Jeff Bezos’ letter to shareholders

I like being that irresponsible one.

Though it is impressive that Amazon has turned a delivery fee - that most people don't like paying - into an exclusive subscription service. A service that customers fall over themselves to sign up for when it's offered at a discount.

Amazon is too good at what they do. The feeling that they give too good of a value, while I spent thousands of dollars on their site was a weird kind of high. That is the end game, you spend a lot with Prime since, it shows up in two days and no shipping etc. I cancelled my Prime membership, and just that saves me a hundred or two a month, because now I have to think twice before ordering anything since shipping cost is involved and also have to bundle enough items such that I qualify for free shipping.

side note: jet.com is not collecting sales tax yet. That is 8.25% differential where I live.

I think I'm being plenty responsible by (1) finding cheaper prices outside of Amazon (2) buying few enough things that the cost of Prime amortizes to an expensive shipping rate and (3) not making impulse purchases and being patient enough that I can live with the free non-Prime shipping.

I recently took advantage of Prime but I don't buy from them often enough, not even every year. I cancelled before the 30 days free trial expired. If they somewhat manage to get me buy stuff on Amazon often, I'll be back.

Then Amazon is going to have to become much much better.

I live in London, UK and do not use Prime. I've almost stopped using Amazon altogether now.

Why?

1. Delivery - For our flat, their network either fails to deliver, mis-delivers or screws up in some other way far more than they succeed. There is no option to choose the one postal service that shines for my property: Royal Mail. Anything I order from Amazon may turn up eventually, but certainly isn't going to arrive whenever they claim. This is my #1 reason for abandoning Amazon.

2. Range and choice - Either you can't find what you want (the range within cycling for example is extremely limited) and have to look elsewhere, or you're swamped with marketplace sellers and what feels like a million grey goods. The Google engineer's "Which USB type-C cables are good" illustrates the sheer number of items that are of shoddy quality but are represented on the site as being of quality. There is simply, too much crap and not enough quality.

3. Price - I simply don't find Amazon the cheapest at almost anything. On their site it looks cheaper, always discounted, but if you take the manufacturers' SKU and Google it one quickly finds a whole load of places selling it for the same price or cheaper, also with free postage, or cheaper to the point that postage is irrelevant.

4. Bundling - Amazon Prime Video really isn't as good as Netflix, Amazon Prime Now isn't beating Shutl for me in London https://shutl.com/uk/, free postage hasn't been compelling (point #3)... but somehow bundling all of these things together into an ~£80 per year subscription is supposed to make a range of sub-par offerings value for money?

5. Warranty - I've purchased things on Amazon Prime, thinking they were covered by Amazon's customer service, only to discover that the obscure market place seller is really the seller and so my warranty complaints go back to them. They've been overseas and uninterested, and I've had to simply write-off the value of those items. If I buy elsewhere I can factor this in a lot more and choose a reputable seller. Depending on the item, i.e. I recently purchased a 40" 4K Sony TV, then I really want to be sure these high value items are going to be covered by a company that delivers great customer service... John Lewis in my case. There needs to be a Public Service Announcement in the photography section for the sheer number of lens that wouldn't be covered by warranty.

I actually view Prime as nothing more than a hook, to keep shoppers too lazy to look around under a spell of "this is a bargain, you're receiving great value".

In reality what Amazon once was is a long way from what they now are and Prime is a mask for that.

Pity Prime video isn't available outside of the US/UK and 2 day shipping in Toronto...just poor value for money for Canadians.

You can almost hear the ghost of Warren Buffet pitching Geico echoing through Bezos' prose.

I live in Seattle and am friends with a lot of Amazon folks. Most work very hard and complain from time to time, but I only know one who left for another job because most who are there now actually really like their jobs.

One friend put it best after he transitioned from a small department in the ecommerce side of the business to one of AWS's early-ish hires, that most young departments have the thrill of working at a startup but with some very supportive corporate backing (as long as things are growing).

