By WSJ Staff
Amazon.com Inc. founder and Chief Executive Jeff Bezos recently
sent a letter to shareholders. Mr. Bezos is set to step down as CEO
in the third quarter and will remain chairman.
Here is a copy of the letter:
To our shareowners:
In Amazon's 1997 letter to shareholders, our first, I talked
about our hope to create an "enduring franchise," one that would
reinvent what it means to serve customers by unlocking the
internet's power. I noted that Amazon had grown from having 158
employees to 614, and that we had surpassed 1.5 million customer
accounts. We had just gone public at a split-adjusted stock price
of $1.50 per share. I wrote that it was Day 1.
We've come a long way since then, and we are working harder than
ever to serve and delight customers. Last year, we hired 500,000
employees and now directly employ 1.3 million people around the
world. We have more than 200 million Prime members worldwide. More
than 1.9 million small and medium-sized businesses sell in our
store, and they make up close to 60% of our retail sales. Customers
have connected more than 100 million smart home devices to Alexa.
Amazon Web Services serves millions of customers and ended 2020
with a $50 billion annualized run rate. In 1997, we hadn't invented
Prime, Marketplace, Alexa, or AWS. They weren't even ideas then,
and none was preordained. We took great risk with each one and put
sweat and ingenuity into each one.
Along the way, we've created $1.6 trillion of wealth for
shareowners. Who are they? Your Chair is one, and my Amazon shares
have made me wealthy. But more than 7/8ths of the shares,
representing $1.4 trillion of wealth creation, are owned by others.
Who are they? They're pension funds, universities, and 401(k)s, and
they're Mary and Larry, who sent me this note out of the blue just
as I was sitting down to write this shareholder letter:
I am approached with similar stories all the time. I know people
who've used their Amazon money for college, for emergencies, for
houses, for vacations, to start their own business, for charity --
and the list goes on. I'm proud of the wealth we've created for
shareowners. It's significant, and it improves their lives. But I
also know something else: it's not the largest part of the value
we've created.
Create More Than You Consume
If you want to be successful in business (in life, actually),
you have to create more than you consume. Your goal should be to
create value for everyone you interact with. Any business that
doesn't create value for those it touches, even if it appears
successful on the surface, isn't long for this world. It's on the
way out.
Remember that stock prices are not about the past. They are a
prediction of future cash flows discounted back to the present. The
stock market anticipates. I'm going to switch gears for a moment
and talk about the past. How much value did we create for
shareowners in 2020? This is a relatively easy question to answer
because accounting systems are set up to answer it. Our net income
in 2020 was $21.3 billion. If, instead of being a publicly traded
company with thousands of owners, Amazon were a sole proprietorship
with a single owner, that's how much the owner would have earned in
2020.
How about employees? This is also a reasonably easy value
creation question to answer because we can look at compensation
expense. What is an expense for a company is income for employees.
In 2020, employees earned $80 billion, plus another $11 billion to
include benefits and various payroll taxes, for a total of $91
billion.
How about third-party sellers? We have an internal team (the
Selling Partner Services team) that works to answer that question.
They estimate that, in 2020, third-party seller profits from
selling on Amazon were between $25 billion and $39 billion, and to
be conservative here I'll go with $25 billion.
For customers, we have to break it down into consumer customers
and AWS customers.
We'll do consumers first. We offer low prices, vast selection,
and fast delivery, but imagine we ignore all of that for the
purpose of this estimate and value only one thing: we save
customers time.
Customers complete 28% of purchases on Amazon in three minutes
or less, and half of all purchases are finished in less than 15
minutes. Compare that to the typical shopping trip to a physical
store -- driving, parking, searching store aisles, waiting in the
checkout line, finding your car, and driving home. Research
suggests the typical physical store trip takes about an hour. If
you assume that a typical Amazon purchase takes 15 minutes and that
it saves you a couple of trips to a physical store a week, that's
more than 75 hours a year saved. That's important. We're all busy
in the early 21st century.
