businesses rely on IT-IT is a key part of the business. Therefore, “I can save you a lot of money on your IT costs, and my service is almost as good as your current.” Such advice will not attract too much Multiple customers.

In this field, what customers really want is “better and faster”. It would be great if “better and faster” can save costs at the same time. However, the cheap price is always just the seasoning, not the steak.

I believe that AWS is a “fantasy” business that can continue to serve users and obtain profit for many years to come. Why am I so confident?

First of all, the market scale is very large, including servers, networks, data centers, infrastructure software, databases, data warehouses, etc., which are similar to my views on Amazon’s retail business. As far as all actual projects are concerned, I think the market size of AWS has no ceiling.

Secondly, its current market leadership (a substantial lead) is a strong advantage.

We work hard, very hard, to make AWS as simple and easy to use as possible. Once you learn it and it’s so easy to use, you probably don’t want to learn it again on another platform. Of course, we will never stop the pace of improvement, but if we continue to provide users with dazzling service, they have filled grounds points continued to use our services.

2015: Innovative Machines, Type 1 Decision Making and Type 2 Decision Making

1. Innovative machine

We want to be a big company and at the same time an innovative machine. We hope to combine the extraordinary customer service capabilities brought about by scale with the speed, flexibility and risk-accepting mentality of startups.

Can we do it? I remain optimistic about this. We have a good start in this area, and I think our culture enables us to achieve this goal. But I think this is not an easy task. Of course, even large high-performance organizations will fall into some subtle traps. As an organization, we must learn how to guard against these traps. For large organizations, a common trap is “one size fits all” decision-making, which undermines speed and creativity.

2. The first type of decision-making and the second type of decision-making

Many decisions are irreversible once they are made, and these decisions require strategic and careful thinking, and many external opinions must be consulted. If you choose to go over and feel regretted when you look back, you can’t come back again. We call this “the first type of decision.”

But most decisions are not like this. They are changeable and reversible-they are two-way. If you make a suboptimal “second type of decision”, you don’t have to suffer the consequences for that long. You can open the door and walk back. For the “second type of decision-making,” we need to let individuals and teams who can hear the guns make quick decisions on their own.

2016-2019: Amazon enters a trillion market value

In 2018, Amazon’s market value exceeded one trillion, becoming the dominant player in the global retail market, cloud computing market, and artificial intelligence voice. Looking at the retail sector alone, looking at other retailers in the European and American markets, whether online or offline, only Wal-Mart, the “big brother” in the retail industry, can compete with Amazon. But in terms of development speed and profitability, it is clear that Amazon’s The growth potential is much greater.

Amazon can be very accommodating and easy to make take huge profits, but Bezos still adhere to the 1997’s “maximize free cash flow”, select earn profit, aims to seize the market leader in more areas. One of the most jaw-dropping acquisitions is that in 2017, Amazon took out 63% of its cash and acquired the organic chain Whole Foods at a “sky price” of $13.7 billion in cash. This is still the largest acquisition in Amazon history. .

Now Amazon has become one of the world’s most valuable Internet technology giants. Once a large company enters a period of stable development, how to continue to innovate and avoid “big company diseases” such as rigid management is a headache for many large company founders and management.

Taking a closer look at the “Letter to Shareholders” written by Bezos at this stage, he emphasized more on Amazon’s corporate culture and innovation, and cherished the “long-termism” put forward in the 1997 “Letter to Shareholders”.

2016: Maintain Day 1 status 

(Day 1 comes from Bezos’s philosophy in 1997, which means that no matter how far the company develops, no matter how many achievements it has made, still treat every day as the first day and do well in the present. Amazon’s office building in Seattle Also called Day 1.)

1. How to maintain the vitality of Day 1, especially in a large organization?

There will not be a simple answer to such a question. It involves many factors, multiple paths, and a large number of pitfalls. I completely do not know the whole answer case, but may know a few of them. The primary factors to maintain Day 1 include:

(1) Customer first

The customer-centric approach has many advantages, but it has a big problem: even if customers verbally claim that they are happy and the business is top-notch, they have all kinds of dissatisfaction in their hearts, and they are very dissatisfied. Even even customer households do not know, they always demand better, and you want to please the customer’s wishes will drive you to create greater benefits for them.

The mentality of always being in Day 1 requires you to try patiently, accept failure, plant seeds, protect saplings, and get double rewards when you see the joy of your customers.

(2) Resist formalism

The process itself is not a problem. The question that is always worth asking is: Are we following the process? Or is the process dictating our operations? In a Day 2 company that is deteriorating, you may find that the answer is the latter.

