Jeff Bezos’s shareholder letter explains a lot

Discussion
May 11, 2015
David Dorf

Through a special arrangement, presented here for discussion is an excerpt of a current article from Commerce Anywhere Blog.

I’ve come to have great respect for Amazon and its leader Jeff Bezos and I continue to be amazed at the company’s accomplishments. Here are my five favorite quotes from Mr. Bezos’s most recent annual letter to shareholders.

Graduating from Princeton and starting his career in the financial industry, Mr. Bezos has always been interested in business models. This first quote references Tinder, a dating site where "a swipe can change your life."

"A dreamy business offering 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."

Mr. Bezos is very proud that Amazon is not just a single business, but many related businesses with synergy. In his letter he called out three main businesses: Marketplace, Prime and Amazon Web Services. This next quote refers to Amazon’s ability to efficiently fulfill orders quickly.

"Our worldwide network of fulfillment centers has expanded from 13 in 2005, when we launched Prime, to 109 this year. We are now on our eighth generation of fulfillment center design, employing proprietary software to manage receipt, stowing, picking, and shipment."

Amazon fulfillment

Photo: Amazon.com

While Prime started out focused on free shipping, many additional benefits have been added, including instant video. This year, "Transparent," an original series won a Golden Globe award.





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"I’m pretty sure we’re the first company to have figured out how to make winning a Golden Globe pay off in increased sales of power tools and baby wipes!"

Combining the benefits of Prime and Marketplace has been a successful endeavor that accelerates growth in both programs, or in Bezos-speak, "powering the flywheel."

"Every time a seller joins Fulfillment By Amazon, Prime members get more Prime eligible selection. The value of membership goes up. This is powerful for our flywheel. FBA completes the circle: Marketplace pumps energy into Prime, and Prime pumps energy into Marketplace."

No doubt you know Amazon’s $5 billion cloud business is growing fast. What started as a platform mostly used by start-ups is now maturing to attract many established enterprises. This quote refers to AWS:

"What customers really want in this arena is ‘better and faster,’ and if ‘better and faster’ can come with a side dish of cost savings, terrific. But the cost savings is the gravy, not the steak."

Whether you love Amazon or hate it, you have to respect what it’s accomplished.

Is there a lesson about business diversification that other retailers can take from Amazon? What has most impressed you about what Amazon has brought to retail?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"I teach a domino theory for diversification. Just like the game of dominoes, each step in diversification must be connected to something in place, technology, brand, geography, customers, etc. I use several companies as excellent examples of doing this. Amazon is one of them. The others are Disney, Apple and GE. All four are in very different places from where they started, but you can clearly map a domino game of each step they took."
"Most large corporations insist on delivering profits from each business unit. That’s conventional business thinking. Jeff Bezos’ willingness to accept synergies instead is perhaps his most fascinating distinction. Only a nearly autocratic business leader could pull that one off."

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14 Comments on "Jeff Bezos’s shareholder letter explains a lot"


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Dick Seesel
Guest
5 years 2 months ago

Most impressive is Amazon’s ability to leverage its brand equity in category after category, fueling its growth. “Better and faster” are the key words here, because the company’s reputation for great execution — not just broad assortments and competitive prices — has allowed it to spread its wings dramatically over the past 10 years. And the expansion has been deliberate and organic — from books to e-books and e-readers to a vast assortment of merchandise and digital services — all based on customers’ belief that the company will do what it says.

Paula Rosenblum
Guest
5 years 2 months ago

Amazon has set a standard in the speed of free delivery. And it has been America’s favorite retailer for seven years running. That says a lot for a company that has almost no human-to-human interaction.

It’s Nirvana-like.

And if the company could actually become profitable on a sustained basis, it would be TRUE Nirvana.

I think grasping that content is king is a very big deal, and actually executing on that vision is bigger still. Kudos to Amazon for Transparent (a great show, by the way).

Max Goldberg
Guest
5 years 2 months ago

I don’ t think the lesson is in diversification — it’s in getting the basics right. Amazon took care to perfect inventory control, shipping and handling, value pricing and customer service. Then they added a subscription model that attacked one of the main reasons consumers hesitated to buy online, shipping expenses. Amazon gives consumers what they want. It’s in stock, arrives quickly and has a great customer service ethic to back it up. Retailers can learn a lot from Amazon.

Ian Percy
Guest
5 years 2 months ago

Remember “In Search of Excellence?” One of the key directives in that ancient text was to “Stick to the Knitting.” Whatever happened to that advice? Hard to argue against Amazon’s diversification strategy so I guess the real questions is “What exactly are you knitting?”

Amazon doesn’t have any ambiguity about the answer. The trouble for many of the rest of us is that we don’t really have an answer. And that is the challenge Amazon puts to the rest of retail.