So that we can get a dollar figure, let's value the time savings
at $10 per hour, which is conservative. Seventy-five hours
multiplied by $10 an hour and subtracting the cost of Prime gives
you value creation for each Prime member of about $630. We have 200
million Prime members, for a total in 2020 of $126 billion of value
creation.
AWS is challenging to estimate because each customer's workload
is so different, but we'll do it anyway, acknowledging up front
that the error bars are high. Direct cost improvements from
operating in the cloud versus on premises vary, but a reasonable
estimate is 30%. Across AWS's entire 2020 revenue of $45 billion,
that 30% would imply customer value creation of $19 billion (what
would have cost them $64 billion on their own cost $45 billion from
AWS). The difficult part of this estimation exercise is that the
direct cost reduction is the smallest portion of the customer
benefit of moving to the cloud. The bigger benefit is the increased
speed of software development -- something that can significantly
improve the customer's competitiveness and top line. We have no
reasonable way of estimating that portion of customer value except
to say that it's almost certainly larger than the direct cost
savings. To be conservative here (and remembering we're really only
trying to get ballpark estimates), I'll say it's the same and call
AWS customer value creation $38 billion in 2020.
Adding AWS and consumer together gives us total customer value
creation in 2020 of $164 billion.
Summarizing:
Shareholders $21B
Employees $91B
3P Sellers $25B
Customers $164B
Total $301B
If each group had an income statement representing their
interactions with Amazon, the numbers above would be the "bottom
lines" from those income statements. These numbers are part of the
reason why people work for us, why sellers sell through us, and why
customers buy from us. We create value for them. And this value
creation is not a zero-sum game. It is not just moving money from
one pocket to another. Draw the box big around all of society, and
you'll find that invention is the root of all real value creation.
And value created is best thought of as a metric for
innovation.
Of course, our relationship with these constituencies and the
value we create isn't exclusively dollars and cents. Money doesn't
tell the whole story. Our relationship with shareholders, for
example, is relatively simple. They invest and hold shares for a
duration of their choosing. We provide direction to shareowners
infrequently on matters such as annual meetings and the right
process to vote their shares. And even then they can ignore those
directions and just skip voting.
Our relationship with employees is a very different example. We
have processes they follow and standards they meet. We require
training and various certifications. Employees have to show up at
appointed times. Our interactions with employees are many, and
they're fine-grained. It's not just about the pay and the benefits.
It's about all the other detailed aspects of the relationship
too.
Does your Chair take comfort in the outcome of the recent union
vote in Bessemer? No, he doesn't. I think we need to do a better
job for our employees. While the voting results were lopsided and
our direct relationship with employees is strong, it's clear to me
that we need a better vision for how we create value for employees
-- a vision for their success.
If you read some of the news reports, you might think we have no
care for employees. In those reports, our employees are sometimes
accused of being desperate souls and treated as robots. That's not
accurate. They're sophisticated and thoughtful people who have
options for where to work. When we survey fulfillment center
employees, 94% say they would recommend Amazon to a friend as a
place to work.
Employees are able to take informal breaks throughout their
shifts to stretch, get water, use the rest room, or talk to a
manager, all without impacting their performance. These informal
work breaks are in addition to the 30-minute lunch and 30-minute
break built into their normal schedule.
We don't set unreasonable performance goals. We set achievable
performance goals that take into account tenure and actual employee
performance data. Performance is evaluated over a long period of
time as we know that a variety of things can impact performance in
any given week, day, or hour. If employees are on track to miss a
performance target over a period of time, their manager talks with
them and provides coaching.
Coaching is also extended to employees who are excelling and in
line for increased responsibilities. In fact, 82% of coaching is
positive, provided to employees who are meeting or exceeding
expectations. We terminate the employment of less than 2.6% of
employees due to their inability to perform their jobs (and that
number was even lower in 2020 because of operational impacts of
COVID-19).
