1997 Letter to Shareholders

Amazon.com passed many milestones in 1997: by year-end, we had served more than 1.5 million customers, yielding 838% revenue growth to $147.8 million, and extended our market leadership despite aggressive competitive entry.

But this is Day 1 for the Internet and, if we execute well, for Amazon.com.¹ (Fact note 1)Fact · 1With hindsightBezos kept the phrase. His 2016 letter, on how to fend off “Day 2”, says “Day 2 is stasis” and closes: “As always, I attach a copy of our original 1997 letter. It remains Day 1.”SourceAmazon investor relations2016 Letter to Shareholders2017

[ … ] Not shown: Personalisation, larger rivals moving online, and a window of opportunity.

This strategy is not without risk: it requires serious investment and crisp execution against established franchise leaders.

It’s All About the Long Term

We believe that a fundamental measure of our success will be the shareholder value we create over the long term. This value will be a direct result of our ability to extend and solidify our current market leadership position. The stronger our market leadership, the more powerful our economic model. Market leadership can translate directly to higher revenue, higher profitability, greater capital velocity, and correspondingly stronger returns on invested capital.

Our decisions have consistently reflected this focus. We first measure ourselves in terms of the metrics most indicative of our market leadership: customer and revenue growth, the degree to which our customers continue to purchase from us on a repeat basis, and the strength of our brand.² (Editorial note 2)Editorial · 2Known at the timeThe letter tells shareholders which numbers to judge it by before it reports them: customers, repeat purchases and brand, not profit. The results section then reports exactly those. It is a clear standard, and one a company could meet in full while still losing money.SourceAmazonAmazon’s original 1997 letter to shareholders1998

[ … ] Not shown: Continued aggressive investment in customers, brand and infrastructure.

Because of our emphasis on the long term, we may make decisions and weigh tradeoffs differently than some companies. Accordingly, we want to share with you our fundamental management and decision-making approach so that you, our shareholders, may confirm that it is consistent with your investment philosophy:

We will continue to focus relentlessly on our customers.

We will continue to make investment decisions in light of long-term market leadership considerations rather than short-term profitability considerations or short-term Wall Street reactions.³ (Fact note 3)Fact · 3With hindsightOn 2 February 2005 Amazon introduced Amazon Prime, $79 a year for unlimited two-day shipping, which Bezos called “expensive for the Company in the short-term”. His letter in the 2005 annual report put Free Super Saver Shipping and Prime among choices “expensive in the short term and—we believe—important and valuable in the long term”.SourcesAmazon press centerAmazon.com Announces Record Free Cash Flow Fueled by Lower Prices and Free Shipping; Introduces New Express Shipping Program -- Amazon Prime2 Feb 2005Amazon investor relations2005 Annual Report2006

[ … ] Not shown: Measuring programmes analytically, and learning from failures.

We will make bold rather than timid investment decisions where we see a sufficient probability of gaining market leadership advantages. Some of these investments will pay off, others will not⁴ (Fact note 4)Fact · 4With hindsightOn 13 March 2006 Amazon announced Amazon S3, “storage for the Internet”. In the 2006 annual report Bezos described AWS as a new business for “a new customer set … software developers”. By 2025 AWS revenue was $129 billion, and Andy Jassy wrote of AWS’s early ideas: “Others didn’t succeed.”SourcesAmazon Web ServicesAnnouncing Amazon S3 - Simple Storage Service13 Mar 2006Amazon investor relations2006 Annual Report2007Amazon investor relations2025 Annual Report2026, and we will have learned another valuable lesson in either case.

When forced to choose between optimizing the appearance of our GAAP accounting and maximizing the present value of future cash flows⁵ (Fact note 5)Fact · 5With hindsightIn his 2004 letter Bezos called free cash flow per share Amazon’s “ultimate financial measure” and quoted this line back in shortened form, as “optimizing GAAP accounting”. The 2025 annual report still says: “Our financial focus is on long-term, sustainable growth in free cash flow.”SourcesAmazon investor relations2004 letter to shareholders2005Amazon investor relations2025 Annual Report2026, we’ll take the cash flows.

[ … ] Not shown: Sharing strategic thinking with shareholders when making bold choices.

We will work hard to spend wisely and maintain our lean culture. We understand the importance of continually reinforcing a cost-conscious culture, particularly in a business incurring net losses.⁶ (Fact note 6)Fact · 6Known at the timeAmazon’s Form 10-K for 1997, signed on 30 March 1998, reports net losses of $27.6 million for 1997 and $5.8 million for 1996.SourceAmazon, Form 10-K (investor relations copy)Form 10-K for the year ended December 31, 199730 Mar 1998

We will balance our focus on growth with emphasis on long-term profitability and capital management. At this stage, we choose to prioritize growth because we believe that scale is central to achieving the potential of our business model.

We will continue to focus on hiring and retaining versatile and talented employees, and continue to weight their compensation to stock options rather than cash.⁷ (Fact note 7)Fact · 7With hindsightAmazon’s 2003 annual report says: “We moved to restricted stock units as our primary vehicle for equity compensation in late 2002.” Its stated reason echoes the letter’s ownership argument: the units “better align the interests of our shareholders and employees”.SourceAmazon investor relations2003 Annual Report2004 We know our success will be largely affected by our ability to attract and retain a motivated employee base, each of whom must think like, and therefore must actually be, an owner.

We aren’t so bold as to claim that the above is the “right” investment philosophy, but it’s ours⁸ (Editorial note 8)Editorial · 8With hindsightThis is a choice of shareholders as much as a message to them. The letter asks investors to check the approach against their own philosophy, and Amazon’s 2001 letter says it attaches the 1997 letter to every annual letter “to help investors decide if Amazon.com is the right kind of investment for them”.SourceAmazon investor relations2001 letter to shareholders2002, and we would be remiss if we weren’t clear in the approach we have taken and will continue to take.

[ … ] Not shown: Customer focus, 1997 results, infrastructure, staff and goals for 1998.