Jeff Bezos (CEO Amazon) explains his business model to shareholders

(UPDATE) the founder of published here , it is inspiring for me and I will start to do the same at . Austen Allred Lambda School every Amazon Shareholder Letter in a Single Downloadable PDF Waydev To our shareowners: “ This year, . Also this year, is reaching … doing so at a pace even faster than Amazon achieved that milestone. Amazon became the fastest company ever to reach $100 billion in annual sales Amazon Web Services $10 billion in annual sales What’s going on here? Both were planted as tiny seeds and both have grown organically without significant acquisitions into meaningful and large businesses, quickly. Superficially, the two could hardly be more different. One serves consumers and the other serves enterprises. One is famous for brown boxes and the other for APIs. Is it only a coincidence that two such dissimilar offerings grew so quickly under one roof? Luck plays an outsized role in every endeavor, and I can assure you we’ve had a bountiful supply. But beyond that, there is a . Under the surface, the two are not so different after all. They share a distinctive that cares deeply about and acts with conviction on a small number of principles. I’m talking about rather than competitor obsession, eagerness to invent and pioneer, willingness to fail, the patience to think long-term, and the taking of professional pride in operational excellence. Through that lens, . connection between these two businesses organizational culture customer obsession AWS and Amazon retail are very similar indeed A word about corporate cultures: for better or for worse, they are enduring, stable, hard to change. They can be a source of advantage or disadvantage. . It is created slowly over time by the people and by events — by the stories of past success and failure that become a deep part of the company lore. 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, . The world, thankfully, is full of many , . We never claim that our approach is the right one — just that it’s ours — and over the last two decades, we’ve collected . Folks who find our approach energizing and meaningful. You can write down your corporate culture, but when you do so, you’re discovering it, uncovering it — not creating it while someone who loves to pioneer and invent may choose another high-performing highly distinctive corporate cultures a large group of like-minded people One area where I think we are especially distinctive is failure. I believe we are the ( ), and failure and invention are inseparable twins. To invent you have to experiment, and if you know in advance that it’s going to work, it’s not an experiment. Most large organizations embrace , but are not willing to suffer the string of failed experiments necessary to get there. Outsized returns often come from betting against conventional wisdom, and conventional wisdom is usually right. Given a ten percent chance of a 100 times payoff, you should take that bet every time. But you’re still going to be wrong nine times out of ten. We all know that if you swing for the fences, you’re going to strike out a lot, but you’re also going to hit some home runs. The difference between baseball and business, however, is that baseball has a truncated outcome distribution. When you swing, no matter how well you connect with the ball, the most runs you can get is four. In business, every once in a while, when you step up to the plate, you can score 1,000 runs. This long-tailed distribution of returns is why it’s important to be bold. . best place in the world to fail we have plenty of practice! the idea of invention Big winners pay for so many experiments , and are all examples of at Amazon that worked, and we’re fortunate to have those three . They have , and there are certain things that only large companies can do. With a tip of the hat to our Seattle neighbors, no matter how good an entrepreneur you are, you’re not going to build an all-composite 787 in your garage startup — not one you’d want to fly in anyway. Used well, our scale enables us to build services for customers that we could otherwise never even contemplate. But also, if we’re not vigilant and thoughtful, size could slow us down and diminish our inventiveness. AWS Marketplace Prime bold bets big pillars helped us grow into a large company As I meet with teams across Amazon, I am at the , and on display. Our teams accomplished a lot in the last year, and I’d like to share a few of the highlights of our efforts to nourish and globalize our three big offerings — , and . And while I’ll focus on those three, I assure you that we also remain hard at work on finding a fourth. continually amazed passion intelligence creativity Prime Marketplace AWS Prime We want Prime to be such a good value, . you’d be irresponsible not to be a member We’ve grown Prime two-day delivery selection from , added , and introduced on hundreds of thousands of products for customers in more than . We’ve , , the Kindle Owners’ Lending Library, and . 