Earth's Best Employer and Earth's Safest Place to Work
The fact is, the large team of thousands of people who lead
operations at Amazon have always cared deeply for our hourly
employees, and we're proud of the work environment we've created.
We're also proud of the fact that Amazon is a company that does
more than just create jobs for computer scientists and people with
advanced degrees. We create jobs for people who never got that
advantage.
Despite what we've accomplished, it's clear to me that we need a
better vision for our employees' success. We have always wanted to
be Earth's Most Customer-Centric Company. We won't change that.
It's what got us here. But I am committing us to an addition. We
are going to be Earth's Best Employer and Earth's Safest Place to
Work.
In my upcoming role as Executive Chair, I'm going to focus on
new initiatives. I'm an inventor. It's what I enjoy the most and
what I do best. It's where I create the most value. I'm excited to
work alongside the large team of passionate people we have in Ops
and help invent in this arena of Earth's Best Employer and Earth's
Safest Place to Work. On the details, we at Amazon are always
flexible, but on matters of vision we are stubborn and relentless.
We have never failed when we set our minds to something, and we're
not going to fail at this either.
We dive deep into safety issues. For example, about 40% of
work-related injuries at Amazon are related to musculoskeletal
disorders (MSDs), things like sprains or strains that can be caused
by repetitive motions. MSDs are common in the type of work that we
do and are more likely to occur during an employee's first six
months. We need to invent solutions to reduce MSDs for new
employees, many of whom might be working in a physical role for the
first time.
One such program is WorkingWell -- which we launched to 859,000
employees at 350 sites across North America and Europe in 2020 --
where we coach small groups of employees on body mechanics,
proactive wellness, and safety. In addition to reducing workplace
injuries, these concepts have a positive impact on regular
day-to-day activities outside work.
We're developing new automated staffing schedules that use
sophisticated algorithms to rotate employees among jobs that use
different muscle-tendon groups to decrease repetitive motion and
help protect employees from MSD risks. This new technology is
central to a job rotation program that we're rolling out throughout
2021.
Our increased attention to early MSD prevention is already
achieving results. From 2019 to 2020, overall MSDs decreased by
32%, and MSDs resulting in time away from work decreased by more
than half.
We employ 6,200 safety professionals at Amazon. They use the
science of safety to solve complex problems and establish new
industry best practices. In 2021, we'll invest more than $300
million into safety projects, including an initial $66 million to
create technology that will help prevent collisions of forklifts
and other types of industrial vehicles.
When we lead, others follow. Two and a half years ago, when we
set a $15 minimum wage for our hourly employees, we did so because
we wanted to lead on wages -- not just run with the pack -- and
because we believed it was the right thing to do. A recent paper by
economists at the University of California-Berkeley and Brandeis
University analyzed the impact of our decision to raise our minimum
starting pay to $15 per hour. Their assessment reflects what we've
heard from employees, their families, and the communities they live
in.
Our increase in starting wage boosted local economies across the
country by benefiting not only our own employees but also other
workers in the same community. The study showed that our pay raise
resulted in a 4.7% increase in the average hourly wage among other
employers in the same labor market.
And we're not done leading. If we want to be Earth's Best
Employer, we shouldn't settle for 94% of employees saying they
would recommend Amazon to a friend as a place to work. We have to
aim for 100%. And we'll do that by continuing to lead on wages, on
benefits, on upskilling opportunities, and in other ways that we
will figure out over time.
If any shareowners are concerned that Earth's Best Employer and
Earth's Safest Place to Work might dilute our focus on Earth's Most
Customer-Centric Company, let me set your mind at ease. Think of it
this way. If we can operate two businesses as different as consumer
ecommerce and AWS, and do both at the highest level, we can
certainly do the same with these two vision statements. In fact,
I'm confident they will reinforce each other.
The Climate Pledge
In an earlier draft of this letter, I started this section with
arguments and examples designed to demonstrate that human-induced
climate change is real. But, bluntly, I think we can stop saying
that now. You don't have to say that photosynthesis is real, or
make the case that gravity is real, or that water boils at 100
degrees Celsius at sea level. These things are simply true, as is
the reality of climate change.
