Amazon CEO Andy Jassy reportedly published his "Shareholder Letter of the Year" today, the first since he took over the CEO from founder Jeff Bezos last year.
Jassy, who took over as CEO from Bezos in July 2021, wrote in the letter that Amazon has experienced tremendous growth during the pandemic, particularly in its core retail business. Because people have fewer trips to stores, they rely more on Amazon for both essential and non-essential items.
"We achieved the equivalent of three years of our expected growth target in about 15 months," he said. ”
Jassy also said that Amazon has earned record profits during the epidemic, but to meet demand, it also faces logistical and cost challenges. To that end, Amazon quickly expanded its network of warehouses so that it could handle more orders.
"In the first 25 years of Amazon, we built a very large distribution network," he says. And in the past 24 months, it has had to be doubled to meet customer demand. ”
In addition to the logistical challenges, Amazon should also address the impact of supply chain constraints and a tightening labor market, which makes it difficult for Amazon to transfer inventory as efficiently as it once did.
"It's not an easy task for companies of any size to deal with something as discontinuous and unpredictable as this outbreak," Jassy said. ”
Last April, Amazon founder Bezos published his last "Shareholder Letter of the Year" as CEO. Last July, Jassy took over the CEO position from Bezos, so this time it was his first "annual shareholder letter."
The following is the full text of Jassy's shareholder letter:
Dear Shareholders,
Over the past 25 years at Amazon, I've had the opportunity to write many manuscripts, emails, letters, and keynotes for employees, customers, and partners. However, this is the first time I've had the privilege of writing our annual shareholder letter as CEO of Amazon. Jeff (Bezos) set a very high standard for these letters, and I will try to make them worth reading.
When the outbreak began in early 2020, few thought it would be so widespread or long-lived. Whatever amazon's role in the world before that, Amazon's role in the world has been further amplified with most physical venues closed for long periods of time and people staying at home all day.
That means hundreds of millions of people rely on Amazon for personal protective equipment, food, clothing, and a variety of other items to help them navigate this unprecedented era. Businesses and governments have also had to move from working on-site with colleagues to working remotely almost overnight.
AWS (Amazon Cloud Services) plays an important role in achieving this business continuity. With the flexibility to rapidly scale capacity up and down, and the breadth of capabilities, AWS has helped millions of companies adapt to these tough environments.
During the pandemic, our AWS and consumer businesses have had different demand trajectories. In the first year of the outbreak, AWS revenue continued to grow rapidly, up 30% year-over-year in 2020 from $35 billion in annual revenue in 2019, but slightly less than the 37% year-over-year increase in 2019. This is partly due to the fact that too many businesses are experiencing uncertainty and slowing demand, but it's also partly because we've helped companies optimize their AWS footprint to save money.
At the same time, businesses have stopped trying to determine what they want to change from the pandemic. Many people have concluded that they don't want to continue to manage their technology infrastructure on their own and have decided to accelerate their migration to the cloud. This shift (and economic recovery) for many companies has helped AWS re-accelerate revenue growth, driving 37% year-over-year revenue growth in 2021.
At the same time, our consumer business revenue grew significantly in 2020. In 2020, Amazon's North American and international consumer revenue grew 39% year-over-year from its huge revenue of $245 billion in 2019. This extraordinary growth continued into 2021, with revenue up 43% year-over-year in the first quarter of 2021. The numbers are staggering. In about 15 months, we achieved the equivalent of three years of expected growth.
As the world reopens again at the end of the second quarter of 2021, more and more people are venturing out to eat, shop and travel, and consumer spending is redistributed to more entities. We're not sure what's going to happen in 2021, but we continue to grow at double-digit rates (29% consumer CAGR over two years), which is encouraging as customers recognize the role Amazon has played for them during the pandemic and are starting to use Amazon for more home shopping.
This growth also comes with short-term logistical and cost challenges. We built a very large logistics network in the first 25 years of Amazon. And in the last 24 months, we've had to double it to meet customer demand. As we put this new capacity into use, the labor market is quite tight, which makes us both to receive all the inventory that suppliers and sellers want to send us, and to keep the inventory closest to the customer, as we usually do.
This, coupled with the fact that sea, air and trucking capacity is becoming increasingly scarce and expensive, creates additional transportation and productivity costs. Supply chains are disrupted in unprecedented ways. We hope that as 2021 draws to a close, the significant impact of COVID-19 will fade, but the "Omilon" (COVID-19 variant) hit again in December, which has had a global impact, including affecting people's ability to work. Then in late February, fuel costs and inflation became bigger problems.
