Invent and Wander

We will continue to focus relentlessly on our customers. We will continue to make investment decisions in light of long-term market leadership considerations rather than short-term profitability considerations or short-term Wall Street reactions.

We will make bold rather than timid investment decisions where we see a sufficient probability of gaining market leadership advantages. Some of these investments will pay off, others will not, and we will have learned another valuable lesson in either case.

When forced to choose between optimizing the appearance of our GAAP accounting and maximizing the present value of future cash flows, we’ll take the cash flows.

To be certain, a big part of the challenge for us will lie not in finding new ways to expand our business, but in prioritizing our investments.

we’ve appended last year’s letter immediately after this year’s. I invite you to please read the section titled “It’s All About the Long Term.” You might want to read it twice to make sure we’re the kind of company you want to be invested in. As it says there, we don’t claim it’s the right philosophy, we just claim it’s ours!

Cash flow statements often don’t receive as much attention as they deserve. Discerning investors don’t stop with the income statement.

With rare exceptions, the volume increase in the short term is never enough to pay for the price decrease. However, our quantitative understanding of elasticity is short-term. We can estimate what a price reduction will do this week and this quarter. But we cannot numerically estimate the effect that consistently lowering prices will have on our business over five years or ten years or more. Our judgment is that relentlessly returning efficiency improvements and scale economies to customers in the form of lower prices creates a virtuous cycle that leads over the long term to a much larger dollar amount of free cash flow, and thereby to a much more valuable Amazon.com.

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.

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.

Our vision is to use this platform to build Earth’s most customer-centric company, a place where customers can come to find and discover anything and everything they might want to buy online.

In the year 2000, Amazon.com has six major goals: growth in both the number of our customers and the strength of the relationship we have with each of them; continued rapid expansion of the products and services we offer; driving operational excellence in all areas of the company; international expansion; expanding our partnership programs; and last, importantly, driving toward profitability in each and every business we are in.

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.

In closing, consider this most important point: the current online shopping experience is the worst it will ever be. It’s good enough today to attract seventeen million customers, but it will get so much better.

We currently offer ten different web services and have built a community of over 240,000 registered developers. We’re targeting broad needs universally faced by developers, such as storage and compute capacity—areas in which developers have asked for help, and in which we have deep expertise from scaling Amazon.com over the last twelve years. We’re well positioned to do it, it’s highly differentiated, and it can be a significant, financially attractive business over time.

Today, when a new business inside Amazon grows to $10 million, the overall company is growing from $10 billion to $10.01 billion. It would be easy for the senior executives who run our established billion-dollar businesses to scoff. But they don’t. They watch the growth rates of the emerging businesses and send emails of congratulations. That’s pretty cool, and we’re proud it’s a part of our culture.

The skills-forward approach says, “We are really good at X. What else can we do with X?” That’s a useful and rewarding business approach. However, if used exclusively, the company employing it will never be driven to develop fresh skills. Eventually the existing skills will become outmoded. Working backward from customer needs often demands that we acquire new competencies and exercise new muscles, never mind how uncomfortable and awkward-feeling those first steps might be.

we have strong conviction that customers value low prices, vast selection, and fast, convenient delivery and that these needs will remain stable over time. It is difficult for us to imagine that ten years from now, customers will want higher prices, less selection, or slower delivery. Our belief in the durability of these pillars is what gives us the confidence required to invest in strengthening them. We know that the energy we put in now will continue to pay dividends well into the future.

When we’re at our best, we don’t wait for external pressures. We are internally driven to improve our services, adding benefits and features, before we have to. We lower prices and increase value for customers before we have to. We invent before we have to. These investments are motivated by customer focus rather than by reaction to competition.

We’ll approach the job with our usual tools: customer obsession rather than competitor focus, heartfelt passion for invention, commitment to operational excellence, and a willingness to think long-term.

Enterprises are dependent on IT—it’s mission critical. So, the proposition, “I can save you a significant amount on your annual IT bill and my service is almost as good as what you have now,” won’t get too many customers. 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.

During our hiring meetings, we ask people to consider three questions before making a decision: Will you admire this person? If you think about the people you’ve admired in your life, they are probably people you’ve been able to learn from or take an example from. For myself, I’ve always tried hard to work only with people I admire, and I encourage folks here to be just as demanding. Life is definitely too short to do otherwise. Will this person raise the average level of effectiveness of the group they’re entering? We want to fight entropy. The bar has to continuously go up. I ask people to visualize the company five years from now. At that point, each of us should look around and say, “The standards are so high now—boy, I’m glad I got in when I did!” Along what dimension might this person be a superstar? Many people have unique skills, interests, and perspectives that enrich the work environment for all of us. It’s often something that’s not even related to their jobs.

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.

In the physical world, retailers will continue to use technology to reduce costs, but not to transform the customer experience. We too will use technology to reduce costs, but the bigger effect will be using technology to drive adoption and revenue.

Long-term thinking levers our existing abilities and lets us do new things we couldn’t otherwise contemplate. It supports the failure and iteration required for invention, and it frees us to pioneer in unexplored spaces. Seek instant gratification—or the elusive promise of it—and chances are you’ll find a crowd there ahead of you.

The most radical and transformative of inventions are often those that empower others to unleash their creativity—to pursue their dreams.

To be clear, we take these financial outputs seriously, but we believe that focusing our energy on the controllable inputs to our business is the most effective way to maximize financial outputs over time.

When a platform is self-service, even the improbable ideas can get tried, because there’s no expert gatekeeper ready to say, “That will never work!” And guess what—many of those improbable ideas do work, and society is the beneficiary of that diversity.