We venerate leaders like Churchill and Roosevelt because they inspired millions of individuals to act directly against their self-interest and in favor of the organizations that those leaders own and manage. "We will fight on the beaches" sure sounds inspiring, but if it was my intestines bleeding out onto the sands of Normandy, at that exact moment, it wouldn't have quite the same ring. Yet these inspiring words still convince millions to follow them, and so we have warehouse workers dropping from heat stroke and programmers sacrificing their personal life to fix that bug into the late hours, all so people like Bezos can live the high life, rake in millions, and write some pithy emails. Works for them I suppose, and it seems to be human nature for such type of organizations to arise and dominate. Amazon is a great company that makes a lot of money, no doubt about its success. Me? I'll try to keep my intestines _inside_ my stomach.

Most of his shareholder letters are like this. Even the 1997 reprint they put in every year as part of the letter talks a lot about the company philosophy and culture. Certainly some of the stuff at the end about new programs for parents and students is from NYTimes, but I think the rest of it is consistent belief/action since the start of the company.

This is just how Jeff Bezos writes those letters, and those letters need to be written regardless of if the public is currently discussing of how poorly Amazon treats its employees or not.

The last part about "pioneering new programs" though, that's very likely related to the public's new awareness of how frustrating it is to work there.

I agree. I think these lines are directly related to the NYT controversy:

""" If it’s a distinctive culture, it will fit certain people like a custom-made glove. The reason cultures are so stable in time is because people self-select. Someone energized by competitive zeal may select and be happy in one culture, while someone who loves to pioneer and invent may choose another. """

I suspect a lot of the current griping over hiring practices is due to this. Small companies cargo-cult hiring practices from Google/Amazon/Apple/Facebook, but they forget that these companies have huge numbers of good applicants who are willing to jump through hoops just for the opportunity to have $BIGNAME on their resume.

Like when the Steve Jobs book came out and every CEO in the valley all of a sudden thought they were a product design genius.

Agreed. At least Bezos's letter is online where everybody can read it. At least we all know what the shiny little nugget looks like that people are chasing.

That's better than chasing some shiny buzzword from a business professor writing in the Harvard Business Review. With a public-company shareholder letter, everybody can know the context.

Oh god yes. At one company, I'd see an article trending on HN and think, "Oh fuck, some suck-up's gonna email to everyone, and the CTO will publicly pat him on the head for confirming his prejudices."

Do you understand why your CEO swings for the fences? It sounds like the mindset isn't what bothers you, it's why she swings for the fences.

Looking at it that way, it's kind of impressive that Yahoo! is still around.

Prodigy...I think that's the most archaic seeming company in that list.

I'm not going to take a letter that uses silly names seriously. That's grade-school rhetoric.

History proves that revolutionaries often make bad leaders.

Very interesting

Seems to be doing ok http://www.reviewjournal.com/business/zappos-predicts-massiv...

It blew my mind that his example of helping a single mom of EIGHT was her getting trained as a long haul truck driver. Who's taking care of that many kids while she's gone? Truck driving is not that well-paid, and the length of absences is right there in the job title.

Yeah, obvious window-dressing is obvious.

Bezos does not give a flying fuck about the wellbeing of his workers, both in the warehouse and in engineering.

They are convinced of the vision and have an unwavering belief that they will achieve this vision, but there are many paths one can take. So to act rationally when encountering a failed attempt, given their belief, is to learn and try something else. :)

You can have tactical failures that don't invalidate the vision.

Your quote is from the section where they are explaining their first attempt at an auction house and how it failed but how their current system of third party retailers is implementing a similar idea in a successful way.

They kept the same vision/goal but they learned from how their first attempt failed and iterated on it until it succeeded.

How so? You try again when you fail like that Thomas Edison quote: "I have not failed. I've just found 10,000 ways that won't work."

