Jeff Bezos’ focus on consumers above shareholders has at times vexed Wall Street. But smart investors have stayed with his company. In 16 years as CEO of Amazon, the online retail giant he created, Bezos has delivered industry-adjusted shareholder returns of 12,266%, and the value of the company has grown by $111 billion.
Bezos took time to speak with HBR on November 26 – Cyber Monday, which set an all-time record for online sales, a category Amazon practically invented. Edited excerpts from the interview follow.
HBR: When Amazon went public, in 1997, you wrote a letter to shareholders that said, “It’s all about the long term.” Did you feel you were challenging orthodoxy?
Bezos: We were trying to make sure we were correctly advertising the event. Warren Buffett once said, “You can hold a rock concert or you can hold a ballet. Just don’t hold a rock concert and advertise it as a ballet.” A public company has to be clear about whether it’s holding a rock concert or a ballet, and then investors can decide if they want to opt in.
HBR: What does it mean from the perspective of a CEO to think long-term?
Bezos: If you’re long-term oriented, customer interests and shareholder interests are aligned. In the short term, that’s not always the case. We have other stakeholders, too – our employees, our vendors. We take it as an article of faith that if we put customers first, other stakeholders will also benefit, as long as they’re willing to take the long-term view. And a long-term approach is essential for invention, because you’re going to have a lot of failures along the way.
HBR: You’ve said that you like to plant seeds that may take seven years to bear fruit. Doesn’t that mean you’ll lose some battles to companies that have a more conventional, two- or three-year outlook?
Bezos: Maybe so, but if we had always needed to see significant financial results in two or three years, then some of the most meaningful things we’ve done would never have been started – like Kindle, Amazon Web Services, Amazon Prime.
HBR: How much do you care about your share price?
Bezos: I care very much about our shareowners, so I care very much about our long-term share price. I do not follow the stock on a daily basis, because I don’t think there’s any information in it. The economist Benjamin Graham once said, “In the short term, the stock market is a voting machine. In the long term, it’s a weighing machine.” We try to build a company that wants to be weighed, not voted on.
HBR: Does it make sense for Amazon to stay in the hardware business, which is a low-margin, low-profit area for you?
Bezos: Our approach is to sell our hardware – our Kindle devices – at near breakeven. Then we have an ongoing relationship with customers who buy content from us: digital books, music, movies, TV shows, games, apps. We aren’t trying to make $100 every time we sell a Kindle Fire, so we don’t have to get you on the upgrade treadmill.
HBR: You have said that you would be interested, if you had the right concept and approach, in creating a physical Amazon retail experience. Why even consider that?
Bezos: We like to build innovative things, but only if we can put our own unique twist on them. If we could find something differentiated that we thought customers would like, it would be superfun.
HBR: Would developing a phone fall into that innovative category?
Bezos: Yeah, absolutely.
HBR: Who do you fear is your biggest challenger?
Bezos: We don’t get up every morning wondering, “Who are the top three companies that are going to try to kill us?” I know of companies that do that in their annual planning processes, and the competitive zeal motivates them. We do pay attention, but it’s not where we get our energy from.
HBR: Disruption is a rough business. Do you have any personal regrets about the pain your success has caused traditional retailers?
Bezos: I’m as sentimental as the next person. I have lots of childhood memories of physical books and things like that. But our job at Amazon is to build the best customer experience we can and let customers choose where they shop.
HBR: At what point will the goal change from lowering margins and building market share to making a bigger profit?
Bezos: Percentage margins are not something we seek to optimise. We want to maximise the absolute-dollar free cash flow per share. If we can do that by lowering margins, we will. Free cash flow is something investors can spend. They can’t spend percentage margins.
HBR: Amazon has done a great job of self-cannibalising its revenue streams – going from Amazon Store to Amazon Marketplace, from print to e-books, and so on. In most companies, moves like those would be hard to execute without organisational turmoil. How have you managed the transitions?
Bezos: When things get complicated, we simplify them by asking, “What’s best for the customer?” We believe that if we do that, things will work out in the long term. We can never prove that. In fact, sometimes we do price-elasticity studies, and the answer is always that we should raise prices. But we don’t, because we believe that by keeping our prices very low, we earn trust with customers, and that this will maximise free cash flow over the long term.
HBR: What have you learned about leadership from running what has become a very big company?
Bezos: If you’re inventing and pioneering, you have to be willing to be misunderstood for long periods of time. One early example is customer reviews. A book publisher told me, “You don’t understand your business. You make money when you sell things. Why do you allow negative reviews?” And I thought, “We don’t make money when we sell things; we make money when we help customers make purchase decisions.”
HBR: How do you institutionalise the ability to come up with these good, misunderstood ideas?
Bezos: First, there are stories we tell ourselves internally about persistence and patience, long-term thinking, staying focused on the customer. Second, we select people who, when they wake up in the morning, are thinking about how to invent on behalf of the customer. If you like a more competitively focused culture, you might find us dull. We find our culture intensely fun. We have an explorer mentality, not a conqueror mentality.
HBR: You’ve generated a lot of attention recently. Is all the publicity good for you and for Amazon?
Bezos: I have to be choosy – I do very little. But I do interviews because I want customers to understand what makes us tick, how we operate, what our principles are. I think customers want to know who they’re doing business with.
HBR: And if you don’t talk, how in the world can we misunderstand you?
Bezos: Oh, believe me, that wouldn’t stop it.