Key takeaways from Jeff Bezos's letter to Amazon shareholders
Amazon CEO Jeff Bezos released his annual letter to shareholders on Thursday, and like the annual letters from Warren Buffett and Jamie Dimon, it’s a must-read.
Here are the key takeaways:
Amazon is being beaten by its own third-party sellers: Third-party sales account for the bulk of the business happening on Amazon’s e-commerce platform, responsible for 58% of sales in 2018, which is up from 3% in 1999. Third-party sales grew from $100 million in 1999 to $160 billion last year — a compound annual growth rate of 52% compared to a rate of 25% for Amazon’s first-party sellers. Bezos said Amazon itself is boosting these third-party sellers with Prime and with Fulfillment by Amazon, which ships products for third parties.
“Market research doesn’t help”: Amazon prides itself on knowing what customers want and need before they know it themselves. “No customer was asking for Echo,” Bezos wrote, referring to Amazon’s smart speaker. “This was definitely us wandering. Market research doesn’t help.”
Another example of an innovation customers didn’t know they needed in their lives is Amazon Web Services, the biggest player in the cloud-computing market ahead of Microsoft Azure, Google Cloud, and Alibaba Cloud.
Companies need to fail more: Amazon is one of the world’s most successful companies, but it’s also had its fair share of failures, too — most notably, the Fire Phone, whose price eventually sank to 99 cents with a two-year contract. Bezos noted that, at the time it was developing the doomed Fire Phone, it also created Amazon Echo, which turned into a success. “As a company grows, everything needs to scale, including the size of your failed experiments,” Bezos noted.
Amazon is tiny in retail but expanding its physical footprint: While some consumers might feel like they buy literally everything at Amazon, Bezos noted that the so-called everything store accounts for a “low-single digit percentage of the retail market” because most shopping occurs in physical stores.
Amazon has toyed with the idea of launching physical stores of its own for years to capture some of that in-person market, but first it wanted to find a way to “delight” customers. Bezos says Amazon finally did that by getting rid of the worst thing about brick-and-mortar stores — lines. Its Amazon Go stores are now in Chicago, San Francisco, and Seattle.
