What bets did Bezos make in 1997 so that Amazon now holds 50% of the e-commerce market in the US and 14% in the world?
Jeff Bezos, Amazon CEO, writes a letter to shareholders every year, and RUSSOL startup school volunteers and Y Combinator initiatives translate them in Russian to try to answer this question and inspire readers to create their Amazon. We read the translation of the first letter to shareholders published in 1997
Seattle Amazon Spheres Office. Photo Source: heraldnet.com
Jeff Bezos, April 11, 1997
Amazon.com went through a number of important stages in 1997: by the end of the year, we served more than 1.5 million customers, increasing revenue by 838% to $ 147.8 million. They strengthened their leading position in the market, despite aggressive competition.
But for the Internet, this is only the beginning, as for Amazon.com, if we do everything right. Today, online commerce saves customers money and valuable time. Tomorrow, with the help of personalization, online commerce will become the engine of development. Amazon.com uses the Internet to create real value for customers, thereby hoping to make a strong franchise even in large and mature markets.
We have a window of opportunity, as large players are still gathering strength to go online, and customers who are not used to online shopping are still open to new things. The competitive environment continues to evolve rapidly. Many major players went online with strong offers, invested significant resources in market information, traffic and sales.
Our goal: to strengthen and expand current positions in the shortest possible time, at the same time starting to engage in online commerce in other areas. We see promising opportunities in the major markets we are targeting. There are risks in this strategy: in order to deal with franchising leaders, we just need serious investments and accurate execution.
It's all about the long run.
We believe that the fundamental criterion for our success will be the value that we create for shareholders in the long term. This value will be a direct result of our ability to strengthen and expand our current position. The stronger we are in the market, the more powerful our economic model. Market leadership is a higher revenue, profit, capital turnover and, consequently, a higher return on investment.
Our decisions have consistently reflected our focus. First, we measure our effectiveness in terms of market leadership: in terms of customer base and revenue growth, in the number of repeat purchases and the strength of our brand. We have invested and will continue to aggressively invest in expanding and developing our customer base, strengthening our brand and infrastructure, as our goal is a truly strong franchise.
Since we focus on long-term goals, we make decisions and weigh alternatives differently from other companies. We want to tell you about our fundamental approach to management and decision-making so that you, our shareholders, can confirm that it meets your investment philosophy:
- We will continue to focus on our customers.
- We will continue to invest in the light of long-term market leadership considerations rather than short-term profits or Wall Street reactions.
- We will continue to measure the effectiveness of our programs and investments with the help of analytical methods so as to get rid of those that do not bring proper returns in time and invest in successful ones in addition. We will continue to learn from our mistakes and successes.
- We will make bold rather than timid investment decisions when we see a sufficient probability of gaining market advantages. Some of these investments will be justified, others not, but in any case we will receive important lessons.
- When we have to choose between optimization for beautiful financial statements and maximizing the value of future cash flows, we will choose the money.
- When we make particularly serious decisions, we will share our strategic thoughts with you (as far as the competitive environment allows), so that you yourself can evaluate how rational our long-term investments are.
- We will work hard to spend wisely and support our lean manufacturing. We understand the importance of continually improving production, which is cost-oriented, especially in a business that incurs net losses.
- We focus on growth with long-term profit and wealth management. At this stage, we choose growth priorities because we believe that scale is critical to realizing the potential of our business model.
- We will continue to focus on hiring and retaining diverse and talented employees and will continue to evaluate their compensation with stock options rather than cash. We know that our success will largely depend on our ability to attract and retain a motivated base of employees, each of whom should think as the owner of the company and, therefore, should be it.
We are not so bold as to claim that the above is the “right” investment philosophy, but it is ours, and we would be an unscrupulous company if we were not clear in the approach that we have taken and will continue to use.
On this basis, we would like to go on to review our business focus, our successes in 1997 and our future prospects.
From the very beginning, we have focused on offering our customers obvious benefits. We realized that the Internet was and remains a Worldwide Expectation. Therefore, we decided to offer our customers something that they simply could not get in another way, and started selling books to them. We gave them much more choice than possible in a real store (our store would now occupy 6 football fields), and presented it in a format convenient for searching and viewing. Our store is open 365 days a year, 24 hours a day. We remained focused on improving our shopping experience and in 1997 we significantly improved our store.
Now we offer customers gift certificates, one-click purchases and significantly more reviews, content, viewing options and recommendations. We drastically reduced prices, further adding value to customers. Word of mouth remains the most powerful customer acquisition tool, and we are grateful for the trust placed in us by our customers. Repeat purchases and word of mouth have made Amazon.com the market leader in online book sales.
In many ways, Amazon.com has come a long way in 1997:
- Sales rose from $ 15.7 million in 1996 to $ 147.8 million — an increase of 838%.