As a result, 2021 is a year of madness and unpredictability, continuing the trend of 2020. However, I am proud of the incredible commitment and effort of our employees around the world. I'm not sure that none of us would have survived this outbreak in the same way without the dedication and extraordinary effort shown by our team during this time, and I'll always be grateful.
For a company of any size, being able to cope with something as discontinuous and unpredictable as this outbreak is not an easy task. What does Amazon make it possible for us to do this? This is because we do not start from a static state.
For nearly 20 years, we've been iterating and reinventing our ability to perform. In every business we do, we are constantly experimenting and inventing. We are very dissatisfied with the customer experience, whether they are our own or not. We believe that these customer experiences can always be better, and we strive to make our customers' lives better and easier every day. The beauty of this mission is that you never get off the runway; customers always want something better, and our job is both to listen to their feedback and imagine what else is possible and invent on their behalf.
People often think that the "game-changing" invention they admire just bubbles up from someone's mind, a light bulb goes out, a team executes the idea, and then immediately there's a new invention that's been hugely successful for a long time. Even if it exists, this rarely happens.
A little-known fact about innovative companies like Amazon is that they are relentlessly debating, redefining, tinkering, and experimenting with the seeds of a great idea into something that resonates with customers and meaningfully changes their customer experience over a long period of time.
Let me give you a few examples of Amazon.
Our fulfillment network: Back in the pandemic, it is unlikely that we will start committing to our fulfillment network in March 2020 and meeting any needs of our customers. For 20 years, we've been innovating in our distribution network, constantly trying to reduce the time it takes to get goods into the hands of our customers. In the early 2000s, it took an average of 18 hours to get a single item to our distribution center and load it into the right truck for delivery. Today, it only takes 2 hours.
To provide the reliable and cost-effective service we wanted, and for Amazon Prime members who were expected to ship within 2 days, we spent years building a vast set of fulfillment centers with strong logistics and transportation capabilities, and reconfiguring the way we do almost everything in our facility. For reference, in 2004, we had seven distribution centers in the U.S. and four in the rest of the world, and we haven't added delivery stations that connect our delivery and sorting centers to "last mile" delivery trucks traveling near your home.
Fast forward to the end of 2021, we have 253 fulfillment centers, 110 sortation centers, and 467 delivery stations in North America, and 157 fulfillment centers, 58 sorting centers, and 588 delivery stations worldwide. Our delivery network grew to more than 260,000 drivers worldwide, and our Amazon Airlines cargo fleet has more than 100 aircraft. This represents more than $100 billion in capital investment, as well as countless iterations and small process improvements by more than 1 million Amazoners over the past 15 years.
Ironically, just before the pandemic began, we decided to invest billions of dollars in incremental money over a few years to deliver more and more Prime orders in one day. This initiative has slowed down due to the challenges of the pandemic, but since then, we have refocused our attention on this area. Delivering a large number of goods in one day is difficult (especially considering the millions of goods we offer) and the initial cost is high.
However, we believe that our more than 200 million Prime customers will tell you very clearly that faster is almost always better, and they will love that. So this ability to ship millions of items in 2 days (and increasingly in one day) didn't start in an instant, nor did it develop in a year or two. It didn't come easily, requiring putting yourself in the shoes of your customers, understanding their needs, organizing Amazonians to work together to invent better solutions, and investing a lot of money and human resources over 20 years. This iterative innovation never ends, with cyclical peaks in investment years, but it will lead to a better long-term customer experience, customer loyalty and returns for our shareholders.
AWS: When we define AWS and deal with services that we think our customers need, we constantly raise one of the biggest tensions in product development — where are the functional boundaries of V1 (first edition). Originally, an early meeting on the Elastic Compute Cloud (EC2) was scheduled for an hour and ended up taking three hours; as we vividly debated whether we could launch a computing service without the included Perpetual Block Storage Companion (BSC), a type of network-attached storage. As a result, everyone agrees that having a BSC is important for a full computing service; however, it will take an extra year to be ready.
The question is, can we provide our customers with useful services that allow them to get meaningful value before we have all the features we think they want? We believe that if we also organize ourselves to listen to our customers and iterate quickly, the initial release of EC2 may lack functionality. If you really iterate quickly, this approach works well; but if you can't iterate quickly, it's disastrous.