There's another part of the quote that was not included that relates to being flexible on tactics (...while being stubborn on vision). So the "why" and "for whom" stay constant, but the "what" and "how" may change as you learn.

He's talking about failures related to individual steps on the way to the greater vision of what Amazon is supposed to represent as a value proposition to customers.

A single failure on a step, such as the Fire Phone for example, doesn't imply a failure of the overall vision ("Our vision is to be earth's most customer centric company; to build a place where people can come to find and discover anything they might want to buy online.").

Usually vision is paired with the concept of execution. The vision was to build a business out of being a marketplace where third parties can sell goods, they failed twice on the execution.

Now they know exactly what they are doing wrong?

$99 Prime, for example

1 vs 2 is a bad, non-mnemonic naming convention to use, for either of those cases. Sadly, it also appears in "type I vs type II" errors. Even "false positive vs false negative" isn't helpful, since the decision of what counts as "positive" is arbitrary. Better to refer to the category directly: eg, "false ham vs false spam", "false acceptance vs false rejection".

While we're on the topic Amazon and bad naming, what's with AWS EC2 instances? They have "spot" vs "on demand" instances, which have very different properties, ideal for different use cases ... and yet, in the context of economics and markets, the terms are basically synonyms!

I wouldn't read into it too much. Amazon has adopted every stupid management fad and religion under the sun from six sigma to kaizen to lean to 5s to agile, etc. The idea being that if you are an expert on something totally made up you must deserve that big fat raise and promotion. I feel sorry for all the people who are going to have to go through Bezos method decision making training (black belt omega critical OT level VIII version).

Amazon had a $7B biz in 2015[0]. I am on mobile but I believe they have more servers than google. obviously, it fits with my personal narrative/is self serving, to say that the war for search is coming, but it is.

Microsoft basically modeled azure as a more user friendly AWS, and is courting devs with the release today of integrated code search with hacker rank, as well as the push to open source a ton of tooling (similar to googledocs enterprise strategy) to get developers on the platform.

msft also is pushing blockchain on azure, likely because it is interesting to developers and they have failed miserably to get payments done like apple & google.

Search is going to be big as ecosystems narrow, however outside of this, and to your point, AWS is a very valuable part of AMazons strategy.

Never in the world (maybe robber baron era but quite dif) has anyone owned the entire channel. Amazon:

1. Retailer of physical things.

2. marketmaker for physical things.

3. producer, market maker, and retail distribution for dogital goods.

4. last-mile delivery of physical goods.

5. backbone provider for phys goods (registered shipping broker)

6. owner of infrastructure of most of the conpetitors. in the christensen innovators dillemma sense, they don't have it. if someone does sonethong better than them and scale, they are hedged by getting paid for theyre infrastructure.

so interesting stuff. as search becomes less of a monopoly and continues to be edged out by ancilliary products, google is going to invest heavily in infrastruct. you can see them doing this now as they get cash together, tighten focus and embrace this meta stricture.

Short Term, AMZN is likely to be richest company in the world. excepting maybe Apple as they continue to build product & transition into an o2o Bank & Finance institution. they already are quite large, having users with accounts, they're own quasi credit card & payment system, and capital reserves. this lesves aside their lending activities (at tje supply chain level) snd affiliate marketing with barclaycard ect

0. http://www.businessinsider.com/why-amazon-is-so-hard-to-topp...

If the Amazon river dried up we'd all be dead. Most of it's 'economic' value isn't recorded in our myopic economic measurements.

I guess you can now say Brazil has the 2nd most valuable Amazon.

"Economic value" is a slippery concept.

First off, most people read that as "price times volume", or the exchange value of some good or service. The Amazon River isn't exchanged, it has no exchange value.