(3) Actively adapt to external trends

If you can’t or can’t follow strong trends quickly, the outside world will push you into Day 2. If you adopt a confrontational stance, you may be working against the future. Embrace the trend and you will follow the trend.

(4) Quick decision

Amazon’s executive team is determined to maintain a high speed of decision-making. The speed issue in business is very important. If it is high-speed decision-making, the game is more interesting. We don’t know all the answers, but here are some ideas:

First, never use a “one size fits all” decision-making process. Many decisions are reversible and two-way. For these decisions, there is no need to fight in the company.

Second, when you have 70% of the information you need, most decisions can be made. If you require 90% of information, in most cases, your decision-making may be a bit slow.

Third, adopt the method of “reserving one’s own views and obeying the overall situation”.

Although this sentence is short, it can save a lot of time. If you are confident in a particular direction, even if you don’t reach an agreement, you can say: “Look, I know we have different opinions on this, but would you be willing to gamble with me? Keep your opinion and obey the overall situation?” So far, no one knows the answer for sure, but you may get the answer soon. This is not a one-way way of doing things. If you are the boss, you should do the same. I have always reserved my opinion and obeyed the overall situation.

Fourth, identify the real error problem early and escalate it immediately.

Sometimes, there are different goals and completely different views within the team that cannot be reconciled. Without a lot of discussions and exchanges, it is difficult to resolve deep-seated contradictions. If the problem does not gradually expand, the default dispute resolution mechanism will lead to exhaustion of both parties in the dispute. In the end, whoever has the more endurance will gain the decision-making power.

“You dragged me down” is a terrible decision-making process, progressing slowly and exhaustingly. It is better to make the contradiction escalate quickly.

2017: High-standard organizational culture and 6 pages of paper

1. About high-standard organizational culture

In the past few years, we have achieved some success in meeting the high expectations of our customers, while also paying billions of dollars for failure. Against the background of these experiences, I would like to share with you a few key points (so far) that we have learned about the high internal standards of the organization:

(1) High standards can be learned. In fact, it is easy for people to learn and master high standards through ears and eyes, and high standards are contagious. Bring newcomers into a high-standard team, and they will adapt quickly, and vice versa.

(2) High standards are field-specific, which means you must re-learn its high standards in each relevant field.

Understanding this is very important because it keeps you humble. Generally speaking, you can consider yourself to be a person of high standards, although there are no lack of frustrating blind spots. It is also possible that in some aspects you do not even know that your standards are very low, or that there is no standard at all, and of course, it is not up to the world-class level. Keeping an open mind is vital.

(3) In a specific field, what high standards do you need to achieve?

First, you must be able to identify what is good and what is bad in that field.

Second, you must have realistic expectations about how difficult it is to reach a good standard—the boundary. Unrealistic beliefs about boundaries kill high standards, and this is often not discussed. If you or your team want to achieve high standards, you should be like this yoga instructor and have a very realistic understanding of how difficult this process is.

(4) Does it require skill to achieve high standards?

In my opinion, this is not the case, at least for the individuals on the team. Football coaches do not need to play football, and film directors do not need to perform in person. But they all know what high standards are, and tell others what they can expect.

2. 6-page memo

At Amazon, we do not do PPT (or any other slides) presentations. Instead, we wrote a memo on 6 pages. We “learn learning big each meeting held in the hall” at the beginning of the silent reading it again.

Normally, if there is a problem with the memo, the reason is not that the author cannot recognize the high standard, but the expectation is wrong: they mistakenly believe that a high-standard, 6-page memo can be written in a day or two or even a few hours. In fact, it may take a week or more. They tried to finish within two weeks to make the United States upside down, and we do not train them in the correct way.

First-class memos need to be written and written, and rewritten repeatedly. Together with colleagues who are asked to improve their work, set aside a few days and re-edit with a different mind. It cannot be completed in a day or two.

2018: “wandering” innovation, failure to expand

1. The power of “wandering”

Sometimes (in fact, often) in business, you do know where to go, then when you go to your destination, you can be very efficient. All you need to do is plan and execute. When doing business, stray thinking (wandering, not focusing on the goal) will lead to inefficiency.

But this is not random wandering, but guided by intuition and curiosity, and driven by a deep belief that the value of the customer is large enough that it is worth doing a little messy, insignificant thing to find a way out .

Hanging out is a necessary check and balance against efficiency, and you need to use both. Many valuable discoveries, especially the “non-linear” discoveries, are most likely to be realized by thinking about “hanging around”.

