Bezos’s 2000 Letter to Shareholders: The Voting Machine and the Weighing Machine

#BezosLetterToShareholders2000 We have reached the 2000 letter. The dot-com bubble burst that year, and Amazon’s market value shrank dramatically. Many other companies did not survive the catastrophe at all. With the tide washing out the weak, let’s see how Jeff Bezos reviewed events and thought things through. ---- To our shareholders: This was a dismal year for many shareholders, especially those of Amazon.com… Our stock fell 80% from a year earlier… Yet by every measure, Amazon.com is in a stronger position than ever. * We served 20 million customers in 2000, an increase of 1.4 million over 1999. * Sales rose from $1.64 billion to $2.76 billion. * Operating losses fell from 26% in Q4 1999 to 6% in the same quarter of 2000. * U.S. operating losses fell from 24% in Q4 1999 to 2% in the same quarter of 2000. * Average spending per customer was $134 in 2000, up 19%. * Gross profit rose from $291 million to $656 million, an increase of 125%. * In Q4 2000, approximately 36% of our U.S. customers shopped in our non-book, music, and video stores (“non-BMV stores”), such as electronics, tools, and kitchenware. * Global revenue rose from $168 million to $381 million. * In Q4, we helped our partner Toys “R” Us sell more than $125 million in toys and video games. * We had a cash cushion of $1.1 billion at year-end, compared with $706 million the year before, largely thanks to financing raised in early 2000. * And, most importantly, our focus on serving customers earned us a score of 84 on the American Customer Satisfaction Index. That was an unprecedented result in any field, far ahead of the rest. So if the company is clearly in better shape than last year, why did the share price fall so sharply? As the renowned investment expert Benjamin Graham put it: “In the short run, the stock market is a voting machine; in the long run, it is a weighing machine.” Clearly, during the stock’s 1999 surge, we received many “votes” rather than being “weighed.” We are a company that wants to be weighed, and I believe that, in the long run, all companies feel the same. Meanwhile, we keep our heads down and work to make our company fatter, heavier, and stronger. Most of you have heard of the “bold bets” our company has made, and we will continue making them—from investments in digital and wireless technologies to investments in small e-commerce companies, particularly living.com and pets.com. Both of those companies, however, ran out of steam in 2000. As a major shareholder in each, we lost a substantial amount. We invested because we knew Amazon would not enter those two categories in the near term, but we firmly believed in the importance of establishing a beachhead on the internet. That thinking has guided many of our decisions since 1994, but the value of “claiming a seat” has diminished over the past several years. Looking back, we found that we had seriously underestimated both the time it would take to enter these industries and how difficult it would be for single-category e-commerce companies to reach scale. Online retail, compared with traditional retail, is a business with high fixed costs and low variable costs. That makes life difficult for small and midsize e-commerce companies. With a longer funding runway, Pets.com and living.com might have acquired enough customers to reach the necessary scale. But when capital markets closed their doors to internet companies, these businesses had no choice but to shut down. We had to make the painful decision to let them go: using our own blood to keep them alive would have been an even bigger mistake. /Looking Ahead: There Is No “Moore’s Law” in Real Estate/ Let’s look ahead. Why should you remain confident in e-commerce and Amazon.com? The industry’s development and the arrival of new users will drive dramatic improvements in the online shopping experience. These improvements and innovations are driven by technological progress, especially increases in available bandwidth, disk storage, and processor performance, all becoming faster and cheaper. At a constant price, processor performance roughly doubles every 18 months—Moore’s Law—while storage doubles every 12 months and bandwidth every 9 months. Even on the basis of bandwidth doubling, the bandwidth available to Amazon.com customers will increase 60-fold every five years, with no additional investment. (Chinese translator’s note: This is a clear-cut technological dividend.) Improvements in disk storage and processor performance can likewise help us—for instance, by letting us offer customers better personalized web pages in real time. In the physical world, traditional retailers certainly keep using technology to lower costs, but they cannot transform the customer experience the way we can. We also use new technology to lower costs, but for us its greater role is to drive growth in users and revenue. We still firmly believe that roughly 15% of retail should move online permanently. Although these are not yet established facts, and much remains for us to prove, Amazon.com is a unique business. We have the brand, close customer relationships, technology, infrastructure, financial capital, and human resources. Above all, we have the determination to keep extending our leadership in this emerging market and to build a great company that can endure across cycles. As we have repeatedly emphasized, everything will put the customer first. (Chinese translator’s note: I want to quote the original again: We have the brand, the customer relationships, the technology, the fulfillment infrastructure, the financial strength, the people, and the determination to extend our leadership in this infant industry and to build an important and lasting company. And we will do so by keeping the customer first.) 2001 will be an important year in our development. As in 2000, we will be even more focused and execution-oriented this year. First, we have set an estimated operating profit target for the fourth quarter. Although we still have a great deal to do, and can offer no guarantee that we will reach it, we intend to pursue that result as our highest priority for the year. Every Amazon employee is determined to help us achieve this goal. I look forward to reporting our progress next year. As I have done before, I have attached the first letter to shareholders from 1997. (You can go back to the 1997 letter, “It’s all about the long term.”) As the years pass, it is interesting to find that our original intentions have not changed. I especially hope you will read the section titled “It’s All About the Long Term.” On behalf of Amazon.com, I thank our customers for their trust, my colleagues for their hard work, and our shareholders for their encouragement and support. Thank you very, very much. Jeffrey P. Bezos (Translated into Chinese by Vinchent, a senior Dedao user)