Tencent Technology News April 15 News That Andy Jassy, who became Amazon's CEO last year, released his first annual letter to shareholders on Thursday. The letter summarizes Amazon's performance in 2021 and outlines its future goals. In Jesse's letter, he first praised Amazon's cloud service AWS for its role in helping businesses during the pandemic — a familiar subject for Jesse, whose previous role was CEO of AWS. The letter also discusses familiar topics such as supply chain disruptions, labor shortages and Amazon's focus on rolling out more Gold membership packages faster.
The following is the full text of Amazon's annual shareholder letter:
Dear Shareholders,
Over the past 25 years at Amazon, I've had the opportunity to write many narratives, emails, letters, and keynotes for employees, customers, and partners. However, this is the first time I've had the privilege of writing an annual shareholder letter as Ceo of Amazon. Jeff set a very high standard for these letters, and I will try to make them worth reading.
When the outbreak broke out in early 2020, few thought it would be as large or long-term as it is now. Until then, any role Amazon plays in the world has been further amplified, as most physical premises are closed for long periods of time and people stay 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 survive this unprecedented era. Businesses and governments have also had to move from working remotely from working with colleagues and local technology almost overnight. AWS plays an important role in enabling business continuity. Whether companies see unusual spikes in demand or demand shrinking rapidly as external consumption decreases, the elasticity of the cloud to rapidly scale up and down capacity and AWS's unusually broad capabilities have helped millions of companies adapt to these difficult environments.
During the pandemic, our AWS and consumer businesses have had different demand trajectories. In the first year of the pandemic, AWS revenue continued to grow rapidly — reaching $35 billion in 2020, up 30 percent year-over-year — but down from 37 percent year-over-year in 2019. This is partly due to the uncertainty and slowdown in demand that many businesses are experiencing, but also partly because we help companies optimize their AWS footprint to save money. At the same time, businesses are taking a step back and deciding what changes they want the pandemic to bring. Many people have concluded that they don't want to continue managing their technology infrastructure on their own and have decided to accelerate their migration to the cloud. This shift from many companies (as the economy recovers) has helped ACCELERATE AWS's revenue growth back to 37 percent year-over-year in 2021.
Instead, our consumer 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 annual revenue up 43% year-over-year in the first quarter of 2021. The numbers are staggering. We achieved growth equivalent to our 3-year forecast in about 15 months.
As the world reopens from 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 across more entities. We're not sure what's going to happen in 2021, but the fact that we continue to grow at a double-digit percentage rate (29% consumer CAGR over two years) is encouraging as customers appreciate the role Amazon has played for them during the pandemic and are starting to use Amazon for more home purchases.
This growth also comes with short-term logistical and cost challenges. We spent the first 25 years of Amazon building a very large fulfillment network and then had to double in the last 24 months to meet customer demand. The labor market was quite tight when we brought this new capacity online, which made it difficult to receive all the inventory that our suppliers and sellers wanted to send us and to put it closest to our customers, as we usually do. This, coupled with the increasing scarcity and cost of sea, air and trucking capacity, creates additional transportation and production costs. Supply chains have been disrupted like never before. We hoped that as 2021 drew to a close, the main impact of COVID-19 would fade, but then The Oakeon took off in December, which had a global impact, including impacting people's ability to work. Then in late February, as Russia invaded Ukraine, fuel costs and inflation became bigger issues to deal with.
As a result, 2021 was a crazy and unpredictable year, continuing the trend since 2020. However, I am proud of the incredible commitment and effort of my employees around the world. Without the dedication and extraordinary effort that our team has shown during this period, I'm not sure any of us would have weathered the pandemic in the same way, and I'll always be grateful.
It's not normal for companies of any size to be able to cope with something as discontinuous and unpredictable as an outbreak. What makes it possible for Amazon to do this? Because we didn't start from a starting point. For nearly two decades, we have been iterating and transforming our ability to deliver on our contracts. In every business we do, we are constantly experimenting and inventing. We are very dissatisfied with the customer experience, whether it is our own experience or not. We believe these customer experiences are always better, and we strive every day to make our customers' lives better and easier. The beauty of this task is that you never run off the runway; customers always want better, and our job is to listen to their feedback, 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 — you have a new invention, it's a long-term breakthrough success. This rarely happens. A little-known fact about innovative companies like Amazon is that they relentlessly debate, redefine, tinker, iterate, and experiment to get the seeds of a great idea and turn it into something that resonates with customers and meaningfully changes their customer experience over a long period of time.
Let me give you some examples of Amazon.
