Amazon to Investors: The Sky’s the Limit

Amazon on Thursday released its annual letter to shareholders, revealing a smattering of tidbits about what’s happening in the company now and what’s in store for the future.

The running theme throughout the letter is innovation. The entire company innovates with the customer in mind, Amazon CEO Jeff Bezos wrote, touching on its ethos of failing early while inventing and iterating to perfect a project.

Among the highlights of the letter are details on the drone delivery program, the Amazon Fresh food delivery service, and the “Pay to Quit” program that offers unhappy warehouse employees a sizable payoff to leave their jobs.

Drone Seriousness

Bezos last year laid out his vision of a future in which Amazon customers could receive their deliveries by drone. In some cases, customers would be able to receive their packages within 30 minutes of ordering.

While there are safety and regulatory issues to contend with — not to mention critics who believe the scheme is little more than a publicity stunt — Amazon seems serious about the Prime Air Program.

The project team is testing the fifth and sixth generations of the drones, and is in the design stage of generations seven and eight, Bezos said.

“Given the huge amount of attention Amazon received over the drone story — due to Bezos’ 60 Minutes interview — I would have thought the Prime Air effort deserved more than a single sentence at the end of a paragraph on page 5 of the letter,” Charles King, principal at Pund-IT, told the E-Commerce Times.

“That may suggest that the company is trying to dial back expectations a bit. The fact is that the drone story has repercussions far beyond the technology itself — which is actually evolving pretty quickly — and will be impacted by a range of challenging financial, regulatory and liability issues,” he pointed out.

“Amazon is extremely serious and very committed to the delivery drone market,” Laura DiDio, principal at ITIC, told the E-Commerce Times. “That said, it remains to be seen whether the consumer and corporate purchasing public will embrace delivery drones and how quickly they will adopt them.”

Fresh Cities

With regard to Amazon Fresh, the company is planning to expand the project to new cities. It trialed the grocery delivery service in Seattle before taking it to Los Angeles and San Francisco. Bezos confirmed the expansion in the letter, but did not offer details on the next areas to have Amazon-delivered fresh goods.

Bezos did discuss Amazon’s Pay to Quit program for warehouse employees in some detail. Fueled by the belief that unhappiness on the job is healthy neither for the company nor the worker, Amazon adapted an idea from its Zappos subsidiary to offer employees several thousand dollars once a year to leave the company.

The first time an employee receives the offer, it’s for US$2,000. That figure rises by $1,000 per year until it hits $5,000. The deal comes with a prompt urging workers not to take the offer; instead, it’s designed to make sure people are working at Amazon because they want to be there.

Helping Hand

The letter touches on many other aspects of Amazon’s business, including some of the more interesting requests for help from customers who tap the Mayday button on their Kindle Fire HDX tablets.

Amazon’s experts can help out customers who hit the button by drawing on their screens to talk them through a feature, talking them through how to carry out a process — or simply just doing something for them. Customers have proposed marriage to Mayday advisors, looked for advice in ordering pizzas, and asked for a bedtime story.

“If Amazon can deliver this capability with some depth, it will have a great impact,” Roger L. Kay, principal at Endpoint Technologies Associates, told the E-Commerce Times.

“For example, IBM has Watson-based assistive software that can help video reps be instant experts. It’s a query system for them,” he said. “Amazon is probably using its own version of that machine intelligence to bolster its reps. Think of it as the cyberversion of the smart exoskeleton for medical and military ops.”

More than 1 million customers signed up for Amazon’s Prime delivery service in December, the letter reveals. Three months later, the company raised the price from US$79 to $99.

Amazon now has tens of millions of customers worldwide who use Prime, the letter claims.

The company added 280 services and features to Amazon Web Services in 2013, it also notes.

However, the letter does not reveal specific sales numbers for products such as the Kindle tablet line, Amazon Prime, and the newly launched Fire TV set-top box.

Always Expanding

The letter throws up some compelling hints about Amazon’s future, with one conclusion being that the company wants to expand into as many market segments as possible.

“They are going broad. It wouldn’t surprise me to see them selling cars, trucks, and even some common industrial equipment in the future. They might even partner with Tesla to do it, since they’ll need product and Tesla needs to expand more rapidly,” suggested Rob Enderle, principal at the Enderle Group.

“If it sells in reasonable volume, Amazon wants to sell it to you,” he added.

“They are moving broadly against virtually all retailers, from small stores to super chains,” Enderle told the E-Commerce Times.

“Those folks are likely to fight back, and it is the innovation that will either ensure their success or doom them to failure. Maintaining that innovation will be the key to their eventual dominance — as well as staying out of antitrust trouble, given their scale,” he predicted.

“There is so much in the letter,” Jim McGregor, principal at Tirias Research, told the E-Commerce Times. “I think the most important points are AWS and the things they are doing to improve the business from software to distribution centers. I do think Mayday is a differentiator and one that we are likely to see in future platforms and from other vendors going forward. However, I still think the use of drones is too far out to predict at this time.”

Shunning Controversies

Meanwhile, the letter might be seen as papering over Amazon’s cracks.

“Most companies use shareholder letters as good news vehicles, and Amazon’s is no exception,” Pund-IT’s King pointed out. “So Bezos — or his marketing communications team — focuses mainly on the value or innovation of the company’s various efforts and services with no mention of controversies or complaints.

“Those include the $20 increase in annual Prime memberships and employees’ complaints over working conditions, injuries and compensation,” he continued. “There’s also no reference to the fact that the company’s stock value has fallen by nearly a quarter since attaining its historic high of around $408.00 back in January.”

Amazon shares closed the week at $311.73.