Jeff Bezos's 2008 Letter to Shareholders | Oasis Signals
*Oasis Signals* Series 2
The Kindle, launched in 2007, faced the financial crisis the very next year. While the market panicked, Amazon optimized costs organizationally, doubled down on its customer-centric "Working Backwards" methodology, and rapidly iterated — releasing the second-generation Kindle.
Enjoy
To our shareholders:
In this time of global economic turbulence, the fundamental approach we adhere to remains unchanged. Humility and caution. Focus on long-term value. Customer obsession. Focusing on long-term value not only drives us to improve our existing capabilities but also inspires us to try new things. It enables us to innovate through repeated failure. It frees us from constraints to explore uncharted territories. Were we to content ourselves with short-term accomplishments or make short-term commitments, we would quickly be surpassed. Yet long-term strategy complements customer obsession perfectly. If we understand customer needs well, and firmly believe those needs are valuable and enduring, our consistent practice is to explore patiently over many years until we find a solution. "Working backwards" from customer needs stands in sharp contrast to the "skills-forward" approach of harnessing business opportunities with existing technologies and capabilities. The skills-forward advocate says: "We're good at X," "What else can we do through X?" This is indeed a useful and to some extent effective business model. But if a company becomes immersed in it, it loses the drive to innovate. Eventually, existing skills become obsolete. "Working backwards" from customer needs often requires us to explore and hone new skills, without concern for the discomfort and awkwardness of taking that first step.
Kindle is an excellent example of our "working backwards" approach driven by customer needs. Over four years ago, we envisioned making any book ever published, in any language, available to customers within 60 seconds. Our premise was that customers would likely want a user experience where the Kindle device and the service it provided were tightly integrated. Amazon had never designed or manufactured hardware, but we would not alter our original vision due to the limitations of existing technology. We hired outstanding hardware engineers and began learning new skills — skills we would need to serve readers better in the future. We are gratified that Kindle sales have exceeded even our most optimistic expectations. Beginning February 23, we launched Kindle 2. Kindle 2 has every feature of the first-generation Kindle, but is thinner, faster, with sharper display, longer battery life, and can store 1,500 books. You can choose freely from over 250,000 of the most popular books, magazines, and newspapers. Wireless delivery is free, and you can get the book you want in under 60 seconds. We have received thousands of customer feedback emails about Kindle, with 26% of them using the word "LOVE."
Customer Experience at the Core
In our retail business, we firmly believe that customers value low prices, vast selection, and fast, convenient delivery — and that these needs will only grow more stable over time. We cannot imagine that ten years from now, customers will no longer care about low prices, selection, and delivery speed. It is this understanding of these enduring benefits that gives us confidence to continue increasing our long-term investment in customer experience. The investments we make now will surely yield rich returns in the future.
Our pricing goal is to earn customer trust, not merely to maximize short-term profits. We regard pricing from this perspective as the best path to long-term profitability, and as our operating creed. We may earn limited profit on any single item, but we always believe that based on consumers' long-term trust in Amazon, we will sell more goods. Therefore, we pursue a low-price strategy across our entire product line. For the same reason, we will continue investing in our free shipping programs, including Amazon Prime. Customers are well-informed and savvy when making purchases, even considering total cost including shipping. In the past 12 months, customers worldwide have saved over $800 million through the free shipping services we provide.
We remain unwaveringly committed to expanding product selection — including offering richer choices within existing categories while continuing to add new ones. Since 2007, we have added 28 new product categories. I must mention one business that continually amazes me — our shoe store (Endless.com), which has maintained rapid growth since its launch in 2007.
Fast, reliable delivery is extremely important to customers. We launched Amazon Prime in 2005. For just $79 per year, customers receive unlimited two-day free shipping, with the option to upgrade to one-day delivery for $3.99. In 2007, we began offering outsourced logistics services to third-party sellers through Fulfillment by Amazon (FBA). Through FBA, sellers place their inventory within our global logistics network, and we handle sorting, packing, and delivery to end customers on their behalf. FBA items are eligible for Amazon Prime and Super Saver Shipping — customers receive the same service as when purchasing from Amazon's own inventory. Thus, FBA not only enhances the customer experience but also drives seller sales. In Q4 2008 alone, we sold over 3 million items on behalf of these FBA sellers, creating a win-win for consumers and sellers.
Disciplined Spending
Having chosen to put "customer experience" first, an effective cost structure is vitally important to us. The good news for shareholders is that we see many opportunities to improve in this area. We look everywhere (each of us looks), and ultimately we find what Japanese manufacturers call "muda" or "waste." I believe it has incredible vitality. Its potential lies in: years of variable and fixed productivity, greater efficiency, faster speed, and more flexible capital expenditure.
Our primary financial goal remains maximizing long-term free cash flow and thereby achieving high returns on invested capital. We will invest heavily in Amazon Web Services (AWS), seller tools, digital media, the China market, and new product categories. We do so because we believe investments at this scale make sense and will undoubtedly bring us rich returns.
Across the world, the magical, innovative, hardworking people of Amazon have consistently upheld the principle of customer obsession. I am deeply proud to be part of the Amazon team. I thank our shareholders for your support and encouragement, and for walking this journey with us. As is our custom, enclosed is Amazon's 1997 letter to shareholders. Even in these times of change, we hope and believe that the enduring, unchanging things we have always focused on will make our tomorrow brighter.
Jeffrey Bezos
Founder and Chief Executive Officer, Amazon
Oasis Capital is a new-generation venture capital firm in China, dedicated to discovering the most vital entrepreneurs of the next decade and growing alongside them to create long-term value. "Nurturing Vitality" is Oasis's vision and mission. This vitality — both the direction of structural transformation in our era and the resilience and evolutionary power of entrepreneurs. Oasis Capital focuses on early and growth-stage investments, with individual investments ranging from $3 million to $30 million, concentrating on technology-enabled services in education, healthcare, enterprise services, and other sectors, helping drive China's new service upgrade through technology.
