Amazon Deep Dive

Welcome to the twenty-fifth Pari Passu newsletter,

Today, in honor of Prime Day on July 11th and 12th, we are diving deep into Amazon.com and assessing the foundations of what made the company the technological, economic, and cultural juggernaut it is today. Founded in July 1994 by Jeff Bezos, Amazon is the largest online retailer, AWS is the market leader in cloud services, and Alexa is the most used voice assistant in the world. In this summary, we will overview Amazon's ethos and performance, detail the company’s history chronologically, and contemplate headwinds and tailwinds for Earth’s most customer-centric company.

This summary is dense, but each section can stand alone if you would like to divide up the reading.

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Overview - Ethos

Let’s start by reviewing the underpinnings of Amazon’s values and culture. The key four concepts include the Leadership Principles, the Growth Flywheel, Bezos’ first shareholder letter, and his Regret Minimization Framework.

Amazon’s Leadership Principles are a set of 16 values created by Bezos and other executives that guide every decision made at Amazon and define whether those decisions bear fruit.

• Amazon lives these values in a way that no other company does; its commitment to this list across all functions and levels of the organization cannot be overstated

• The initial five principles included “customer obsession,” “frugality,” “bias for action,” “ownership,” and “high bar for talent”

• These principles will unlock long-term success for Amazon, which the company defines as being Earth’s most customer-centric company, best employer, and safest place to work

Bezos sketched the Amazon Flywheel on a napkin in 2001 to define the company’s enduring growth strategy to investors.

• This positive loop states that greater selection will enhance the customer experience

• An enhanced customer experience will drive more traffic to the website

• More traffic to the website will attract a larger portfolio of sellers

• A larger portfolio of sellers will offer a greater selection; the cycle continues

• As the cycle continues, Amazon grows

• As Amazon grows, the company adopts a lower cost structure

• A lower cost structure unlocks lower prices for the customer

• Lower prices also enhance the customer experience, reinforcing this cycle

In every annual report, Bezos attached (and Andy Jassy continues to attach) the first shareholder letter from 1997.

• These are modeled upon Warren Buffet’s letters to shareholders

• Bezos wrote that it is “Day 1” for the internet and for Amazon (if executed well)

• Day 1 thinking is perpetually embraced by Amazon by maintaining a long-term focus, obsessing over customers and their needs, and boldly innovating to meet those needs

• This is also where Bezos first articulates that in the long term, there is never misalignment between shareholder and customer interests

Bezos created his Regret Minimization Framework to structure his decision-making process both in founding and operating Amazon.

• This framework asks you to consider which decision you will regret least when looking back

• He created this as a D.E. Shaw employee when he considered leaving to start Amazon

• A heuristic to this framework is to make the decision quickly/automate it if it is a two-way decision (can be easily reversed or remedied), as opposed to a one-way decision (hard to reverse, significant risk exposure)

• Another heuristic to this framework is making the decision when you have enough data to justify it, not waiting until you have all of the data to prove it

Overview - Performance

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