Our fulfillment network: Back in the pandemic, it is unlikely that we will start working on our fulfillment network in March 2020 and meet anything close to the needs of our customers. For 20 years, we've been innovating our fulfillment network, 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 for a single item to pass through our fulfillment center and get it on a suitable truck. Now, it takes both of us. To provide a reliable and cost-effective service as required by us, and for Amazon Gold members who are looking to ship within a few days, we spent years building a vast fulfillment center, strong logistics and transportation capabilities, and reconfiguring almost everything we do in the facility. In the long run, in 2004, we had seven fulfillment centers in the U.S. and four in the rest of the world, and we haven't added distribution stations that connect our fulfillment and sorting centers to the last-mile delivery trucks you see in your community. By the end of 2021, we have 253 fulfillment centers, 110 sorting centers and 467 delivery stations in North America, in addition to 157 fulfillment centers, 58 sorting centers and 588 delivery stations worldwide. Our delivery network grew to over 260,000 drivers worldwide, and our Amazon Airlines cargo fleet is home to more than 100 aircraft. Over the past fifteen years, this has represented more than $100 billion in capital investment and countless iterations and small process improvements by more than 1 million Amazonians.
Ironically, just before the COVID-19 pandemic began, we decided to invest billions of dollars in a few years to deliver more and more major goods in one day. This plan has been slow due to the challenges of the pandemic, but we have resumed our focus here. Delivering a large number of goods in one day is difficult (especially among the millions of goods we offer) and is initially expensive because we have to build the infrastructure to scale this effectively. However, we believe our 200 million+ Gold Membership customers will tell you very clearly that the sooner the better, they will love it. So, this ability to ship millions of items in a matter of days (and more importantly, in a single day) didn't come from a moment, nor did it develop in a year or two. This didn't come easily because we put ourselves in the shoes of our customers, knew what they wanted, organized Amazonians to work together to invent better solutions, and invested a lot of money and human resources in 20 years (often much earlier than the time to payback). This type of iterative innovation never ends, with cyclical peaks during the investment year, but with better long-term customer experiences, customer loyalty, and returns from our shareholders.
AWS: When we define AWS and work backwards on what we think our customers want, we keep triggering one of the biggest tensions in product development — where the boundaries of V1 functionality lie. In particular, an early meeting of our core compute service, elastic compute cloud ("EC2"), was scheduled for one hour and took three hours as we enthusiastically debated whether we could launch compute services without the included persistent block storage companion, a form of network-attached storage. Everyone agrees that having a durable block store is important for a complete computing service; however, it takes an extra year to get one ready. The question becomes, before we have all the features we think they want, can we provide useful services to our customers and give them meaningful value? We believe that if we also organize ourselves to listen to our customers and iterate quickly, the initial release of EC2 may lack features. This approach works well if you do iterate quickly; however, if you can't, it's going to be disastrous. We launched EC2 in 2006, in a data center in one region of the world, with only one instance size, only Linux OS instances (no Windows), no monitoring, load balancing, auto-scaling, or, yes, no persistent storage. EC2 was initially successful, but it was far from becoming a multibillion-dollar service until we added the missing features listed above, and then some of them.
In the early days of AWS, people sometimes asked us why computing wasn't just an indiscriminate commodity. However, there is a lot more to compute than servers. Customers require 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 are CPU chips running in your computer. The industry has been using Intel or AMDx86 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, which we announced in 2018. This helps a subset of 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 delivered an extraordinary performance, offering a 40% better price/performance ratio than the latest generation x86 processor. Think about how much of an impact a 40% increase in computing performance will have. Computers are used in every technology. This is a big deal for the client. In addition, while Graviton 2 has been a huge success to date (48 of THE TOP 50 AWS EC2 customers have adopted it), the AWS chip team has learned from what customers say could be better and announced Graviton 3 last December (offering a 25% improvement over Graviton 2's relative benefits). Our list of products invented and delivered for our customers at EC2 and AWS is incredible, and this iterative and innovative approach not only provides customers with more AWS features than anywhere else (which is an important distinction), but also allows us to offer products that are more game-changing than AWS is today.
Equipment: Our first foray into devices was the Kindle released in 2007. It's not the most complex industrial design (it's milky white, and some people hold it uncomfortable), but it's revolutionary because it allows customers to download any of the more than 90,000 books (now millions) in 60 seconds – we're getting better and faster at building attractive designs. Shortly thereafter, we launched tablets, then mobile phones (with the distinctive features of a front-facing camera and gyroscope, offering customers a dynamic viewing angle and a variety of 3D experiences). The phone call didn't work out, and although we thought we might be too late and shifted those resources elsewhere, we hired some great long-term builders and learned valuable lessons from this failure that worked well in devices like the Echo and FireTV.