Not long ago, most people believed that it would be good to
address climate change, but they also thought it would cost a lot
and would threaten jobs, competitiveness, and economic growth. We
now know better. Smart action on climate change will not only stop
bad things from happening, it will also make our economy more
efficient, help drive technological change, and reduce risks.
Combined, these can lead to more and better jobs, healthier and
happier children, more productive workers, and a more prosperous
future. This doesn't mean it will be easy. It won't be. The coming
decade will be decisive. The economy in 2030 will need to be vastly
different from what it is today, and Amazon plans to be at the
heart of the change. We launched The Climate Pledge together with
Global Optimism in September 2019 because we wanted to help drive
this positive revolution. We need to be part of a growing team of
corporations that understand the imperatives and the opportunities
of the 21st century.
Now, less than two years later, 53 companies representing almost
every sector of the economy have signed The Climate Pledge.
Signatories such as Best Buy, IBM, Infosys, Mercedes-Benz,
Microsoft, Siemens, and Verizon have committed to achieve net-zero
carbon in their worldwide businesses by 2040, 10 years ahead of the
Paris Agreement. The Pledge also requires them to measure and
report greenhouse gas emissions on a regular basis; implement
decarbonization strategies through real business changes and
innovations; and neutralize any remaining emissions with
additional, quantifiable, real, permanent, and socially beneficial
offsets. Credible, quality offsets are precious, and we should
reserve them to compensate for economic activities where low-carbon
alternatives don't exist.
The Climate Pledge signatories are making meaningful, tangible,
and ambitious commitments. Uber has a goal of operating as a
zero-emission platform in Canada, Europe, and the U.S. by 2030, and
Henkel plans to source 100% of the electricity it uses for
production from renewable sources. Amazon is making progress toward
our own goal of 100% renewable energy by 2025, five years ahead of
our initial 2030 target. Amazon is the largest corporate buyer of
renewable energy in the world. We have 62 utility-scale wind and
solar projects and 125 solar rooftops on fulfillment and sort
centers around the globe. These projects have the capacity to
generate over 6.9 gigawatts and deliver more than 20 million
megawatt-hours of energy annually.
Transportation is a major component of Amazon's business
operations and the toughest part of our plan to meet net-zero
carbon by 2040. To help rapidly accelerate the market for electric
vehicle technology, and to help all companies transition to greener
technologies, we invested more than $1 billion in Rivian -- and
ordered 100,000 electric delivery vans from the company. We've also
partnered with Mahindra in India and Mercedes-Benz in Europe. These
custom electric delivery vehicles from Rivian are already
operational, and they first hit the road in Los Angeles this past
February. Ten thousand new vehicles will be on the road as early as
next year, and all 100,000 vehicles will be on the road by 2030 --
saving millions of metric tons of carbon. A big reason we want
companies to join The Climate Pledge is to signal to the
marketplace that businesses should start inventing and developing
new technologies that signatories need to make good on the Pledge.
Our purchase of 100,000 Rivian electric vans is a perfect
example.
To further accelerate investment in new technologies needed to
build a zero-carbon economy, we introduced the Climate Pledge Fund
last June. The investment program started with $2 billion to invest
in visionary companies that aim to facilitate the transition to a
low-carbon economy. Amazon has already announced investments in
CarbonCure Technologies, Pachama, Redwood Materials, Rivian,
Turntide Technologies, ZeroAvia, and Infinium -- and these are just
some of the innovative companies we hope will build the zero-carbon
economy of the future.
I have also personally allocated $10 billion to provide grants
to help catalyze the systemic change we will need in the coming
decade. We'll be supporting leading scientists, activists, NGOs,
environmental justice organizations, and others working to fight
climate change and protect the natural world. Late last year, I
made my first round of grants to 16 organizations working on
innovative and needle-moving solutions. It's going to take
collective action from big companies, small companies, nation
states, global organizations, and individuals, and I'm excited to
be part of this journey and optimistic that humanity can come
together to solve this challenge.
