Second, its current leadership position (which is significant) is a strong ongoing advantage. We work hard—very hard—to make AWS as easy to use as possible. Even so, it’s still a necessarily complex set of tools with rich functionality and a nontrivial learning curve. Once you’ve become proficient at building complex systems with AWS, you do not want to have to learn a new set of tools and APIs assuming the set you already understand works for you. This is in no way something we can rest on, but if we continue to serve our customers in a truly outstanding way, they will have a rational preference to stick with us.

  In addition, also because of our leadership position, we now have thousands of what are effectively AWS ambassadors roaming the world. Software developers changing jobs, moving from one company to another, become our best salespeople: “We used AWS where I used to work, and we should consider it here. I think we’d get more done.” It’s a good sign that proficiency with AWS and its services is already something software developers are adding to their resumes.

  Finally, I’m optimistic that AWS will have strong returns on capital. This is one we as a team examine because AWS is capital intensive. The good news is we like what we see when we do these analyses. Structurally, AWS is far less capital intensive than the mode it’s replacing—do-it-yourself datacenters—which have low utilization rates, almost always below 20 percent. Pooling of workloads across customers gives AWS much higher utilization rates, and correspondingly higher capital efficiency. Further, once again our leadership position helps: scale economies can provide us a relative advantage on capital efficiency. We’ll continue to watch and shape the business for good returns on capital.

  AWS is young, and it is still growing and evolving. We think we can continue to lead if we continue to execute with our customers’ needs foremost in mind.

  Career Choice

  Before closing, I want to take a moment to update shareowners on something we’re excited about and proud of. Three years ago we launched an innovative employee benefit—the Career Choice program, where we prepay 95 percent of tuition for employees to take courses for in-demand fields, such as airplane mechanic or nursing, regardless of whether the skills are relevant to a career at Amazon. The idea was simple: enable choice.

  We know that, for some of our fulfillment and customer service center employees, Amazon will be a career. For others, Amazon might be a stepping-stone on the way to a job somewhere else—a job that may require new skills. If the right training can make the difference, we want to help, and so far we have been able to help over two thousand employees who have participated in the program in eight different countries. There’s been so much interest that we are now building onsite classrooms so college and technical classes can be taught inside our fulfillment centers, making it even easier for associates to achieve these goals.

  There are now eight FCs offering fifteen classes taught onsite in our purpose-built classrooms with high-end technology features and designed with glass walls to inspire others to participate and generate encouragement from peers. We believe Career Choice is an innovative way to draw great talent to serve customers in our fulfillment and customer service centers. These jobs can become gateways to great careers with Amazon as we expand around the world or enable employees the opportunity to follow their passion in other in-demand technical fields, like our very first Career Choice graduate did when she started a new career as a nurse in her community.

  I would also like to invite you to come join the more than twenty-four thousand people who have signed up so far to see the magic that happens after you click buy on Amazon.com by touring one of our fulfillment centers. In addition to US tours, we are now offering tours at sites around the world, including Rugeley in the United Kingdom and Graben in Germany and continuing to expand. You can sign up for a tour at www.amazon.com/fctours.

  Marketplace, Prime, and Amazon Web Services are three big ideas. We’re lucky to have them, and we’re determined to improve and nurture them—make them even better for customers. You can also count on us to work hard to find a fourth. We’ve already got a number of candidates in the works, and as we promised some twenty years ago, we’ll continue to make bold bets. With the opportunities unfolding in front of us to serve customers better through invention, we assure you we won’t stop trying.

  It’s still Day 1.

  Big Winners Pay for Many Experiments

  2015

  THIS YEAR, AMAZON became the fastest company ever to reach $100 billion in annual sales. Also this year, Amazon Web Services is reaching $10 billion in annual sales—doing so at a pace even faster than Amazon achieved that milestone.

  What’s going on here? Both were planted as tiny seeds and both have grown organically without significant acquisitions into meaningful and large businesses, quickly. Superficially, the two could hardly be more different. One serves consumers and the other serves enterprises. One is famous for brown boxes and the other for APIs. Is it only a coincidence that two such dissimilar offerings grew so quickly under one roof? Luck plays an outsized role in every endeavor, and I can assure you we’ve had a bountiful supply. But beyond that, there is a connection between these two businesses. Under the surface, the two are not so different after all. They share a distinctive organizational culture that cares deeply about and acts with conviction on a small number of principles. I’m talking about customer obsession rather than competitor obsession, eagerness to invent and pioneer, willingness to fail, the patience to think long-term, and the taking of professional pride in operational excellence. Through that lens, AWS and Amazon retail are very similar indeed.