1 million items to over 30 million Sunday Delivery Free Same-Day Delivery 35 cities around the world added music photo storage streaming films and TV offers members on an important subset of selection, and was launched only 111 days after it was dreamed up. In that time, a small team built a customer-facing app, secured a location for an urban warehouse, determined which , got those items stocked, recruited and on-boarded new staff, tested, iterated, designed new software for internal use — both a warehouse management system and a driver-facing app — and launched in time for the holidays. Today, just 15 months after that first city launch, . Prime Now one-hour delivery 25,000 items to sell Prime Now is serving members in more than 30 cities around the world offers exclusives from some of the world’s . We want brilliant creators like , and to . Our original series have already earned more than and won nearly , including and . Many of these are stories that might never have been told in the traditional linear programming model. In the pipeline and coming soon are new series and movies from creators like , , and . Prime Video most passionate storytellers Jill Soloway Jason Schwartzman Spike Lee take risks and push boundaries 120 nominations 60 awards Golden Globe Emmy awards Jeremy Clarkson David E. Kelley Woody Allen Kenneth Lonergan , based on the Philip K. Dick novel, explores an alternate history where the U.S. lost World War II. It debuted on Prime Video on November 20th and in four weeks became our most-viewed show — receiving acclaim from critics like “ ” and “ ” The Man in the High Castle …Amazon has the best new drama of the season in The Man in the High Castle accomplishes so much, where most new broadcast TV dramas these days don’t even try. The Man in the High Castle These shows are , and they feed the Prime flywheel — Prime members who watch Prime Video are more likely to convert from a free trial to a paid membership, and . great for customers more likely to renew their annual subscriptions Finally, surpassed all our expectations — more new members tried Prime that day than any other day in our history. Worldwide , and sellers whose products are Prime-eligible through FBA saw r — with . our first ever Prime Day order growth increased 266% over the same day the year before ecord-breaking sales growth nearing 300% Prime has become an all-you-can-eat, physical-digital hybrid that members love. — in the U.S. and even faster internationally — and there are now tens of millions of members worldwide. There’s a good chance you’re already one of them, but if you’re not — please be responsible — join Prime. Membership grew 51% last year including 47% growth Marketplace — with and — before we launched Marketplace over 15 years ago. and , and today close to on Amazon are sold by third-party sellers. because it adds unique selection, and — there are over with sales of more than , and they’ve . With FBA, that flywheel spins faster because sellers’ inventory becomes Prime-eligible — , and . We took two big swings and missed Auctions zShops We learned from our failures stayed stubborn on the vision 50% of units sold Marketplace is great for customers it’s great for sellers 70,000 entrepreneurs $100,000 a year selling on Amazon created over 600,000 new jobs Prime becomes more valuable for members sellers sell more This year, we created a new program called . We invited sellers who are able to meet a high bar for shipping speed and consistency in service to be part of the Prime program and s . Those sellers have , and the program has led to hundreds of thousands of additional items that are available to Prime customers via free two-day or next-day shipping in the U.S., U.K. and Germany. Seller Fulfilled Prime hip their own orders at Prime speed directly already seen a significant bump in sales We also created the to help sellers grow. Since the program launched, we’ve provided aggregate funding of over , across the U.S., U.K. and Japan through short-term loans, with a total outstanding . Stephen Aarstol, surfer and owner of Tower Paddle Boards, is one beneficiary. His business has become one of the fastest-growing companies in San Diego, in part with a little help from Amazon Lending. helps these small enterprises grow, benefits customers with greater selection, and benefits Amazon since our along with the sellers’ sales. We hope to expand Amazon Lending and are now working on ways to so they can use their expertise to take and manage the bulk of the credit risk. Amazon Lending program $1.5 billion to micro small and medium businesses loan balance of about $400 million Click-to-cash access to capital marketplace revenue grows partner with banks In addition to nourishing our big offerings, we work to . Our Marketplace anywhere to reach buyers around the world. In the past, many sellers would limit their customer base to their home country due to the practical challenges of selling internationally. To globalize Marketplace and expand the opportunities available to sellers, we built selling tools that to reach customers in . These