Differentiation is Survival and the Universe Wants You to be
Typical
This is my last annual shareholder letter as the CEO of Amazon,
and I have one last thing of utmost importance I feel compelled to
teach. I hope all Amazonians take it to heart.
Here is a passage from Richard Dawkins' (extraordinary) book The
Blind Watchmaker. It's about a basic fact of biology.
"Staving off death is a thing that you have to work at. Left to
itself -- and that is what it is when it dies -- the body tends to
revert to a state of equilibrium with its environment. If you
measure some quantity such as the temperature, the acidity, the
water content or the electrical potential in a living body, you
will typically find that it is markedly different from the
corresponding measure in the surroundings. Our bodies, for
instance, are usually hotter than our surroundings, and in cold
climates they have to work hard to maintain the differential. When
we die the work stops, the temperature differential starts to
disappear, and we end up the same temperature as our surroundings.
Not all animals work so hard to avoid coming into equilibrium with
their surrounding temperature, but all animals do some comparable
work. For instance, in a dry country, animals and plants work to
maintain the fluid content of their cells, work against a natural
tendency for water to flow from them into the dry outside world. If
they fail they die. More generally, if living things didn't work
actively to prevent it, they would eventually merge into their
surroundings, and cease to exist as autonomous beings. That is what
happens when they die."
While the passage is not intended as a metaphor, it's
nevertheless a fantastic one, and very relevant to Amazon. I would
argue that it's relevant to all companies and all institutions and
to each of our individual lives too. In what ways does the world
pull at you in an attempt to make you normal? How much work does it
take to maintain your distinctiveness? To keep alive the thing or
things that make you special?
I know a happily married couple who have a running joke in their
relationship. Not infrequently, the husband looks at the wife with
faux distress and says to her, "Can't you just be normal?" They
both smile and laugh, and of course the deep truth is that her
distinctiveness is something he loves about her. But, at the same
time, it's also true that things would often be easier -- take less
energy -- if we were a little more normal.
This phenomenon happens at all scale levels. Democracies are not
normal. Tyranny is the historical norm. If we stopped doing all of
the continuous hard work that is needed to maintain our
distinctiveness in that regard, we would quickly come into
equilibrium with tyranny.
We all know that distinctiveness -- originality -- is valuable.
We are all taught to "be yourself." What I'm really asking you to
do is to embrace and be realistic about how much energy it takes to
maintain that distinctiveness. The world wants you to be typical --
in a thousand ways, it pulls at you. Don't let it happen.
You have to pay a price for your distinctiveness, and it's worth
it. The fairy tale version of "be yourself" is that all the pain
stops as soon as you allow your distinctiveness to shine. That
version is misleading. Being yourself is worth it, but don't expect
it to be easy or free. You'll have to put energy into it
continuously.
The world will always try to make Amazon more typical -- to
bring us into equilibrium with our environment. It will take
continuous effort, but we can and must be better than that.
* * *
As always, I attach our 1997 shareholder letter. It concluded
with this: "We at 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." That hasn't
changed a bit. I want to especially thank Andy Jassy for agreeing
to take on the CEO role. It's a hard job with a lot of
responsibility. Andy is brilliant and has the highest of high
standards. I guarantee you that Andy won't let the universe make us
typical. He will muster the energy needed to keep alive in us what
makes us special. That won't be easy, but it is critical. I also
predict it will be satisfying and oftentimes fun. Thank you,
Andy.
To all of you: be kind, be original, create more than you
consume, and never, never, never let the universe smooth you into
your surroundings. It remains Day 1.
Sincerely,
Jeffrey P. Bezos
Founder and Chief Executive Officer
Amazon.com, Inc.
(END) Dow Jones Newswires
April 15, 2021 11:39 ET (15:39 GMT)
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