As the second decade of Amazon shareholder letters began, in 2007, Jeff Bezos was claiming bragging rights about the first Amazon Kindle, shipped in November of that year.
As the decade progressed, he again dealt with issues that helped define Amazon.com Inc. (AMZN, Financial) and helped investors understand the company’s “secret sauce.” In this article, we summarize the 11 shareholder letters sent between 2007 and 2017. Summaries of the earlier letters can be found in Part 1.
2007 - The Kindle: Bezos bristled with deserved pride when he announced not only the launch of the revolutionary Kindle, but also its sales success (the first run sold out in five and a half hours). In the 2007 letter, he offered his thoughts on the keys to success; most importantly, perhaps, was knowing how much to try replicating printed books and how much to make their own way. For example, no book signings but being able to offer millions of titles. And, shades of Marshall McLuhan, he discussed how we shape our tools and how our tools shape us.
2008 – Working backward: 2008 was a year of great turmoil in the markets, but Bezos ignored it all in his letter for that year, written in early 2009. Instead, his lead item was how effective it can be to work backward from customer needs (in contrast to a skills-forward approach). Working backward forces companies like Amazon to acquire new competencies; it also favors companies with a long-term vision, rather than companies seeking instant gratification.
2009 – Financial inputs and outputs: Bezos writes that Amazon’s new senior leaders are surprised management spends so little time discussing financial results and projected outputs. While they don’t neglect such matters, they are more focused on controllable inputs because this is the best way to maximize financial outputs over time (see the 1997 letter to read about Bezos’ thoughts on the long term). Reviewing the company’s goals for 2010, he notes the word “revenue” is used eight times and “free cash flow” is used only four times, while “net income”, “gross profit”, “margin” and “operating profit” are not used at all.
2010 – Amazon technology: For the first time in these annual letters, Bezos writes extensively on the technology that powers Amazon, much of it created by the company itself. Near the end of this letter, he points out to shareholders that all these gains lead directly to free cash flow. All the many enhancements on Amazon pages lead to greater customer loyalty, and greater loyalty means more repeat business and, in turn, more cash flow. He adds, “Invention is in our DNA and technology is the fundamental tool we wield to evolve and improve every aspect of the experience we provide our customers.”
2011 – The power of invention: Bezos leads off with testimonials from authors and entrepreneurs who have created their own successful businesses on the Amazon platform. These testimonials help rebut the many critics who claim Amazon has killed millions of retail jobs with its low prices and global footprint. But Bezos has another idea in mind, saying the most radical and transformative inventions often empower others to “unleash their creativity – to pursue their dreams.”
2012 – Proactive: In this letter, the Amazon founder insists his company is focused on impressing customers, not beating the competition. They do that by proactively finding ways to improve the customer experience without charging more. As Bezos notes, “We invent before we have to.” He goes on to discuss a multitude of ways in which Amazon has taken some initiative, allowing it to deliver more value for each customer’s dollar before the customer expects it.
2013 – Accomplishments: Bezos uses this annual letter to review some of the many products and services Amazon has developed and launched in recent years. Most focus on the customer experience, such as Prime, the Amazon Appstore and Amazon Web Services. But he also brings in a couple of employee benefits, including Career Choice, a program in which the company pre-pays 95% of tuition for employees who take courses in in-demand fields. That training and education need not be for a career at Amazon.
2014 – Strong, in-house partners: For Amazon’s 20th anniversary, Bezos chose to talk about three major in-house businesses: Marketplace, Prime and Amazon Web Services. He says a “dreamy” business, like each of these, has at least four characteristics: loved by customers; scalable to very large size; strong returns on capital; and potential to last for decades.
2015 – Culture: Bezos announced that Amazon had hit $100 billion in annual sales and was the fastest company ever to reach that threshold. At the same time, Amazon Web Services hit $10 billion in annual sales, at a faster clip than even the parent company. Bezos says the key is an organizational culture committed to a small number of principles. It is, he notes, “a culture that embraces invention and long-term thinking.”
2016 – Day 1, day 2: In this celebrated letter, Bezos distinguishes between two potential fates for Amazon. Day 1 is start-up mode, with lots of energy and passion, with willingness to think and do new things and with big goals. Day 2 is the fate he preaches against, as a company grows complacent and stagnant, leading to irrelevance, a painful decline and, finally, death. It is his plea to employees to stay true to the long-term vision of Amazon.
2017 - High standards: Bezos discusses the concept of “divinely discontented” customers, and how their expectations keep increasing. Staying ahead of expectations takes in many factors, but Bezos uses this opportunity to expound on “high standards,” which he says are a “big part” of it. High standards, he says, are learnable, particularly in a collegial atmosphere. Note how this idea connects to the idea of only hiring people who will raise the collective effectiveness of the company (1998 letter). Bezos says, “Building a culture of high standards is well worth the effort, and there are many benefits.”
This article wraps up my coverage of the Bezos annual letters, comprising 10 articles about individual letters and two overview articles. The articles can be accessed here. The original letters are all listed on this page.
In summary, Bezos is an extraordinary businessman and visionary. Fortunately, his letters are relatively easy to read and digest, and provide many lessons for both entrepreneurs and investors.
For investors, they emphasize the power of long-term thinking and a relentless customer focus. Investors who invested and waited have been richly rewarded.
Disclosure: I do not own shares in any company listed, and do not expect to buy any in the next 72 hours. I do list books for sale on Amazon.com and other online book retailers.
