In his first shareholder letter as Amazon president and CEO, Andy Jassy stated that a new world with a bigger role had opened up for the company during the COVID-19 pandemic and Amazon is evolving to meet the challenges and opportunities of the times.
In assessing the company’s business-to-business and consumer operations, Jassy said:
Our AWS and consumer businesses have had different demand trajectories during the pandemic. In the first year of the pandemic, AWS revenue continued to grow at a rapid clip — 30% year over year in 2020 on a $35 billion annual revenue base in 2019 — but slower than the 37% YoY growth in 2019. This was due in part to the uncertainty and slowing demand that so many businesses encountered, but also in part to our helping companies optimize their AWS footprint to save money. Concurrently, companies were stepping back and determining what they wanted to change coming out of the pandemic. Many concluded that they didn’t want to continue managing their technology infrastructure themselves, and made the decision to accelerate their move to the cloud. This shift by so many companies, along with the economy recovering, helped re-accelerate AWS’s revenue growth to 37% YoY in 2021.
Conversely, our consumer revenue grew dramatically in 2020. In 2020, Amazon’s North America and International consumer revenue grew 39% YoY on the very large 2019 revenue base of $245 billion, and this extraordinary growth extended into 2021 with revenue increasing 43% YoY in Q1 2021. These are astounding numbers. We realized the equivalent of three years’ forecasted growth in about 15 months.
As the world opened up again starting in late Q2 2021, and more people ventured out to eat, shop, and travel, consumer spending returned to being spread over many more entities. We weren’t sure what to expect in 2021, but the fact that we continued to grow at double digit rates, with a two-year consumer compounded annual growth rate of 29%, was encouraging as customers appreciated the role Amazon played for them during the pandemic, and started using Amazon for a larger amount of their household purchases.
In the letter, Jassy said Amazon’s growth created short-term logistics and cost challenges exacerbated by worldwide supply-chain complications. In response, he said, Amazon leaned on particular elements of its established and constantly updated systems to cope including its fulfillment network where the company had made a capital investment of over $100 billion in process improvements over the decade and a half before. Jassy added that just before the COVID-19 pandemic began Amazon had made a decision to invest billions of incremental dollars over several years to deliver an increasing number of Prime shipments in one day to further speed products to customers. The pandemic slowed the initiative, but the company has begun to focus on it again.
As for AWS, Jassy said the iterative approach to innovation Amazon had developed and continues to affect has helped drive success by giving customers more functionality than they can find elsewhere.
At the same time, Amazon has been considering its role as an employer and a member of communities across the United States, Jassy said. The iterative approach to the invention it has developed operationally can be applied to efforts supporting people and communities, he said. In 2021, Amazon added two new Leadership Principles: Strive to be Earth’s Best Employer and Success and Scale Bring Broad Responsibility. Amazon has researched and created a list of what it believes are the top 100 employee experience pain points and is systematically mitigating them. It is improving safety in the fulfillment network, with a focus on reducing strains, sprains, falls and repetitive stress injuries, learning, inventing, and developing until it has transformational results, Jassy said.
Similarly, Amazon is addressing the company’s carbon footprint, committing to power operations with 100% renewable energy by 2025, five years ahead of its original target, ordering more than 100,000 electric vans to deliver packages, and inviting 300-plus companies to join Amazon’s Climate Pledge. Amazon also is working to create affordable housing in the communities where it has a large presence, with a more than $2 billion Housing Equity Fund it started a year ago, one that already has allocated $1.2 billion toward affordable housing initiatives in the areas around Washington state’s Puget Sound region, Arlington, VA, and Nashville, TN.
In closing the letter, Jassy added:
Albert Einstein is sometimes credited with describing compound interest as the eighth wonder of the world: “He who understands it, earns it. He who doesn’t, pays it.” We think of iterative innovation in much the same way. Iterative innovation creates magic for customers. Constantly inventing and improving products for customers has a compounding effect on the customer experience, and in turn on a business’s prospects.
Time is your friend when you are compounding gains. Amazon is a big company with some large businesses, but it’s still early days for us. We will continue to be insurgent: inventing in businesses that we’re in, in new businesses that we’ve yet to launch, and in new ideas that we haven’t even imagined yet. It remains Day 1.