So, in 2006, we launched EC2, a data center in one region of the world, with only Linux operating system instances (no Windows), no monitoring, load balancing, auto scaling, or persistent storage. EC2 was an initial success, but it was far from a multibillion-dollar service until we added the missing features listed above.
In the early days of AWS, people sometimes asked us why computing wasn't just an indiscriminate commodity. However, there is more to compute than just one server. Customers need various types of compute (e.g., server configurations optimized for storage, memory, high-performance computing, graphics rendering, machine learning), multiple form factors (e.g., fixed instance sizes, portable containers, serverless capabilities), persistent storage of various sizes and optimizations, and a range of networking capabilities. Then there's the CPU chip running on your computer.
The industry has been using Intel or AMD x86 processors for years. We have important partnerships with these companies, but we realize that if we want to further increase the price and performance (as requested by our customers), we must also develop our own chips. Our first general-purpose chip was Graviton, and we released it in 2018. This helps make some customer workloads run more cost-effectively than previous options. However, it wasn't until 2020, after learning from Graviton's experience and innovating on new chips, that our Graviton 2 chip had something remarkable that offered 40% better price/performance than the latest generation x86 processors of the same class.
Think about how much of an impact the 40% improvement in computing has. Computing is used for every technology, which is a huge deal for the client. And, while Graviton2 has been a huge success so far (48 of AWS EC2's top 50 customers have adopted it), the AWS chip team is already learning what customers say can be better, and released Graviton 3 last December (a 25 percent improvement over Graviton2). What we've invented and delivered for our customers in EC2 (and AWS as a whole) is incredible, and this iterative approach to innovation not only provides customers with more features than anywhere else (a significant differentiator), but also allows us to get the more disruptive products of AWS today.
Equipment: Our first foray into the device market was in 2007, when the Kindle e-book reader was released. It's not the most complex industrial design (it's milky white and it's not very comfortable to hold in the hand), but it's revolutionary because it allows customers to download any of the more than 90,000 books (and now millions) in 60 seconds. Soon, we improved the design, and soon after, we launched tablets, then mobile phones (which featured a front-facing camera and gyroscope, providing customers with dynamic viewing angles and a diverse 3D experience). The phone didn't work out, and back those resources were transferred elsewhere. We've also hired some great long-term developers and learned valuable lessons from this failure that have worked well on devices like echo and FireTV.
When I think about the first Echo device, and what Alexa could do for customers at the time, it's also worth mentioning, even though the functionality is much worse than it might be today. Today, there are hundreds of millions of Alexa-enabled devices (in homes, offices, cars, hotel rooms, Amazon Echo devices, and third-party manufacturer devices); you can now listen to music or watch videos; you can control your lights and home automation; you can create routines like "Start My Day," alexa tells you the weather, estimates your commute time based on current traffic conditions, and then plays the news; you can easily order retail items on Amazon General or customized news, updates on sporting events and related statistics are available.
We are still at a fairly early stage on what Alexa and Alexa-related devices will do for customers. Our goal is to make Alexa the world's most helpful and resourceful personal assistant, making people's lives easier and better. We have more inventions and iterations to go, and customer actions continue to show that we are on the right path. We have several other devices at different stages of development (such as Ring and Blink offering leading digital home security solutions, and Astro is a brand new home robot we just launched at the end of 2021), but it's safe to say that each of our devices, whether you're talking about the Kindle, FireTV, Alexa/Echo, Ring, Blink, or Astro, is an ongoing invention. There are many more products that will continue to improve the lives of our customers.
Prime Video: We launched a service called "Amazon Unbox" in 2006, where customers can download about 1,000 movies from major studios. This makes sense, as bandwidth was slower at the time (it takes an hour to download a video). However, as the bandwidth of people's homes and mobile devices becomes faster, and with the advent of connected TVs, streaming will become a better customer solution, and we will strive to focus on streaming.
In 2011, we started offering more than 5,000 streaming movies and shows as part of our amazon Prime subscriptions. Initially, all of our content was produced by other studios and entertainment companies. These transactions are expensive, vary from country to country, and are only open to us for a limited time. So, in order to expand our options, we started creating our own original shows. Our early efforts included Alpha House and Betas, among others, before launching our first award-winning series, Transparent, and culminating in exclusive content such as The Marvelous Mrs. Maisel, The Boys, Bosch, and Jack Ryan.
