I constantly remind our employees to be afraid, to wake up every morning terrified. Not of our competition, but of our customers.[1]
Topic map
Numbers
Comparisons
| Metric | Prior | 1998 | Δ |
|---|---|---|---|
| Sales | $148 million (1997)[7] | $610 million[8] | 313% increase[9] |
| Cumulative customer accounts | 1.5 million (end of 1997)[10] | 6.2 million[11] | increase of over 300%[12] |
| Repeat customer order percentage (Q4) | over 58% (fourth quarter of 1997)[13] | over 64%[14] | |
| Employee headcount | approximately 600 (beginning of 1998)[15] | over 2,100[16] | |
| Inventory | $9 million (beginning of the year)[17] | $30 million[18] | |
| Shareholder letters printed | about 13,000 (last year)[19] | more than 200,000[20] |
As reported (1998)
| Metric | Value |
|---|---|
| Q4 sales from new businesses | 25% (fourth-quarter 1998)[21] |
| Cash and investment balances (pro forma) | well over $1.5 billion[22] |
| Operating cash flow | $31 million[23] |
| Net fixed asset additions | $28 million[24] |
| Net plant and equipment | $30 million in net plant and equipment[25] |
| Revenue run rate at year-end | $1 billion revenue run rate[26] |
| Cumulative customers served | 6.2 million customers[27] |
| New Fernley distribution center size | approximately 323,000 square feet[28] |
| Amazon.com registered online shoppers | 8 million experienced online shoppers[29] |
Notable quotes
It is truly Day 1 for the Internet and, if we execute our business plan well, it remains Day 1 for Amazon.com.
Setting the bar high in our approach to hiring has been, and will continue to be, the single most important element of Amazon.com's success.
We hold as axiomatic that customers are perceptive and smart, and that brand image follows reality and not the other way around.
we don't claim it's the right philosophy, we just claim it's ours!
We're fortunate to benefit from a business model that is cash-favored and capital efficient.
Lessons
- Setting the bar high in our approach to hiring has been, and will continue to be, the single most important element of Amazon.com's success.[35]
Capital actions
Entities mentioned
Risks the author flagged
- aggressive, capable and well-funded competition; the growth challenges and execution risk associated with our own expansion; and the need for large continuing investments to meet an expanding market opportunity[38]
- Although this level of forward investment is costly and carries many inherent risks, we believe it will provide the best end-to-end experience for customers[39]
Prior predictions revisited
- ✓ 1997: “We are planning to add music to our product offering, and over time we believe that other products may be prudent investments.” — The 1998 letter confirms Amazon launched its music store, which became the leading online music retailer in its first full quarter, and also added video and gift stores.[40]
- ✓ 1997: “We also believe there are significant opportunities to better serve our customers overseas, such as reducing delivery times and better tailoring the customer experience.” — The 1998 letter reports that Amazon opened U.K. and German stores under the Amazon brand, with combined Q4 sales nearly quadrupling over Q3, making them the leading online booksellers in their markets.[41]
Predictions
- We predict the next 3½ years will be even more exciting. (medium)[42]
- We are working to build a place where tens of millions of customers can come to find and discover anything they might want to buy online. (long)[43]
- We plan to invest aggressively to build the foundation for a multi-billion-dollar revenue company serving tens of millions of customers with operational excellence and high efficiency. (medium)[44]
- it is certain that competition will even further accelerate (near)[45]
- This latest addition will more than double our total distribution capacity and allows us to even further improve time-to-mailbox for customers. (near)[46]
Admitted mistakes
- Certainly, some will turn out to be mistakes. — Bold decision-making inherently involves errors; the author acknowledges this as the cost of pursuing ambitious, unconventional choices.[47]
vs. 1997
Added: Concrete 1998 operating results and product expansion recap (music, video, gifts, U.K., Germany)[48] · Capital efficiency framing of the centralized distribution model[49] · Detailed hiring philosophy with three explicit interview questions[50] · 1999 investment plan with five named pillars (distribution, systems, brand, products, bench strength)[51] · Amazon.com Auctions launch[52]
Dropped: Detailed discussion of word-of-mouth as primary customer acquisition tool · Stock-option compensation philosophy · Explicit framing of bold vs. timid investment decisions as named principle
Moved: Hiring quality as principle stated briefly → Hiring quality elaborated into a three-question hiring framework with anecdotes[53] · Long-term investment philosophy stated as primary thesis → Long-term philosophy referenced by pointing to prior year's letter appended verbatim[54]
Anecdotes
- Bezos describes a National Spelling Bee champion on staff and uses the example to illustrate how unique personal skills enrich the work environment — challenging her in the hall with 'onomatopoeia!'[55]
- Bezos invites shareholders to read the prior year's 'It's All About the Long Term' section, noting that shareholder letter print runs grew from ~13,000 to 200,000+ in one year — a proxy for the dramatic growth in the investor base.[56]