Camille P. Schuster, PhD.
Guest
5 years 2 months ago

Amazon has a vision and focus, executes against that vision and focus, moves on to the next project. As long as the projects continue to reinforce each other and produce with this same level of synergy there will be great success.

Ryan Mathews
Guest
5 years 2 months ago

In a word — focus.

Amazon’s success is due in no large measure to a relentless focus on exploiting weaknesses in market offerings on a category-by-category basis and then crafting an offering that addresses that weakness in a way that at least appears to advance significant customer benefits.

One could argue that the disintermediation Amazon has wrought in several categories — books, most especially text books, video distribution, etc. — has revolutionized the way many consumers shop. Of course you could also argue that, at the end of the day, reduction in retail choice is never in the best interest of the consumer.

Amazon has also leveraged laws in its favor and doesn’t have anyone’s idea of a benign labor model.

But the most important lesson to me is the ongoing benefits accrued through prime mover advantage. So the best advice is don’t model Amazon, invent your own game changer.

Tom Redd
Guest
5 years 2 months ago

I respect what they have achieved, but still see an operation that has milked the online retail trend in a massive way and soon will see that the cow has no more milk. They also were a jump ahead at securing the Millennials, but that market is changing too. Jeff has his visions and some will work. The others will be the demise of Amazon over the next five to 10 years. No, profit does not last long in the retail/business world. The WOW days are over.

Keith Anderson
Guest
5 years 2 months ago

I’ve spent a lot of time studying Bezos and Amazon’s values and culture and have long admired several of its core tenets:

  • Passion for the messy work of pioneering.
  • A relentless focus on the long term.
  • Comfort being misunderstood.
  • A willingness to disrupt its own business — before others do.

More than any individual retailing tactic, these are lessons I think other retailers can apply to their advantage.

Anne Howe
Guest
5 years 2 months ago

In any business where cost savings gets the status of gravy, not steak, the respect factor has to go up more than just one notch. Just take a minute and take a mental count of how many Wall Street Journal articles you’ve read in the past quarter about CEOs diligently trying to cost cut into analyst earning expectations. Right?

I happen to love Amazon because I directly benefit from the fueling of the flywheel. Being a traveler, I don’t really get the time to do as much brick-and-mortar shopping as I’d like, unless you count airport shops. So the idea that Marketplace fuels Prime gives me more and faster, week after week. The value makes my life better — another round of golf versus scouring stores for 120″ curtain rods that won’t even fit in my car!

Gene Detroyer
Guest
5 years 2 months ago

I teach a domino theory for diversification. Just like the game of dominoes, each step in diversification must be connected to something in place, technology, brand, geography, customers, etc. I use several companies as excellent examples of doing this. Amazon is one of them. The others are Disney, Apple and GE. All four are in very different places from where they started, but you can clearly map a domino game of each step they took.

Ed Rosenbaum
Guest
5 years 2 months ago

Amazon has the knack of not being one thing to all people. They have become the go-to source for anything one wants or thinks they need. We have to be impressed that they are not sitting still on their laurels waiting for the world to catch up. Plus, what they do to grow is relevant to today’s needs and customers. They are not thinking outside the box, but do think of ways to expand the box.

Shep Hyken
Guest
5 years 2 months ago

Many companies diversify but not all of their new ventures or acquisitions are synergistic or congruent. What impresses me most about Amazon — and Jeff Bezos — is how well the businesses fit together. When one company can support and/or become more successful because of another, it’s a winning combination where one plus one should equal more than two.

James Tenser
Guest
5 years 2 months ago

Amazon’s willingness to subsidize one business with profits from another has been its not-so-secret sauce. I refer in particular to developing its cloud services as a cash cow, while it can continue to operate some of its consumer-facing elements at a loss, for example delivery services.

Most large corporations insist on delivering profits from each business unit. That’s conventional business thinking. Jeff Bezos’ willingness to accept synergies instead is perhaps his most fascinating distinction. Only a nearly autocratic business leader could pull that one off.

Peter Charness
Guest
5 years 2 months ago

Their ability to focus on the long term and make all business decisions in the context of that. Perhaps other public quarterly focused businesses can learn from that one. Too many underoptimized decisions are the result of living for quarter ends, and not building for growth.

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Braintrust
"I teach a domino theory for diversification. Just like the game of dominoes, each step in diversification must be connected to something in place, technology, brand, geography, customers, etc. I use several companies as excellent examples of doing this. Amazon is one of them. The others are Disney, Apple and GE. All four are in very different places from where they started, but you can clearly map a domino game of each step they took."
"Most large corporations insist on delivering profits from each business unit. That’s conventional business thinking. Jeff Bezos’ willingness to accept synergies instead is perhaps his most fascinating distinction. Only a nearly autocratic business leader could pull that one off."

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