cross-border sales are now nearly a quarter of all third-party units sold on Amazon. To make this possible, we translated hundreds of millions of product listings and provided conversion services among . Even small and niche sellers can now tap into our global customer base and global logistics network. The end result is very different from sellers handling their own , . Plugable Technologies’ CEO, Bernie Thompson, put it this way: “ ” globalize them creates opportunities for sellers empowered entrepreneurs in 172 countries 189 countries last year 44 currencies one-at-a-time cross-border fulfillment It really changes the paradigm when you’re able to ship the goods in bulk to a warehouse in Europe or Japan and have those goods be fulfilled in one day or two days. is another example of an offering like Marketplace through customer obsession and a . Last year we ran a program called where we deployed three-wheeled mobile carts to navigate in a city’s business districts, serve tea, water and lemon juice to and teach them about . In a period of four months, the team traveled across , and engaged with over . Through this program and , we found out there was , but that sellers struggled with the belief , and . So, we invented , which to . Amazon Tatkal is a specially designed , as well as . Since its launch on February 17th, we have reached sellers in 25 cities. India how we globalize passion for invention Amazon Chai Cart small business owners selling online 15,280 km 31 cities served 37,200 cups of tea 10,000 sellers other conversations with sellers a lot of interest in selling online that the process was time-consuming tedious complex Amazon Tatkal enables small businesses get online in less than 60 minutes studio-on-wheels offering a suite of launch services including registration, imaging and cataloguing services basic seller training mechanisms We’re also , adapting the service to local customer needs. In India, we launched a program called to combine Amazon’s logistics capabilities with sellers’ selection at the . Sellers set aside a part of their warehouse for storing items to be sold on Amazon, and we configure it as a fulfillment center in our network that can receive and fulfill customer orders. Our team provides guidance on warehouse layout, IT and operational infrastructure, and trains the seller on standard operating procedures to be followed onsite. We’ve now sites across ten cities. globalizing Fulfillment by Amazon Seller Flex local neighborhood level launched 25 operational Seller Flex Amazon Web Services , with its first major service, . Today, AWS offers more than for , , , , , , and . We also offer across , with another five regions and 11 Availability Zones in Canada, China, India, the U.S., and the U.K. to be available in the coming year. , and now is used by more than a million customers from organizations of every size across nearly every industry — companies like , , , , , , , , , , , and . Just over 10 years ago AWS started in the U.S. a simple storage service 70 services compute storage databases analytics mobile Internet of Things enterprise applications 33 Availability Zones 12 geographic regions worldwide AWS started with developers and startups Pinterest Airbnb GE Enel Capital One Intuit Johnson & Johnson Philips Hess Adobe McDonald’s Time Inc was at 10 years old, , and — — — we announced and services in 2015, . AWS is bigger than Amazon.com growing at a faster rate most noteworthy in my view the pace of innovation continues to accelerate 722 significant new features a 40% increase over 2014 Many characterized — and unusual — bet when we started. “ ” We could have stuck to the knitting. I’m glad we didn’t. Or did we? Maybe the knitting has as much to do with . AWS is , and , , and cares deeply about operational excellence. AWS as a bold What does this have to do with selling books? our approach as the arena customer obsessed inventive experimental long-term oriented , that approach has allowed into the , widely adopted cloud service. As with , is made up of , . The team rolls out new functionality almost daily across , and that new functionality just “ ” for customers — there’s no upgrading. Given 10 years and many iterations AWS to rapidly expand world’s most comprehensive our retail business AWS many small teams with single-threaded owners enabling rapid innovation 70 services shows up Many companies describe themselves as customer-focused, but few walk the walk. Most big technology companies are competitor focused. They see what others are doing, and . In contrast, . A good example is , . Customers have been frustrated by the proprietary nature, high cost, and licensing terms of traditional, commercial-grade database providers. And while many companies have started moving toward more and , they often struggle to get the performance they need. Customers asked us if we could eliminate that , and that’s why . It has commercial-grade durability and availability, is fully compatible with MySQL, , but is 1/10th the price of the traditional, commercial-grade database engines. This