Best parts of the annual Jeff Bezos’ letters to stakeholders

Last weekend I was fascinated by Jeff Bezos’ letters to Amazon shareholders.

Here are my favorite parts from every year if you want to save 3 hours not reading it all (despite it being worth it). I skipped some years as they are too boring.

1997: Day 0

It is all about long-term[…] We first measure ourselves in terms of the metrics most indicative of our market leadership: customer and revenue growth, the degree to which our customers continue to purchase from us on a repeat basis, and the strength of our brand.

1998: The most customer-centric company ever

I constantly remind our employees to be afraid, to wake up every morning terrified. Not of our competition, but of our customers. Our customers have made our business what it is, they are the ones with whom we have a relationship, and they are the ones to whom we owe a great obligation. And we consider them to be loyal to us — right up until the second that someone else offers them a better service.

1999: Operational excellence

To us, operational excellence implies two things: delivering continuous improvement in customer experience and driving productivity, margin, efficiency, and asset velocity across all our businesses.

2000: Dot-com bubble

…the company is better positioned today than it was a year ago, why is the stock price so much lower than it was a year ago? As the famed investor Benjamin Graham said, ‘‘In the short term, the stock market is a voting machine; in the long term, it’s a weighing machine.’’ Clearly there was a lot of voting going on in the boom year of ’99 — and much less weighing. We’re a company that wants to be weighed, and over time, we will be — over the long term, all companies are. In the meantime, we have our heads down working to build a heavier and heavier company.

2002: Amazon flywheel

Traditional stores face a time-tested tradeoff between offering high-touch customer experience on the one hand and the lowest possible prices on the other. How can Amazon.com be trying to do both?
The answer is that we transform much of customer experience — such as unmatched selection, extensive product information, personalized recommendations, and other new software features — into largely a fixed expense. With customer experience costs largely fixed (more like a publishing model than a retailing model), our costs as a percentage of sales can shrink rapidly as we grow our business. Moreover, customer experience costs that remain variable — such as the variable portion of fulfillment costs — improve in our model as we reduce defects. Eliminating defects improves costs and leads to better customer experience.

2003: First mention of A/B testing

When we launched Instant Order Update, we were able to measure with statistical significance that the feature slightly reduced sales. Good for customers? Definitely. Good for shareowners? Yes, in the long run.

2004: Negative capital advantage

We have a cash generative operating cycle because we turn our inventory quickly, collecting payments from our customers before payments are due to suppliers.

2005: Math vs. intuition

Math-based decisions command wide agreement, whereas judgment-based decisions are rightly debated and often controversial, at least until put into practice and demonstrated. Any institution unwilling to endure controversy must limit itself to decisions of the first type. In our view, doing so would not only limit controversy — it would also significantly limit innovation and long-term value creation.

2006: Intro of AWS

Our established businesses are well-rooted young trees. They are growing, enjoy high returns on capital, and operate in very large market segments. These characteristics set a high bar for any new business we would start. Before we invest our shareholders’ money in a new business, we must convince ourselves that the new opportunity can generate the returns on capital our investors expected when they invested in Amazon. And we must convince ourselves that the new business can grow to a scale where it can be significant in the context of our overall company.

2008: Financial crisis

Stay heads down, focused on the long term and obsessed over customers. Long-term thinking levers our existing abilities and lets us do new things we couldn’t otherwise contemplate[…[] We have strong conviction that customers value low prices, vast selection, and fast, convenient delivery and that these needs. It is difficult for us to imagine that ten years from now, customers will want higher prices, less selection, or slower delivery.

2009: Goal-setting

Our annual goal setting process begins in the fall, and concludes early in the new year after we’ve completed our peak holiday quarter. Our goal setting sessions are lengthy, spirited, and detail- oriented. We have a high bar for the experience our customers deserve and a sense of urgency to improve that experience.

2010: The very technical one

Our technologies are almost exclusively implemented as services: bits of logic that encapsulate the data they operate on and provide hardened interfaces as the only way to access their functionality. This approach reduces side effects and allows services to evolve at their own pace without impacting the other components of the overall system. Service-oriented architecture — or SOA — is the fundamental building abstraction for Amazon technologies.

2016: Philosophical one

There are many advantages to a customer-centric approach, but here’s the big one: customers are always beautifully, wonderfully dissatisfied, even when they report being happy and business is great. Even when they don’t yet know it, customers want something better, and your desire to delight customers will drive you to invent on their behalf.