Along the way, we learned a lot about how to create engaging entertainment with memorable moments and use machine learning and other creative techniques to deliver a premium streaming experience (in our unique X-Ray feature, useful relevant data about actors, TV shows, movies, music, or sports stats is available with just one click). You've probably seen some of them in our recent hit Reacher, and you'd like to see that in our upcoming Lord of the Rings series (upcoming Labor Day 2022). We're also looking forward to seeing this iteration of the NFL's first weekly, prime-time, stream-only Thursday Night Football (exclusive to Prime Video starting September 2022). Our agreement with the NFL is 11 years, and we will work tirelessly for years to come to recreate the NFL viewing experience for fans.
This track record of frequent innovation is not only why more and more sports entities are choosing to partner with Prime Video, but also why so many large entertainment companies have become Prime Video channel partners. Channels is a program that enables entertainment companies to leverage Prime Video's unique technology and viewing experience, as well as its vast membership base, to offer monthly subscriptions to their content. Warner Bros. Companies such as Discovery), Paramount, Starz, Corus Entertainment, and Globo have found that they are driving a significant increase in membership numbers and a better customer experience through Channels. While Prime Video has made such a big step forward from what we started, we will be innovating more in the next 15 years than we have in the past 15 years. Our team is passionately committed to providing our clients with the broadest and most compelling collection of content anywhere in the world.
The same iterative inventions can be applied to support efforts in people and communities. Last summer, we added two new leadership principles: striving to be the best employer on the planet, and success and scale bringing broad responsibility. These concepts have always been implicit at Amazon, but clear leadership principles prompt us to ask ourselves whether we have adhered to them.
For example, there are more than 1 million Amazonians working in our fulfillment network. In 2018, we advocated for a $15 minimum wage (more than double the federal minimum wage), but it didn't stop there. We continue to raise our pay and currently have an average starting salary of over $18. In addition to this compensation, we offer very generous benefits, including full health insurance, a 401K plan, up to 20 weeks of parental leave, and full tuition for employees who wish to pursue a college education (whether they remain with our company or not). We are far from accomplished in how to improve the lives of our employees. We've researched and created a list of what we think are the top 100 employee experience pain points and are systematically addressing them.
We are also passionate about further improving the security of our fulfillment network, with a focus on reducing strains, sprains, falls and repetitive stress injuries. Our casualty rates are sometimes misunderstood. Our operations are in line with both the "Warehousing" and "Express and Delivery" categories. In recent U.S. public data, our recordable incident rate is slightly higher than the average of our warehousing peers (6.4 vs. 5.5) and slightly lower than the average of our courier and delivery staff peers (7.6 vs. 9.1).
This makes us mediocre relative to our peers, but we do not seek mediocrity. We want to be the best student in the class. When I first started my new role, I spent a lot of time in our fulfillment centers and on our security team, hoping for a panacea that could quickly change those numbers. But I didn't find that. At our scale (we employ more than 300,000 people in 2021 alone, many of whom are new to this type of work and need training), it requires rigorous analysis, well-thought-out problem solving, and a willingness to innovate to get to where you want to be.
We've been dissecting each process path to determine how we can improve further. We have a variety of pilot programs (e.g., rotation programs that help employees avoid spending too much time repeating the same actions, wearables that prompt employees when they move in dangerous ways, improved shoes to provide better toe protection, training programs in body mechanics, health and safety practices). However, we still have a long way to go and we will treat it like any other customer experience. We will continue to learn, invent and iterate until we have more transformative results. We will not be satisfied if we do not do so.
Again, for a business of our size, there's a lot of carbon footprint. This is a big reason why we created the Climate Pledge a few years ago, which committed to net-zero carbon by 2040, a decade before the Paris Agreement. We have made significant progress in this regard (we are committed to using 100% renewable energy to power our operations by 2025, five years ahead of our original target of 2030. We have ordered more than 100,000 electric vans to deliver packages and have more than 300 companies join our climate commitment). However, given the diversity and intensity of our business, which includes shipping billions of packages a year, we face different challenges than most companies. We dare to rise to the challenge, but it requires persistent invention.
We're also trying to increase affordable housing in communities where we have a large presence. Our more than $2 billion housing equity fund, launched a year ago, has allocated $1.2 billion for affordable housing programs in the Puget Sound area of Washington, Arlington (Virginia) and Nashville (Tennessee).