has struck a resonant chord with customers, and . Nearly this same story could be told about , our managed data warehouse service, which is the — both small and large companies are moving their data warehouses to . then work to fast follow 90 to 95% of what we build in AWS is driven by what customers tell us they want our new database engine Amazon Aurora open engines like MySQL Postgres inconvenient trade-off we built Aurora has up to 5 times better performance than the typical MySQL implementation Aurora is the fastest-growing service in the history of AWS Redshift second fastest growing service in AWS history Redshift Our approach — , in many cases before there was any competitive pressure to do so. In addition to , we’ve also continued to launch new lower cost services like , , (our ), (our ), and ( ), while extending our services to offer a range of options for running just about every type of . We even roll out and , which alerts customers when they can save money — resulting in of dollars in . I’m pretty sure how to stop spending money with us. to pricing is also driven by our customer-centric culture we’ve dropped prices 51 times price reductions Aurora Redshift QuickSight new Business Intelligence service EC2 Container Service new compute container service Lambda our pioneering server-less computing capability highly cost-effective application or IT use case imaginable continuously improve services like Trusted Advisor hundreds of millions savings for our customers we’re the only IT vendor telling customers Whether or a business that , the cloud is providing all of us with unbelievable opportunities to , add , , , and do all of this so . MLB Advanced Media is an example of an AWS customer that is constantly reinventing the customer experience. is a new feature for baseball fans that measures the position of each player, the baserunners, and the ball as they move during every play on the field, giving viewers on any screen access to empirical data that answers age-old questions like “ ” while also bringing new questions to life. Turning baseball into rocket science, , streams and collects data in real-time through (our service for processing real-time streaming data), stores the data on , and then performs analytics in . The suite of services will generate and up to , shedding quantitative light on age-old, but never verified, baseball pearls of wisdom like “never slide into first.” you are a startup founded yesterday has been around for 140 years reinvent our businesses new customer experiences redeploy capital to fuel growth increase security much faster than before MLB’s Statcast tracking technology what could have happened if… Statcast uses a missile radar system to measure every pitched ball’s movements more than 2,000 times per second Amazon Kinesis Amazon S3 Amazon EC2 nearly 7 TB of raw statistical data per game 17 PB per season , announced that they were going to move all their applications to the cloud. Netflix chose AWS because it provided them with the greatest scale and the broadest set of services and features. Netflix recently completed their cloud migration, and stories like theirs are becoming increasingly common as companies like , , and , have made plans to . About seven years ago Netflix Infor Intuit Time Inc. move all of their applications to AWS AWS is already , and the service is only . As the team continues their , we’ll offer more and more capabilities to let builders build unfettered, it will get easier and easier to collect, store and analyze data, we’ll continue to add more geographic locations, and we’ll continue to see growth in mobile and “connected” device applications. Over time, it’s likely that most companies will choose not to run their own data centers, opting for the cloud instead. good enough today to attract more than 1 million customers going to get better from here rapid pace of innovation Invention Machine We want that’s . We want to combine that are enabled by size with , nimbleness, and normally associated with . to be a large company also an invention machine the extraordinary customer-serving capabilities the speed of movement risk-acceptance mentality entrepreneurial start-ups We have a good start on it, and I think our culture puts us in a position to achieve the goal. . There are some subtle traps that even can fall into as a matter of course, and we’ll have to learn as an institution how to guard against them. One common pitfall for large organizations — one that hurts speed and inventiveness — is “ ” decision making. Can we do it? I’m optimistic. But I don’t think it’ll be easy high-performing large organizations one-size-fits-all Some decisions are consequential and irreversible or nearly irreversible — — and these decisions must be made methodically, carefully, slowly, with . If you walk through and don’t like what you see on the other side, you can’t get back to where you were before. We can call these . But most decisions aren’t like that — they are changeable, reversible — they’re two-way doors. If you’ve made a suboptimal