Summary of Jeff Bezos' 2000 letter to shareholders – Real estate and Moore's law
Real estate doesn’t obey Moore’s law
While Amazon’s shares were down more than 80% (from when Bezos wrote the ‘99 letter), Amazon’s revenue grew by more than $1 billion (over ‘99 revenues)In this (fourth) letter to shareholders, Bezos reflects on Amazon’s failed investments in other e-commerce companies, how Amazon leverages technology when compared to offline retailers, and why technology will help Amazon to gain an edge over the competition.Bezos shares Amazon’s thought process of investing in smaller e-commerce companies pets.com and living.com that shut down in 2000.He lists the reasons for making the investment:Amazon did not have any plans of entering these categories any time soonBelieved passionately in the “land rush” metaphor for the internetHe also shares the reasons why the investment thesis was faulty (in retrospect):The usefulness of the “land rush” metaphor faded over the last couple of yearsUnderestimated how much time would be available to enter these categoriesUnderestimated how difficult it would be for a single-category e-commerce company to achieve the necessary scale to succeedOnline selling is a scale business characterized by high fixed costs and relatively low variable costsNeed a long enough financial runway to acquire enough customers to achieve needed scaleBezos states that it would have been a bigger mistake for Amazon to make additional investments in these companies to keep them afloat.Bezos then lists some of the reasons to be optimistic about the future of e-commerce and the future of Amazon.com. He highlights how Amazon is riding the tailwinds of advances in foundational technology to improve the online shopping experience. With price performance of processing power doubling every 18 months, disk space doubling every 12 months, and bandwidth doubling every 9 months Amazon is able to do more and better real-time personalization. This personalization leads to a better shopping experience which in turns leads to more revenues for Amazon.Offline (physical) retailers use technology to reduce costs, while online retailers like Amazon use technology to reduce costs and drive adoption and revenue (by improving customer experience). Hence, online retailers have an unfair advantage over offline retailers.Bezos also indicates that over the long-term 15% of retail commerce will move online.Bezos does not share details of goals/key initiatives for 2001 (unlike the past years) except the goal of achieving a pro forma operating profit in the fourth quarter of 2001You can read Bezos letter herePS: Summary of all the Amazon Shareholder letters from 1997-2018 are available as a Kindle book.