Another definition of "economic value" is use value, which is to say, the benefit derived from use, possession, existence, control, etc., of some good. The problem here is that economics has little handle on estimating just what this use-value is. Some economists claim it cannot be measured or known (e.g., Ludwig von Mises), others note that it's not intrinsic but is always relative -- a property between the valuer and the valued (William Foster Lloyd in his 1834 essay on value, William Stanley Jevons in his book on money and transactions). That is, there is no absolute value.

(Lloyd's essay is prescient in some ways of Einstein's later work.)

Edwin Cannen, editor and researcher on Adam Smith notes that Smith's definition of wealth, "the annual labour and produce of the nation", specifically excludes the concept of land or mineral wealth as included in that definition. That's a recent discovery of mine in the past week or so, and I want to look into it further, but it's quite the observation.

I've been working on a couple of concepts. One is that there are really three related but distinct concepts: costs, value, and price. They're somewhat related, but through a loose mechanism.

Cost is what you give up to get something. "All costs are opportunity costs" (Krugman, Economics, 2008).

Value is what you gain by something. Individually, value is hard to measure but in aggregate you've got good percentage going off biological or ecological measures, usually of metabolism, energy, or energy-and-materials throughput.

Price then becomes a somewhat odd duck, in that it's a cost for the motivation of exchange. Ideally we'd like C <= P < V, that is, cost is less than or equal to price, which is less than value.

Several problems introduce themselves though, and I'm going to hand wave and say "it's complicated", but for numerous reasons over the short term, price can fall well below long-term costs (the rational is similar to the logic of the shut-down point in microeconomics).

But let's go back to the cost of providing Amazon, Inc., vs. the Amazon River.

The former has an economic throughput of, very roughly, $100 billion dollars. This is an estimate, and I think I'm high here. But there's a point to this.

Turns out if you look at US GDP and energy inputs, a barrel of oil generates about $1,000 of GDP. So Amazon's revenues represent about 1 million barrels of oil energy equivalent.

I'm going to estimate that the Amazon River Basin is about 1/4 the surface area of South America (which I've got as a constant in GNU Units). It receives incident sunlight at roughly 1 kW/m^2 for 8 hours a day, or equivalently, for 1/3 of the duration of a year.

In barrels of oil equivalent, that's about 7 trillion.

Which is to say, there's about 7 billion times the cost to provisioning the Amazon as there Amazon, Inc.

If Amazon, Inc. disappeared off the face of the Earth, a few tens of thousands of people would need to find a new job, and a few hundreds of millions others would have to travel to the store or find a new eCommerce provider.

If the Amazon disappeared off the face of the Earth, odds are that an event significant enough to destroy all of modern civilisation would have transpired. One valuation of that is the roughly $70 trillion of the global economy.

I'd say the river wins over Big River Book Company.

The fact that our economic system fails to account for the relative values correctly says far more for what's wrong with our economic system than with how valuable Amazon, Inc. is, or how unvaluable the Amazon River is.

----

And checking my estimates. The Amazon River basin is 7 million km^2, or about 39% the area of South America.

Amazon's 2015 annual revenues were actually $107 billion, though profits were $1 billion. So I was less generous than intended.

Still, at 7 billion : 1 I'd argue my analysis is within reason.

> Amazon isn't making any money yet.

Amazon makes TONS of money. They aren't currently returning any of it to shareholders as profits, they're continuously reinvesting it in the company.

The difference between gross profit and net profit is how much Amazon is spending on building new businesses that after a few years start grossing $10b a year in sales like AWS. That got funded out of the gross profits from regular Amazon retail operations.

$596 million in net income the last four quarters to be exact. So yeah, they are making money.

Further, AWS is a money printing machine. It's generating over $700 million in operating income per quarter, and that's growing very fast. It'll be at $5+ billion per year in operating income within perhaps just two or three more years. There aren't very many technology businesses anywhere producing that kind of operating income.

Haven't tried Azure yet - will give it a spin eventually. I love Digital Ocean compared to AWS. Sure, AWS has a lot of bells and whistles, but this simplicity of DO is just what I need most times.