A final simple example is Kuiper, our network of low-Earth orbit satellites that we will invest more than $10 billion to build in the coming years. Kuiper will provide customers with minimal or no fixed broadband connections, changing the way many communities access information and resources (analysts expect about 300 million to 400 million customers worldwide to fall into this category). We are optimistic that there will also be a fairly good business model for us, but we will wait and see. For underserved families and businesses, this will be a true game changer. As we continue to develop its capabilities, it will be unlocked in a few years.
This type of iterative innovation is ubiquitous in every team at Amazon. I can give some similar examples in advertising, groceries, games, Amazon Music, Amazon Care (our telemedicine services), or pharmacies. All of these "stories" are still being written as we are rapidly experimenting, learning, and continuing to work to make our customer experience better every day.
If this approach sounds appealing, then a natural question is, what is needed to achieve it? Easier said than done, but here are some of the things that helped us:
1/ Recruit the right developer (Builder): We do a disproportionate "index" in recruiting developers. We think of developers as people who love to invent, who focus on the customer experience, dissect their shortcomings, and seek to recreate them. We want people who "keep asking why it can't be done," we need people who "like to try and tinker," people who can "realize that starting is just the beginning, not the end."
2/ Organize developers into teams that are as independent and autonomous as possible: It's difficult for teams to gain a deep understanding of what customers care about in multiple areas. When there is a resource competition with more established businesses, it's also difficult to spend enough time on new initiatives; more assured bets usually win. "Single-threaded" teams will better understand the needs of their customers, spend all their waking hours inventing for them, and maintain rapid iterations based on specific environments and rhythms.
3/ Give the team the right tools and permission to move fast: speed is not pre-specified. It's a leadership choice. It's a trade-off, and you can't wake up one day and start moving fast. It needs to have the right tools to experiment and build quickly (which is the main reason we created AWS), allow teams to make two-way decisions on their own, and set an expectation (speed is important). And it is. At every stage of business development, speed is "disproportionately" important to every business. Those who move slower than their competitors will disappear over time.
4/ You need blind faith, but no false hope: This is the lyrics from one of my favorite songs, Foo Fighters. When you invent, you come up with new ideas that people might reject because they haven't been done before (and that's where blind faith comes in). But it's also important to take a step back and make sure you have a viable plan that resonates with your customers (avoid false hopes). Fortunately, we have developers who challenge each other, feedback loops that allow us to get customer feedback, and a product development process that "starts with the customer and works backwards." In the process, it is necessary to write press releases (to flesh out customer interests) and FAQ documents (detailing how we will build it) to help us blindly believe without generating false hopes (at least usually).
5/ Define a minimal cute product (MLP) and be willing to iterate quickly: Figuring out the boundaries of a release is one of the most difficult decisions the team has to make. Often, teams wait too long before launching, insisting on having too many bells and whistles. Moreover, they miss out on the forerunner advantage or opportunity to build awareness of share in a rapidly evolving segment. The released product has to be good enough to convince you that it will be loved from the start (why do we call it the "smallest cute product" instead of the "smallest viable product (MVP)"). In newer segments, teams are generally better at delivering this MLP to customers and then iterating quickly.
6/ Focus on long-term goals: We are sometimes criticized for not shutting down too much at Amazon. It is true that we have a longer tolerance for investment than most companies. We know that transformative inventions take years, and if you're making a big gamble that you think can dramatically change the customer experience, you have to invest in it for a long time or you'll give up too quickly.
7/ Be prepared to fail: If you invent a lot of things, you will fail more times than you would like. No one likes this part, but it is inevitable. When it's clear that we've rolled out something that won't work, we want to make sure we learn from what didn't go well, and we want to make sure that the team members who did well get to work, or your best employees will hesitate to commit to a new plan.
Albert Einstein sometimes described "compound interest" (a method of calculating interest) as the eighth wonder of the world (compound interest can earn compound interest by those who understand it). Those who don't understand, they have to pay.. Our view of iterative innovation is largely the same. Iterative innovation creates magic for customers. Continually inventing and improving products for customers will have a comprehensive impact on the customer experience, which in turn will affect the future of the business.
When compounding, time is your friend. Amazon is a big company with some big businesses, but it's still in the early stages for us. We will continue to "rebel" and invent in the businesses we have entered, in new businesses that we have not yet launched, and in new ideas that we have not even imagined. It's still the first day (Amazon's famous "Day 1" culture).
Andy Jassy
President and CEO of Amazon
Source: Sina Technology
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