When I think about the first Echo device — and what Alexa could have done for its customers at the time — it's noteworthy, but far less than possible 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, your estimated commute time based on current traffic, and then plays the news; you can easily order retail items on Amazon You can get updates on general or customized news, sporting events and related statistics – we still know early on what Alexa and Alexa-related devices will do for customers. Our goal is to make Alexa the most helpful and resourceful personal assistant in the world, making people's lives easier and better. We have more inventions and iterations to do, but customers continue to show that we are on the right path. We have several other devices at different stages of development (for example, Ring and Blink offer 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 it's the Kindle, FireTV, Alexa/Echo, Ring, Blink, or Astro, is an ongoing invention. There will be more inventions in the future that will continue to improve the lives of customers.
Prime Video: We launched a service called Amazon Unbox in 2006, where customers can download about a thousand movies from major studios. This makes sense because the 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 faster, and with the advent of connected TVs, streaming will become a better customer solution, and we focus on streaming. In 2011, we began offering more than 5,000 streaming movies and shows as amazon gold subscriptions for our customers. Initially, all of our content was produced by other studios and entertainment companies. These deals were expensive, varied from country to country, and were only available to us for a limited time; so, in order to expand our options, we began to create our own original programming. Our early efforts included short-lived shows like Alpha House and Betas. Along the way, we've learned a lot about making compelling entertainment and memorable moments, as well as using machine learning and other innovative technologies to deliver a premium streaming experience. You've probably seen some of this in our recent hit series, Jack the Man, and you're expected to see it in our upcoming Lord of the Rings series. We also hope that when we launch the NFL's first weekly prime-time streaming show, Thursday Night American Football, you'll see this iterative invention. Our 11-year agreement with the NFL will continue to work tirelessly for years to reinvent the NFL viewing experience for American football fans.
This record of frequent invention is not only why more sports entities choose to partner with Prime Video, but also why so many large entertainment companies are partners in Gold member video channels. Channels is a program that enables entertainment companies to leverage the unique technology and viewing experience of Gold member videos, as well as its very large membership base to deliver monthly subscriptions to content. Companies like Warner Bros. Discovery, Paramount, Starz, Corus Entertainment, and Globo have found that they are driving massive membership growth and better customer experiences through Channels. While Gold Member Video has come so far from where we started, there will be more inventions ahead of us over the next 15 years than in the last 15 years, and our team is passionately committed to providing customers with the widest range of engaging content in the world.
This same type of iterative invention can be applied to support the efforts of people and communities. Last summer, we added two new leadership principles: striving to be the best employer in the world, success and scale bringing broad responsibility. These concepts have always been implicit at Amazon, but clear leadership principles help us ask ourselves — and allow more Amazonians at all levels to ask ourselves — whether we've adhered to them.
For example, more than 1 million Amazonians work in our fulfillment network. In 2018, we supported a $15 minimum wage (which is more than double the U.S. federal minimum wage), but it didn't stop there. We continue to increase our pay and currently have an average starting hourly salary of over $18. In addition to this compensation, we offer very robust benefits, including comprehensive health insurance, a 401K plan, up to 20 weeks of parental leave, and full tuition insurance for employees who wish to get a college education (whether they remain with our company or not). We are far from done when it comes to improving 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 strain, sprains, falls and repetitive stress injuries. Our injury rate is sometimes misunderstood. We have operations that fit both "warehousing" and "express and delivery" categories. In recent U.S. public data, our recordable incident rate is slightly higher than the average for our warehousing peers (6.4:5.5) and slightly lower than the average for our express and distribution peers (7.6:9.1). This puts us on average relative to our peers, but we don't go for averages. We want to be at the top of our peers. When I first started my new role, I spent a lot of time in our fulfillment center and security team and hoped there was a silver bullet that could quickly change numbers. I didn't find the one. 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), rigorous analysis, thoughtful problem solving, and a willingness to innovate are needed to get to where you want to be. We're dissecting each process path to see how we can improve it further. We have a variety of programs in progress (e.g., rotation programs that help employees avoid spending too much time doing the same repetitive actions, wearable devices that alert employees when they move in dangerous ways, improved shoes that provide better toe protection, training programs on body mechanics, health, and safety practices). However, we still have some 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 transformational results. We won't be satisfied until we do it.
