2005 – Decisions

I can attest to this – Amazon is data driven. SO MUCH DATA! Data about everything. When possible, make a decision not based on gut, but based on hard numbers. But what about when you don’t have the data? Or Customer Obsession tells you differently?

Jeff starts by highlighting a couple ways in which Amazon uses data to make decisions — opening new fulfillment centers and inventory. We learn that inventory is turning 14x a year now, and that just about any measurable number goes into making both of these decisions.

Jeff then talks about decisions being made in which you don’t have the data to make the decisions and you have to rely on judgment. Cutting prices is highlighted here — it’s a gut decision. The numbers say raise them, but Amazon lowers them. We also see the term virtuous cycle, which is used a lot internally. I suspect we might see it again soon. We also see Amazon Prime mentioned for the first time in a shareholder letter.

Jeff notes that third party sellers are a big part of the business, and this was doing the right thing in the name of the customer, not necessarily the business. He notes that 28% of 2005’s units sold are from third parties.

He closes with the quote below.

“Math-based decisions command wide agreement, whereas judgment-based decisions are rightly debated and often controversial, at least until put into practice and demonstrated. Any institution unwilling to endure controversy must limit itself to decisions of the first type. In our view, doing so would not only limit controversy —it would also significantly limit innovation and long-term value creation.” — Jeff Bezos