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“The Great Enabler” – How Jeff Bezos used his Letter to Shareholders to fight back

On Thursday, April 11th, Amazon released its annual letter to shareholders from Founder and CEO Jeff Bezos. Today, we’re going to break down the letter and dive into the obvious and subtle messaging Mr. Bezos used to try and show how Amazon is more of a curious, intuitive, enabler of success, than a cold, calculating, and ruthless tech giant. Because, as Mr. Bezos himself said, “teams all across Amazon are listening to customers and wandering on their behalf”.

Thank goodness they are so good at wandering!

Let’s break down the letter and see what we find:

Marketplace, Marketplace, Marketplace

For the first time since launching the Amazon marketplace for third-party sellers, Mr. Bezos explicitly called out the gross sales those sellers achieved on Amazon’s global marketplaces. Not only did he reveal just how much third-party sellers sold in 2018, but he went a step further and showed the percentage of total physical gross merchandise sold on Amazon by these third-party sellers dating back to 1999.

In the twenty-years outlined by the data, it is clear that the third-party sellers, who, Mr. Bezos reminds us, are “mostly small- and medium-sized businesses”, have grown exponentially.  “Third-party sales have grown from 3% of the total [annual Amazon sales] to 58% [in 2018]”

And just in case anyone got lost in the numbers, Mr. Bezos plays the role of our guide and bluntly states that the “Third-party sellers are kicking our first party butt. Badly”. His words, not mine.

Mr. Bezos then uses hard numbers to show just how powerful the third-party sellers have become: $117 billion in first-party sales directly by Amazon vs. $160 billion in third-party sales in 2018

This comparison of first-party and third-party sales, Bezos attempts to highlight how integral Amazon’s platform is to other companies’ success and reads as if it’s a pleasant accident that Amazon never saw coming.

Bezos then goes a step further, and uncharacteristically brings in a competitor to benchmark Amazon’s power of enablement by saying “eBay’s gross merchandise sales in that [same 20-year] period have grown at a compound rate of 20%, from $2.8 billion to $95 billion.”

With all the chatter about anti-competitive behavior and tech companies getting too big, Bezos makes sure to point out that Amazon has helped other businesses grow their gross sales on Amazon from $0.1 billion to $160 billion, over $75 billion more than eBay on an annual basis just in 2018 alone.

In other words, Bezos wants us to know that by opening up services like Fulfillment by Amazon and the Prime membership program to third-party sellers, Amazon did more to help other companies grow in the past twenty years than they did for themselves and more than any of their competitors did for the same small- and medium-sized businesses.

Ingredient, Component, Tool

Mr. Bezos doesn’t stop with just the retail/eCommerce side of the business. He then moves into the other powerful areas of Amazon’s business and one-by-one highlights how each of them are helping customers and small businesses.

 “AWS’s millions of customers range from startups to large enterprises, government entities to nonprofits, each looking to build better solutions for their end users.”

Translation – Amazon is a component of other organizations’ efforts. It’s those other companies, non-profits, and government agencies and their customers or constituents that have primarily benefited from our service. AWS is an ingredient in their success.

“Much of what we build at AWS is based on listening to customers”

Translation – we’re smart people at Amazon, but a major part of what we do is guided by our customers.

“Sagemaker [a Machine Learning tool Amazon launched 18 months ago] removes the heavy lifting, complexity, and guesswork from each step of the machine learning process – democratizing AI”

Translation – the infrastructure for Machine Learning and AI is expensive, and we’re building something that gives a wider audience access to the necessary tools. Just another tool for other organizations to use to be successful.

“Amazon today remains a small player in global retail. We represent a low single-digit percentage of the retail market”

Translation – while we might seem big, and the news covers us a lot, we’re not as dominant in retail sales as people might think. Everyone should keep that in mind when thinking we’re getting too big.

“With Amazon Go [stores], we had a clear vision. Get rid of the worst thing about physical retail: checkout lines.”

Translation – when we scale our retail business to get more share of global retail, 90% of which still remains offline, remember that we did it for you, the customers, because we had something better for you in mind.

Mr. Bezos is trying to make it as clear as possible, with a clever marketing spin highlighting the success of different divisions within Amazon, that Amazon’s goal remains to work tirelessly for the benefit of their customers. Amazon wants to show how they are making others more successful.

It’s about the people

Bezos concludes his letter by reminding everyone that even with most of their services built to serve their customers, Amazon as a company is also going above and beyond for their people.

They are giving back by:

  • Increasing the minimum wage for their employees across the U.S. to $15-per-hour, benefitting over 250,000 employees.
  • Upskilling 50,000 U.S. employees through the President’s Pledge to America’s Workers
  • Investing $50 million in support of STEM and CS education
  • Progressing toward their pledge of hiring 25,000 veterans and military spouses by 2021

Our Take

So, what does it all mean? Why the jabs at competitors over minimum wage or the growth rate of their competing marketplaces? Why the extra data and heavy-dose of customer value sewn throughout the letter?

I see this as a direct response to the growing back-lash that Amazon is hearing from politicians who think the company has become too powerful and should be broken up by the government. Jeff Bezos knows that his annual letter to shareholders has taken on an almost Buffet-esque aura with investors and customers around the world. What better place to remind everyone that Amazon and their services are providing direct benefits to hundreds of millions of people? Throw in the fact that everyone loves a job creator, especially one that voluntarily raises the minimum wage for their staff, prioritizes hiring veterans and their families, and is investing in the future of the U.S. with their investments in STEM and CS education, and you have a company that seems worth rooting for. It’s not an accident that the last sentence of the letter reads as if Amazon is the people’s company with “Teams all across Amazon listening to customers and wandering on their behalf!”. If you take them at their word for it, Amazon is really doing all of this for us.

Are the politicians, right, should Amazon be broken up? Or is Amazon really a company that has their customers best interest in mind, and therefore is creating much more value for their customers than they receive themselves? Only time will answer that, but I don’t see Mr. Bezos or Amazon going down without a fight.

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