Again, at our scale, we have an important carbon footprint. This is a big reason why we created the Climate Pledge a few years ago (committing to net-zero carbon emissions by 2040, ten years ahead of the Paris Agreement). We've made significant progress on this (we're committed to 100% renewable energy for our operations by 2025, five years ahead of our original 2030 target, we've ordered more than 100,000 electric vans to deliver packages, and more than 300 companies have joined our climate commitments). 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 are committed to meeting the challenge, but it requires relentless invention.
We're also trying to increase the number of affordable homes in communities where we have a lot of business. Our more than $2 billion Housing Equity Fund, launched a year ago, has allocated $1.2 billion to affordable housing programs around the Puget Sound area, Washington, Arlington (Virginia) and Nashville (Tennessee).
A final simple example is Kuiper, our network of low-Earth orbit satellites that we will spend more than $10 billion to build in the coming years. Kuiper will serve customers with minimal or no fixed broadband connections, changing access to information and resources in many communities (analysts estimate that about 300 million to 400 million customers worldwide fall into this category). We're optimistic that we also have a really good business model, but we'll see that as we continue to evolve its capabilities, it will bring real game-changing to underserved homes and businesses over the years.
This type of iterative innovation pervades every team at Amazon. I can cite similar examples of advertising, groceries, games, Amazon Music, Amazon Medical (our telemedicine services) or pharmacies. All of these stories are still being written as we experiment quickly every day, learn, and continue to work to make our customer experience better.
If this approach sounds appealing, then a natural question is, what is it takes to master it? Easier said than done, here are some of the components that helped us:
First: Hire the right developers: We're disproportionate in hiring developers. We think of developers as people who love inventions, who focus on the customer experience, dissect what doesn't suit them, and seek to reinvent them. We need to keep asking people why they can't do it. We need people who like to experiment and tinker with the realization that releases are the starting line, not the finish line.
Second: Organize developers into teams that are as separable and autonomous as possible: It's hard for teams to get deep into what customers care about in multiple areas. When competing with more mature businesses for resources, it's also difficult to spend enough time on new initiatives; winning bets usually win. Single-threaded teams will better understand their customers' needs, spend all their waking work time inventing for them, and develop context and rhythm to keep iterating fast.
Third: Give the team the right tools and permission to act quickly: speed is not predetermined. This is the choice of leadership. It has trade-offs, but you can't wake up one day and start moving fast. It requires 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 expectations where speed matters. Indeed it is. Speed is extremely important for every business at every stage of its development. Those who are slower than their competitors will fall behind over time.
Fourth: You need blind faith, but don't fake hope: This is a lyric from one of my favorite Spitfire song. When you invent, you come up with new ideas that people will reject because they haven't been done before (that's why blind faith is the cause), 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). We're fortunate that we have builders who challenge each other, a feedback loop that allows us to get customer feedback, and a product development process that starts in reverse from the customer, in which press releases (to flesh out customer interests) and FAQ documents (to detail how we're going to build it) help us not have false hopeless blind beliefs (at least usually).
Fifth: Define a minimally cute product (MLP) and be willing to iterate quickly: Figuring out where to draw the release line is one of the most difficult decisions the team has to make. Often, teams wait too long before release and stick to too many fancy features. In addition, they miss out on first-mover advantages or opportunities to build visibility in a fast-growing segment before their well-executed peers are far ahead. The released product has to be good enough that you believe it's going to be loved from the start (why we call it "the least lovable product" rather than the "least viable product"), but in newer segments, teams usually get better at delivering this MLP to customers and iterat quickly thereafter.
Sixth: Take a long-term positioning: We at Amazon are sometimes criticized for not closing too much. It's true that we are more tolerant of investment than most companies. However, we know that transformative inventions take years, and if you're making a big bet that you think can dramatically change the customer experience (and your company), you have to stick with it for a long time or you'll give up quickly.
Seventh: Be prepared to fail: If you invent a lot, you will fail more times than you would like. Nobody likes this part, but it's inevitable. When we're rolling out something that clearly doesn't work, we want to make sure we learn from what doesn't go well and provide a great foothold for team members who are doing well, or your best employees will be hesitant about new initiatives.
Albert Einstein is sometimes thought to describe compound interest as the eighth wonder of the world ("Those who understand compound interest can get compound interest"). Whoever doesn't, who pays"). We think iteratively innovating in the same way. Iterative innovation creates miracles for customers. Continuously inventing and improving products for customers has a compounding effect on the customer experience and in turn affects the prospects of the business.
When you compound interest, 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 be innovative – innovating in the industries in which we operate, innovating in new industries that we haven't yet launched, innovating in new ideas that we haven't even thought of. This is the first day.
Best wishes!
Andy Jesse
President and CEO of Amazon
(Compiled by Tencent Technology/No Taboo)
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