  A word about corporate cultures: for better or for worse, they are enduring, stable, hard to change. They can be a source of advantage or disadvantage. You can write down your corporate culture, but when you do so, you’re discovering it, uncovering it—not creating it. It is created slowly over time by the people and by events—by the stories of past success and failure that become a deep part of the company lore. If it’s a distinctive culture, it will fit certain people like a custom-made glove. The reason cultures are so stable in time is because people self-select. Someone energized by competitive zeal may select and be happy in one culture, while someone who loves to pioneer and invent may choose another. The world, thankfully, is full of many high-performing, highly distinctive corporate cultures. We never claim that our approach is the right one—just that it’s ours—and over the last two decades, we’ve collected a large group of like-minded people. Folks who find our approach energizing and meaningful.

  One area where I think we are especially distinctive is failure. I believe we are the best place in the world to fail (we have plenty of practice!), and failure and invention are inseparable twins. To invent you have to experiment, and if you know in advance that it’s going to work, it’s not an experiment. Most large organizations embrace the idea of invention but are not willing to suffer the string of failed experiments necessary to get there. Outsized returns often come from betting against conventional wisdom, and conventional wisdom is usually right. Given a ten percent chance of a one hundred times payoff, you should take that bet every time. But you’re still going to be wrong nine times out of ten. We all know that if you swing for the fences, you’re going to strike out a lot, but you’re also going to hit some home runs. The difference between baseball and business, however, is that baseball has a truncated outcome distribution. When you swing, no matter how well you connect with the ball, the most runs you can get is four. In business, every once in a while, when you step up to the plate, you can score one thousand runs. This long-tailed distribution of returns is why it’s important to be bold. Big winners pay for so many experiments.

  AWS, Marketplace, and Prime are all examples of bold bets at Amazon that worked, and we’re fortunate to have those three big pillars. They have helped us grow into a large company, and there are certain things that only large companies can do. With a tip of the hat to our Seattle neighbors, no matter how good an entrepreneur you are, you’re not going to build an all-composite 787 in your garage start-up—not one you’d want to fly in anyway. Used well, our scale enables us to build services for customers that we could otherwise never even contemplate. But also, if we’re not vigilant and thoughtful, size could slow us down and diminish our inventiveness.

  As I meet with teams across Amazon, I am continually amazed at the passion, intelligence, and creativity on display. Our teams accomplished a lot in the last year, and I’d like to share a few of the highlights of our efforts to nourish and globalize our three big offerings—Prime, Marketplace, and AWS. And while I’ll focus on those three, I assure you that we also remain hard at work on finding a fourth.

  Prime

  We want Prime to be such a good value that you’d be irresponsible not to be a member.

  We’ve grown Prime two-day delivery selection from one million items to over thirty million, added Sunday Delivery, and introduced Free Same-Day Delivery on hundreds of thousands of products for customers in more than thirty-five cities around the world. We’ve added music, photo storage, the Kindle Owners’ Lending Library, and streaming films and TV.

  Prime Now offers members one-hour delivery on an important subset of selection and was launched only 111 days after it was dreamed up. In that time, a small team built a customer-facing app, secured a location for an urban warehouse, determined which twenty-five thousand items to sell, got those items stocked, recruited and on-boarded new staff, tested, iterated, designed new software for internal use—both a warehouse management system and a driver-facing app—and launched in time for the holidays. Today, just fifteen months after that first city launch, Prime Now is serving members in more than thirty cities around the world.

  Prime Video offers exclusives from some of the world’s most passionate storytellers. We want brilliant creators like Jill Soloway, Jason Schwartzman, and Spike Lee to take risks and push boundaries. Our original series have already earned more than 120 nominations and won nearly sixty awards, including Golden Globe and Emmy awards. Many of these are stories that might never have been told in the traditional linear programming model. In the pipeline and coming soon are new series and movies from creators like Jeremy Clarkson, David E. Kelley, Woody Allen, and Kenneth Lonergan.

  The Man in the High Castle, based on the Philip K. Dick novel, explores an alternate history where the United States lost World War II. It debuted on Prime Video on November 20 and in four weeks became our most-viewed show—receiving acclaim from critics, like “Amazon has the best new drama of the season in The Man in the High Castle” and “The Man in the High Castle accomplishes so much, where most new broadcast TV dramas these days don’t even try.”

  These shows are great for customers, and they feed the Prime flywheel—Prime members who watch Prime Video are more likely to convert from a free trial to a paid membership, and more likely to renew their annual subscriptions.

  Finally, our first ever Prime Day surpassed all our expectations—more new members tried Prime that day than any other day in our history. Worldwide order growth increased 266 percent over the same day the year before, and sellers whose products are Prime-eligible through FBA saw record-breaking sales—with growth nearing 300 percent.

  Prime has become an all-you-can-eat, physical-digital hybrid that members love. Membership grew 51 percent last year—including 47 percent growth in the United States and even faster internationally—and there are now tens of millions of members worldwide. There’s a good chance you’re already one of them, but if you’re not—please be responsible—join Prime.

