In this letter, Bezos highlights the size of the market opportunity for Amazon and how Amazon is poised to capitalize on this opportunity.

Amazon’s revenue in 1999 was $1.64 billion even though the foundational technology on which the shopping experience was built was the “worst it will ever be”. Increased bandwidth and always-on-access would significantly improve the shopping experience. Adoption of online commerce was growing as millions of new consumers connected to the Internet for the first time. As the online shopping experience improves, consumer trust and confidence would increase, driving further adoption.

Hence, Amazon gets to participate in a multi-trillion dollar global opportunity where the underlying foundational technology improves every day.

Bezos describes what the Amazon.com platform is comprised of and why Amazon is well-positioned to capitalize on the huge market opportunity.

Bezos highlights the head-start that Amazon has over the competition – in its reputation for customer focus, e-commerce software systems, and a purpose-built distribution and customer service infrastructure. He specifies how Amazon’s e-commerce platform will provide a competitive advantage:

• Help Amazon to launch new e-commerce businesses faster
• Offer a higher quality of customer experience at a lower incremental cost
• A faster path to scale and profitability
• A higher chance of success

He shares Amazon’s six major goals for 2000:

• Growing the number of customers and strengthening customer relationships
  • Metrics:
    • Number of customers who shop with us
    • Number of products that they purchase
    • The frequency with which they shop
    • Level of satisfaction when they shop
• The rapid expansion of products and services that we offer
  • Help customers find and discover anything that they want to buy, anytime, anywhere
  • Makes Amazon more relevant to a wider group of customers and increase the frequency with which they visit the store
• Driving operational excellence in all areas of the company by
  • Delivering continuous improvement in customer experience
  • Driving productivity, margin efficiency, and asset velocity across all businesses
• International expansion
• Expanding our partnership programs
  • Build partnerships with companies that shares Amazon’s passion for serving customers
• Driving profitability in each and every business

You can read Bezos letter here

This is the third post of this series. Bezos highlights a few of Amazon’s leadership principles in each of his letters 

1. Summary of the 1997 letter to shareholders – Obsess over customers, align decision making with long term goals
2. Summary of the 1998 letter to shareholders – Customer-focused, not competitor focused

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Amazon’s capital efficiency and how it is different from other offline (physical) retailers is encapsulated in one single statement in the letter – A billion-dollar sales rate with $30 million in inventory and $30 million in net plant and equipment! (Generated $31 million in operating cash flow)

After summarizing the achievements and progress made in 1998, Bezos details Amazon’s approach to building the world’s most customer-centric company:

• Focus on customers (not competitors)
• Commitment to constant improvement, experimentation, and innovation in every initiative
• Pioneering spirit
• Differentiation through innovation and relentless focus on customer experience

Reiterating the importance of having a high bar for hiring, Bezos shares three questions that employees are asked to consider before making a hiring decision

Bezos shares key initiatives to support Amazon’s goals for 1999:

• Build out distribution infrastructure to support sales
• Expand systems capacity to support multi-billion dollar scale and tens of millions of customers
• Build strong relationships with customers
• Expand product and service offerings
• Invest in teams, processes, communication and people development practices

Two recurring themes from the ‘97 and ‘98 letters:

• Importance of continuously improving the customer experience to ensure repeat purchases, and positive word-of-mouth from existing customers (growth drivers)
• The need to maintain high standards while hiring new employees

While selection, ease-of-use, low prices, and service forms the bedrock of Amazon’s customer experience, Bezos highlights some of the features added to the platform

To help new investors to understand Amazon’s long term investment approach, Bezos appends the 1997 letter to shareholders.

This is the second post of this series. Read the summary of the 1997 letter to shareholders – Obsess over customers, align decision making with long term goals

Sign-up here to follow this series that summarizes each of  Bezo’s letter to shareholders from 1997 to 2018.

You can read Bezo’s letter here

One of Amazon’s famous traditions is the silent reading of a 6-page narrative memo by participants of a senior executive meeting. Jeff Bezo’s letters to the shareholders are probably the best publically available documents to help us gain some insights on how such a document is structured. (Powerpoints are banned at Amazon)

In his first letter to shareholders, Bezos clearly articulates the long term and short goals for Amazon, the approach they will take to get there, the metrics that they will use to measure progress, and the trade-offs that they will make as a company while taking decisions on a day-to-day basis.

Bezos is onboarding new shareholders and setting clear expectations on their investment philosophy and financial metrics for measuring progress.

He shares the long term goals for Amazon – achieving market leadership and creating shareholder value. He shares how Amazon will approach these goals and metrics that they will use measure progress.

He highlights the trade-offs that Amazon will make while taking decisions:

• Choosing long-term market leadership over short term profitability while making investment decisions
• Choosing the present value of future cash flows over optimizing the appearance of GAAP

Bezos details how Amazon will “obsess over customers” to achieve market leadership.

Bezos highlights the crucial role that employees play in the success of Amazon.com.  He states the bar for hiring is high and that “it’s not easy to work here”. He also shares what he tells candidates while interviewing

“You can work long, hard, or smart, but at Amazon.com you can’t choose two out of three”

Bezo’s also highlighting the goals for 1998 and the challenges and hurdles that will prevent Amazon from reaching it’s stated goals.

The key challenges and risks that are highlighted are:

• Aggressive, capable, well-funded competition
• Risks of product and geographic expansion
• Need for continuing investments to meet an expanding market opportunity

All in all, Bezos provides enough information to shareholders to help them decide if Amazon can provide them with the returns that they expect.

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You can read Bezo’s letter here