At the very beginning, no customers asked for Echo speakers. This is definitely the product of our “wandering thinking”. Market research is not helpful. If you go to meet a customer in 2013 and say, “Do you want to put a black cylinder about the size of a tube of Pringles potato chips in the kitchen? You can talk to it and ask questions, or you can turn on your light, Play music.” I assure you that they will look at you strangely and say, “No, thank you.” As a result, since the first generation of Echo came out, customers have purchased more than 100 million Alexa-enabled devices.

2. With development, failure also needs expansion

As the company grows, everything needs to be expanded, including the scale of failed experiments. If the scale of failure does not expand, your invention will not really push the trend forward. We occasionally encounter billions of dollars of failure, because the scale of our experiment will match the scale of Amazon’s enterprise.

Of course, we will not conduct such experiments lightly. We will work hard to make the right investments, but not all good investments will ultimately lead to good results. This large-scale risk-taking is part of our service to customers and society as a large company.

The good news for shareholders is that such a large-scale bet is enough to make up for the losses caused by many failures as long as they can win the next time.

The development of Fire smart phones and Echo smart speakers started at about the same time. Although the Fire smartphone failed, our learning team (and developers) learned from it and accelerated the development of Echo speakers and Alexa artificial intelligence assistants.


These are the last two “Letters to Shareholders” issued by Bezos, which were released in April 2020 and April 2021 when the annual report was announced. In the context of the new crown epidemic, Amazon, as a global company employing more than 1.3 million people and more than 200 million users, actively assumes corresponding social responsibilities (expanding employees, increasing hourly wages, and ensuring employee health) to respond to the epidemic and Protect the global environment; Looking back on the 27 years since the founding of Amazon, Bezos used two words to inspire all Amazons to stay true to their original aspirations and adhere to the Day 1 mentality proposed in 1997; insist on their uniqueness and indulge forward.

2019: Responding to the epidemic and achieving net zero carbon emissions 

Day 1 mentality to respond to the epidemic

My personal time and thoughts are focused on the COVID-19 epidemic and how Amazon continues to provide more help “while it is helping.” I believe that all of us will transcend the immediate crisis, gain insight into the future, sum up lessons, and apply them to the future.

The American writer Theodor Seuss Geisel reflected on this: “When bad things happen, you have three choices: you can let it define you, let it destroy you, and You can let it strengthen you.” I am very optimistic about which one people will choose. Even under the current circumstances, let us maintain the Day 1 mentality.

2020: You must pay for your difference, it’s worth it

This is my last annual shareholder letter as the CEO of Amazon. I think there is an extremely important thing to tell you. I hope all Amazon people will take this matter to heart.

The following is a passage from the book “The Blind Watch Maker” published by Richard Dawkins, which is a basic fact about biology.

Any animal must work hard for its own survival. The temperature, acid-base balance and electric charge of the organism are often “unbalanced” with the surrounding natural environment. For example, our bodies are usually hotter than our surroundings, and in cold climates, they must work hard to maintain this difference. When these indicators of the organism reach a consistent balance with the surrounding environment, it often means that life has come to an end. When we die, the body stops working, the temperature difference begins to disappear, and finally our temperature is the same as the surrounding environment.

Not all animals try so hard to avoid equilibrium with the surrounding temperature, but all animals do something similar. For example, in arid areas, plants and animals try to maintain the liquid content of the cells, which runs counter to the natural tendency of water to flow from the cells to the dry outside world. If they fail, they will die. More broadly, if organisms do not actively prevent water loss, they will eventually merge into the surrounding environment and no longer exist as organisms. This is what happens after they die.

Although this passage is not a metaphor, it is still a great passage, very relevant to Amazon. I even think that it is relevant to all companies, all institutions, and the lives of each of us.

In order to make you look so-called “normal”, in what way is the world attracting you? How can you maintain your uniqueness?

We all know that uniqueness (originalness) is valuable. We are all taught to “be yourself”. What I really ask you to do is embrace and realistically realize how much effort it takes to maintain this uniqueness. This world wants you to blend into it, it will do everything possible to attract you, don’t let it become a reality. You have to pay for your difference, it’s worth it.

Reference source:

Bezos 1997-2020 Letter to Shareholders

Official Account “Zong Li Shuo”-“Bezos’ Letter to Shareholders 1997-Present”

Get the App- the translated manuscript of classmate Vince nt

Posted by:CoinYuppie,Reprinted with attribution to:
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