- The total number of customer accounts increased from 180,000 to 1,510,000 - an increase of 738%
- The proportion of orders from regular customers increased from more than 46% in the fourth quarter of 1996 to more than 58% in the same period in 1997.
- In terms of reach, according to Media Metrix, our website has risen from 90th place in the top 20.
- We have established long-term relationships with many important strategic partners, including America Online, Yahoo !, Excite, Netscape, GeoCities, AltaVista, Home and Prodigy.
Amazon logistics center in Scotland. Posted by Chris Watt. Source: scm.dk
During 1997, we worked hard to expand our business infrastructure to support significantly increased traffic, sales, and service levels:
- Amazon.com has grown from 158 to 614, and we have significantly strengthened our management team.
- The size of the sorting center has grown from 50,000 to 285,000 square feet, including a 70% expansion of our facilities in Seattle and the launch of a second sorting center in Delaware in November.
- The quantity of cash goods increased to 200,000 items at the end of the year, which allowed us to improve the availability of products for our customers.
- The amount of our cash and investment at the end of the year was $ 125 million thanks to an IPO held in May 1997 and our loan of $ 75 million.
The success of last year is the result of a talented, smart, hardworking group, and I am proud to be part of this team. Setting the bar high in our hiring approach has been and will remain the most important element of Amazon.com success.
When I do the interviews, I tell people: “You can work long, hard or smart, but on Amazon.com you cannot choose two out of three.” It’s not easy to work here, but we are working to create something important for our customers, which we can tell our grandchildren about. Such things should not be easy. We are incredibly lucky to have this group of dedicated employees whose sacrifice and passion create Amazon.com.
Goals for 1998
We are still in the early stages of learning how to bring new value to our customers through e-commerce and merchandising. Our goal remains to strengthen and expand the brand and customer base. This requires constant investment in systems and infrastructure to provide exceptional convenience to customers in the selection of products and services. We plan to add music to our range of products, and we believe that subsequently investing in other products will be a reasonable step. We also believe that there are significant opportunities for better servicing our customers abroad, such as reducing delivery times and improving the quality of service. Of course, most of the problem for us is not in finding new ways to expand our business, but in prioritizing our investments.
Now we know a lot more about online sales than when Amazon.com was just launched, but we still have a lot to learn. Although we are optimistic, we must remain vigilant and responsive. The challenges and challenges we face in realizing our long-term vision for Amazon.com are aggressive, skillful, and well-funded competition; significant problems of growth and risk of fulfillment of obligations; risks of product and geographical expansion; the need for large, permanent investments to meet expanding market opportunities. However, as we have long said, online book sales and online commerce in general should become a very large market, and it is likely that a number of companies will see significant benefits for themselves. We are good at what we have done and are even more excited about
1997 was a truly incredible year. We, Amazon.com, are grateful to our customers for their business and trust, to each other for our hard work and to our shareholders for their support and encouragement.
Translators and proofreaders: D. Demidova, Gretchen, T. Govert, Yu. Yartsev, A. Litvin
A few insights from the letter:
- Focus on customers. Everything must be done so that they are happy. The purchase experience should in particular lead them to tell others about it and return to the store again.
- Employee options instead of cash rewards. The practice of attracting and turning talented employees into owners, even through small options, is paying off. Such people remain in the company longer, and the contribution and return are many times higher.
- Hard work is the companion of any successful company. To make it large, you need to work hard and smartly. As Bezos said, “You can work long, hard, or smart, but on Amazon.com you can't choose two out of three.”
- Continuous self-study. When things are going well, don’t put on your crown and think that we are the smartest here and we all know best. You always need to look at others, look for new ways to do work better and not be afraid to invest, even if it does not burn out.
Other Bezos letters:
Note from the author of the publication: I am Yuri , the founder of the non-profit school of startups RUSSOL, I coordinate the initiative to translate the lecture course of the startup school Y Combinator . Together with volunteers and freelancers, we translated and subtitled 36 hours of video on creating startups, starting with finding an idea and ending with investments and international sales. Materials of 2018 here , 2017 of the year there .
RUSSOL mission - we want the middle class to grow and develop in the post-Soviet space. And we help start-up entrepreneurs with open educational lectures, meetings, conferences, where we talk about how to find an idea, create a product, attract money and enter international markets. As part of the initiative, we started translating Jeff Bezos letters to Amazon shareholders.
We are looking for you, reader, so that you make your small contribution to the initiative and help translate lectures and letters, draw up notes, read texts, engage in a tilde website and a blog on Habré. Join the school to study together, learn from the experience, grow and benefit your home. We are also looking for sponsors who are close to the topic and who are ready to support our initiatives. let's talk