Type 2 decision, you don’t have to live with the consequences for that long. You can reopen the door and go back through. can and should be made quickly by high judgment individuals or small groups. one-way doors great deliberation and consultation Type 1 decisions Type 2 decisions As organizations get larger, there seems to be a tendency to use the heavy-weight on most decisions, including many Type 2 decisions. The end result of this is , , f , and .1 . Type 1 decision-making process slowness unthoughtful risk aversion ailure to experiment sufficiently consequently diminished invention We’ll have to figure out how to fight that tendency And one-size-fits-all thinking will turn out to be only one of the pitfalls. … and any other large organization maladies we can identify. We’ll work hard to avoid it Sustainability and Social Invention . Twenty years ago, I was driving boxes to the post office in my Chevy Blazer and dreaming of a forklift. In absolute numbers (as opposed to percentages), the past few years have been especially significant. in 2010 to more than . We’re a bit like parents who look around one day and realize their kids are grown — . Our growth has happened fast We’ve grown from 30,000 employees 230,000 now you blink and it happens One thing that’s exciting about our current scale is that we can put our on sustainability and social issues. inventive culture to work on moving the needle Two years ago we set a long-term goal to across our global AWS infrastructure. We’ve since announced four significant wind and solar farms that will deliver per 1 year of additional renewable energy into the electric grids that supply AWS data centers. Amazon Wind Farm Fowler Ridge has already come online. We , are on track to , and are working on goals that will cover all of Amazon’s facilities around the world, including our fulfillment centers. use 100% renewable energy 1.6 million megawatt hours reached 25% sustainable energy use across AWS last year reach 40% this year The opposite situation is less interesting and there is undoubtedly some survivorship bias. Any companies that habitually use the light-weight Type 2 decision-making process to make Type 1 decisions go extinct before they get large. We’ll keep expanding our efforts in areas like packaging, where our culture of invention led to a big winner — the Frustration-Free Packaging program. Seven years ago we introduced the . . In 2015, . is a customer delighter because the packages are easier to open. It’s good for the planet because it creates less waste. And it’s good for shareholders because, with tighter packaging, . initiative with 19 products Today, there are more than 400,000 globally the program eliminated tens of millions of pounds of excess packaging material Frustration-Free Packaging we ship less “air” and save on transportation costs We also continue to — like Career Choice, Leave Share, and Ramp Back. Career Choice , regardless of whether those skills are relevant to a career at Amazon. , , and . We’re building classrooms with glass walls right in as a way to encourage employees to participate in the program and to make it easy. We like Sharie Warmack — a single mother of eight who worked in one of . Career Choice paid for Sharie to get licensed to drive an 18-wheeler. Sharie worked hard, passed her tests, and she’s now a long-haul driver for Schneider Trucking — and loving it. , we’re launching a program to teach other interested companies the benefits of Career Choice and how to implement it. pioneer new programs for employees pre-pays 95% of tuition for courses that teach in-demand skills We’ll pay for nursing certifications airplane mechanic courses many others our fulfillment centers see the impact through stories our Phoenix fulfillment centers This coming year Leave Share and Ramp Back are programs that with their growing families. Leave Share lets employees share their Amazon paid leave with their spouse or domestic partner if their spouse’s employer doesn’t offer paid leave. Ramp Back gives birth mothers additional control over the pace at which they return to work. Just as with our health care plan, these benefits are egalitarian — they’re the same for and as they are for our most senior executives. give new parents flexibility our fulfillment center customer service employees , , , , and are examples of a culture that embraces invention and long-term thinking. It’s very energizing to think that our scale provides opportunities to create impact in these areas. Renewable energy Frustration-Free Packaging Career Choice Leave Share Ramp Back I can tell you it’s a great joy for me to get to work every day with a team of , , and . On , thank you for your . As always, . Our approach remains the same, and it’s still Day 1. such smart imaginative passionate people behalf of all of us at Amazon support as shareholders I attach a copy of our original 1997 letter Jeffrey P. Bezos | Founder and Chief Executive Officer Amazon.com, Inc. ” Source: https://www.sec.gov/Archives/edgar/data/1018724/000119312516530910/d168744dex991.htm