The Amazon annual shareholder letter by Jeff Bezos is always full of fascinating information and perspective, especially the views on risk/reward experiments. What Amazon has accomplished (and continues to accomplish) is mind-blowing. The letter is inspiring and a must read! A few snippets are below:
Fulfillment by Amazon and Amazon Prime Membership:
With the success of these two programs now so well established, it’s difficult for most people to fully appreciate today just how radical those two offerings were at the time we launched them. We invested in both of these programs at significant financial risk and after much internal debate. We had to continue investing significantly over time as we experimented with different ideas and iterations. We could not foresee with certainty what those programs would eventually look like, let alone whether they would succeed, but they were pushed forward with intuition and heart, and nourished with optimism.
Non-linear success:
A builder’s mentality helps us approach big, hard-to-solve opportunities with a humble conviction that success can come through iteration: invent, launch, reinvent, relaunch, start over, rinse, repeat, again and again. They know the path to success is anything but straight.
Sometimes (often actually) in business, you do know where you’re going, and when you do, you can be efficient. Put in place a plan and execute. In contrast, wandering in business is not efficient … but it’s also not random. It’s guided – by hunch, gut, intuition, curiosity, and powered by a deep conviction that the prize for customers is big enough that it’s worth being a little messy and tangential to find our way there. Wandering is an essential counter-balance to efficiency. You need to employ both. The outsized discoveries – the “non-linear” ones – are highly likely to require wandering.
Failure:
As a company grows, everything needs to scale, including the size of your failed experiments. If the size of your failures isn’t growing, you’re not going to be inventing at a size that can actually move the needle. Amazon will be experimenting at the right scale for a company of our size if we occasionally have multibillion-dollar failures.
Amazon Echo:
No customer was asking for Echo. This was definitely us wandering. Market research doesn’t help. If you had gone to a customer in 2013 and said “Would you like a black, always-on cylinder in your kitchen about the size of a Pringles can that you can talk to and ask questions, that also turns on your lights and plays music?” I guarantee you they’d have looked at you strangely and said “No, thank you.” Since that first-generation Echo, customers have purchased more than 100 million Alexa-enabled devices.
In 2018, Third-party sales were $160 billion; First party sales were $117 billion. Although Mr. Bezos states that “Third-party sellers are kicking our first party butt. Badly” as compound growth rates are 52% vs 25%. This is simply an attempt to underplay Amazon’s dominance since the growth rate differential is directly attributable to the small third-party denominator in 1999 of .1 billion. Today, as 50% of all online sales occur through the Amazon platform, Amazon’s success is clear.
#Amazon #Risk/Reward #Non-linearSuccess
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