AMZN — Approx 400X since 1997 — Wisdom from Successful Internet Giants
Since 1997, Amazon’s stock price has risen from $5 per share to around $1,800 per share.
Read: 21 Lessons From Jeff Bezos’ Annual Letters To Shareholders
Together, these letters form a library of Jeff Bezos’ most distilled thinking on running a successful, high-growth company.
- 2017: Build high standards into company culture
- 2016: Move fast and focus on outcomes
- 2015: Don’t deliberate over easily reversible decisions
- 2014: Bet on ideas that have unlimited upside
- 2013: Decentralize decision-making to generate innovation
- 2012: Surprise and delight your customers to build long-term trust
- 2011: Self-service platforms unlock innovation
- 2010: R&D should pervade every department
- 2009: Focus on inputs — the outputs will take care of themselves
- 2008: Work backwards from customer needs to know what to build next
- 2007: Missionaries build better products
- 2006: Nurture your seedlings to build big lines of business
- 2005: Don’t get fixated on short-term numbers
- 2004: Free cash flow enables more innovation
- 2003: Long-term thinking is rooted in ownership
- 2002: Build your business on your fixed costs
- 2001: Measure your company by your free cash flow
- 2000: In lean times, build a cash moat
- 1999: Build on top of infrastructure that’s improving on its own
- 1998: Stay terrified of your customers
- 1997: Bring on shareholders who align with your values
- Links to Jeff Bezos’s Shareholder Letters (1997–2017)
*****Personal Liked Paragraphs — 2014/2012/2011/2005/2003 *****
2014: Bet on ideas that have unlimited upside
“A dreamy business product has at least four characteristics. Customers love it, it can grow to very large size, it has strong returns on capital, and it’s durable in time — with the potential to endure for decades. When you find one of these, don’t just swipe right, get married.”
Takeaway
Be aggressive about placing bets on dreamy business ideas. You’ll have failures, but sufficiently big winners will more than make up for all of your failed experiments.
Challenge
Many relationships, particularly business ones, require bold moves to get going. And to find true success, you have to commit for the long haul. The problem is that these moves don’t just appear risky — often, they’re hard to rationally justify at all.
When your risk tolerance is high, you can make bets all over the map.
Organizations that want to make data-driven decisions often have a difficult time with placing risky bets because those bets often don’t have clear quantitative evidence to support them. If they did, there wouldn’t be a risk of failure, there wouldn’t be experiments, and there wouldn’t be such a big upside.
Solution
Place your bets where your downside is capped but your upside is unlimited.
For Bezos, the best bets are on dreamy businesses. You know you have a “dreamy” business idea when:
- Customers love it
- It has the potential to become very large
- It has the potential of very strong returns
- It has the possibility to endure
Each of the three major bets that Bezos mentions in this letter — Marketplace, Amazon Web Services (AWS), and Prime — was a risky idea.
With Prime, for example, no one on the Amazon team could point to numbers showing that giving customers free shipping for a yearly fee would ever pay for itself.
Today, each of these three bets is a pillar of Amazon’s business. In fact, in 2017, all of Amazon’s operating income came from AWS, a once-risky bet on a “dreamy” business idea. With almost $17.5 billion in sales in 2017, and about $4.5 billion in profit, it was Amazon’s second-largest source of revenue.
Not every bet that Amazon has ever placed has succeeded. The company was a significant shareholder in both Pets.com and living.com, for example. They lost their investment, but stood to gain so much more if they turned out right.
2012- Surprise and delight your customers to build long-term trust
Solution
Building a great customer-centric business over the long-term doesn’t happen when you’re only reacting to your competitors.
Proactively delighting your users costs money, but it pays off when you distinguish yourself — your customers stick around for longer and they pay you more.
The longer a company is able to retain its customers, the less it needs to spend on acquisition or marketing. The more revenue it drives from each customer, the stronger its business.
For Amazon, building a high lifetime value among its customer base through proactive delight has been a powerful differentiator. The average lifetime value of a Prime customer was estimated at $2,500 in 2017, well over the $150 average in e-commerce.
2011: Self-service platforms unlock innovation
“I am emphasizing the self-service nature of these 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.”
Takeaway
A platform that other people can use to generate value will always be more powerful than a controlled, walled garden that you control and populate with your own content.
Incentivize people to use your self-service platform, and you can build a much larger business than you could even as a well-meaning gatekeeper.
Challenge
The main impediment to platform creation today is technology. Companies that do not invest in technology that can turn their work into a platform are going to fall behind.
Solution
Amazon has disrupted traditional publishing similarly to how it disrupted traditional retail: by building a platform for other people to use to sell their wares.
In publishing, agents and editors decide what is quality and what’s not. They only have the resources to produce and market a certain number of books every year, so they can’t publish everything that comes across their desks.
With Kindle Direct Publishing, authors can set their own list prices for written work, control their rights, and get their books in front of readers around the world in less than 48 hours. No gatekeeper needed.
Amazon provides the same type of self-service platform for internet companies through AWS and merchants via Fulfillment by Amazon. “These innovative, large-scale platforms are not zero-sum — they create win-win situations and create significant value for developers, entrepreneurs, customers, authors, and readers,” and of course, Amazon.
Jeff Bezos’ Amazon shareholder letters 2005
Some decisions can be made with data, but many of the important business decisions can only be made with judgment.
Many opportunities with fantastic upside won’t make sense in the short-term — to identify these, you have to think about what makes the most sense for your customers.
2003: Long-term thinking is rooted in ownership
“Long-term thinking is both a requirement and an outcome of true ownership. Owners are different from tenants. I know of a couple who rented out their house, and the family who moved in nailed their Christmas tree to the hardwood floors instead of using a tree stand. Expedient, I suppose, and admittedly these were particularly bad tenants, but no owner would be so short-sighted. Similarly, many investors are effectively short-term tenants, turning their portfolios so quickly they are really just renting the stocks that they temporarily ‘own.’”