  Marketplace

  We took two big swings and missed—with Auctions and zShops—before we launched Marketplace over fifteen years ago. We learned from our failures and stayed stubborn on the vision, and today close to 50 percent of units sold on Amazon are sold by third-party sellers. Marketplace is great for customers because it adds unique selection, and it’s great for sellers—there are over seventy thousand entrepreneurs with sales of more than $100,000 a year selling on Amazon, and they’ve created over six hundred thousand new jobs. With FBA, that flywheel spins faster because sellers’ inventory becomes Prime-eligible—Prime becomes more valuable for members, and sellers sell more.

  This year, we created a new program called Seller Fulfilled Prime. We invited sellers who are able to meet a high bar for shipping speed and consistency in service to be part of the Prime program and ship their own orders at Prime speed directly. Those sellers have already seen a significant bump in sales, and the program has led to hundreds of thousands of additional items that are available to Prime customers via free two-day or next-day shipping in the United States, United Kingdom, and Germany.

  We also created the Amazon Lending program to help sellers grow. Since the program launched, we’ve provided aggregate funding of over $1.5 billion to micro, small and medium businesses across the United States, United Kingdom, and Japan through short-term loans, with a total outstanding loan balance of about $400 million. Stephen Aarstol, surfer and owner of Tower Paddle Boards, is one beneficiary. His business has become one of the fastest-growing companies in San Diego, in part with a little help from Amazon Lending. Click-to-cash access to capital helps these small enterprises grow, benefits customers with greater selection, and benefits Amazon since our marketplace revenue grows along with the sellers’ sales. We hope to expand Amazon Lending and are now working on ways to partner with banks so they can use their expertise to take and manage the bulk of the credit risk.

  In addition to nourishing our big offerings, we work to globalize them. Our Marketplace creates opportunities for sellers anywhere to reach buyers around the world. In the past, many sellers would limit their customer base to their home country due to the practical challenges of selling internationally. To globalize Marketplace and expand the opportunities available to sellers, we built selling tools that empowered entrepreneurs in 172 countries to reach customers in 189 countries last year. These cross-border sales are now nearly a quarter of all third-party units sold on Amazon. To make this possible, we translated hundreds of millions of product listings and provided conversion services among forty-four currencies. Even small and niche sellers can now tap into our global customer base and global logistics network. The end result is very different from sellers handling their own one-at-a-time, cross-border fulfillment. Plugable Technologies’ CEO, Bernie Thompson, put it this way: “It really changes the paradigm when you’re able to ship the goods in bulk to a warehouse in Europe or Japan and have those goods be fulfilled in one day or two days.”

  India is another example of how we globalize an offering like Marketplace through customer obsession and a passion for invention. Last year we ran a program called Amazon Chai Cart where we deployed three-wheeled mobile carts to navigate in a city’s business districts, serve tea, water and lemon juice to small business owners and teach them about selling online. In a period of four months, the team traveled 15,280 kilometers across thirty-one cities, served 37,200 cups of tea and engaged with over ten thousand sellers. Through this program and other conversations with sellers, we found out there was a lot of interest in selling online but that sellers struggled with the belief that the process was time-consuming, tedious, and complex. So, we invented Amazon Tatkal, which enables small businesses to get online in less than sixty minutes. Amazon Tatkal is a specially designed studio-on-wheels offering a suite of launch services including registration, imaging, and cataloguing services, as well as basic seller-training mechanisms. Since its launch on February 17, we have reached sellers in twenty-five cities.

  We’re also globalizing Fulfillment by Amazon, adapting the service to local customer needs. In India, we launched a program called Seller Flex to combine Amazon’s logistics capabilities with sellers’ selection at the local neighborhood level. Sellers set aside a part of their warehouse for storing items to be sold on Amazon, and we configure it as a fulfillment center in our network that can receive and fulfill customer orders. Our team provides guidance on warehouse layout, IT and operational infrastructure, and trains the seller on standard operating procedures to be followed onsite. We’ve now launched twenty-five operational Seller Flex sites across ten cities.

  Amazon Web Services

  Just over ten years ago, AWS started in the United States with its first major service, a simple storage service. Today, AWS offers more than seventy services for compute, storage, databases, analytics, mobile, Internet of Things, and enterprise applications. We also offer thirty-three availability zones across twelve geographic regions worldwide, with another five regions and eleven availability zones in Canada, China, India, the United States, and the United Kingdom to be available in the coming year. AWS started with developers and start-ups, and now is used by more than a million customers from organizations of every size across nearly every industry—companies like Pinterest, Airbnb, GE, Enel, Capital One, Intuit, Johnson & Johnson, Philips, Hess, Adobe, McDonald’s, and Time Inc.

  AWS is bigger than Amazon.com was at ten years old, growing at a faster rate, and—most noteworthy in my view—the pace of innovation continues to accelerate—we announced 722 significant new features and services in 2015, a 40 percent increase over 2014.

  Many characterized AWS as a bold—and unusual—bet when we started. “What does this have to do with selling books?” We could have stuck to the knitting. I’m glad we didn’t. Or did we? Maybe the knitting has as much to do with our approach as the arena. AWS is customer obsessed, inventive and experimental, long-term oriented, and cares deeply about operational excellence.