Under founder and CEO Jeff Bezos, Amazon.com Inc. (AMZN) has become a retailing and cloud computing colossus, making him the world's wealthiest man with a net worth of $151.8 billion, as calculated by Forbes, nearly all of that from his stake in Amazon, now one of the world's largest companies with a market value of $910 billion. The stock has risen nearly 6-fold in five years. But Bezos made one thing very clear in his letter to shareholders released today along with Amazon's annual report: the company's growth has only begun, and he plans to make Amazon even bigger.
All this despite rising calls from critics that Amazon should be broken up due to antitrust concerns.
Below are five takeaways from Bezos's letter, summarized in both the table below and discussed in further detail in this story.
5 Takeaways From Jeff Bezos
- "Third party sellers are kicking our first party butt. Badly."
- "We knew we wanted to create a culture of builders" and employees with "customer obsession."
- "Amazon today remains a small player in global retail."
- "As a company grows, everything needs to scale, including the size of your failed experiments."
- "Today I challenge our top retail competitors (you know who you are!) to match our employee benefits and our $15 minimum wage...It's a kind of competition that will benefit everyone."
Third Party Sellers
From 1999 to 2018, Bezos says "the share of physical gross merchandise sales sold on Amazon by third party sellers--mostly small- and medium-sized businesses--as opposed to Amazon's own first-party sales" has skyrocketed from 3% of the total to 58%.
First-party sales grew from $1.6 billion to $117 billion over that period, for a compound annual growth rate (CAGR) of 25%. Third-party sales, meanwhile, surged from $0.1 billion to $160 billion, representing a 52% CAGR. By contrast, Bezos notes that eBay inc. (EBAY) posted a gross merchandise sales CAGR of only 20% in that same time frame.
"Why did independent sellers do so much better selling on Amazon than they did on eBay?...We helped independent sellers compete against our first-party business by investing in and offering them the very best selling tools we could imagine and build." In particular, regarding Fulfillment by Amazon and Amazon Prime, Bezos says that "these two programs meaningfully improved the customer experience of buying from independent sellers."
Culture of Builders
Bezos says that Amazon values "people who are curious, explorers," who "like to invent," and possess what he calls "customer obsession." He adds, "success can come through iteration: invent, launch, reinvent, relaunch, start over, rinse, repeat, again and again."
"The outsized discoveries--the 'non-linear' ones--are highly likely to require wandering." In this vein, Bezos cites Amazon Web Services (AWS), its cloud computing division, with $30 billion in annual revenues "and growing fast." He says, "Much of what we build at AWS is based on listening to customers," and asserts that the key to its success is "customer obsession." Moreover, he adds, "The biggest needle movers will be things that customers don't know to ask for."
Small Player in Global Retail
Bezos tries to counter growing concerns that Amazon is becoming a retailing monopolist. "We represent a low single-digit percentage of the retail market, and there are much larger retailers in every country where we operate. And that's largely because nearly 90% of retail remains offline, in brick and mortar stores."
With respect to their Amazon Go stores, of which there are now ten, the "clear vision" is to "Get rid of the worst thing about physical retail: checkout lines." He says that customers call the Amazon Go experience "magical."
"Failure needs to scale too"
"If the size of your failures isn't growing, you're not going to be inventing at a size that can actually move the needle. Amazon will be experimenting at the right scale for a company of our size if we occasionally have multibillion-dollar failures."
Challenge to Top Retail Competitors
Amazon has been criticized in many in-depth news stories for its long hours and inflexible, extremely demanding and stressful work environment. Bezos indirectly addressed these points in his letter.
"Our focus is on hiring and retaining versatile and talented employees who can think like owners. Achieving that requires investing in our employees." Bezos also says that Amazon's $15-an-hour minimum wage applies to all full-time, part-time, temporary, and seasonal workers in the U.S. He points out that Amazon pays up to 95% of the fees and tuition for "a certificate or diploma in qualified fields of study" and that more than 16,000 employees have taken advantage of it so far. He also says Amazon will be "upskilling" 50,000 U.S. hourly employees through training programs.