Amazon And Value Creation: A Bezos Farewell

Jeff Bezos is stepping down from daily management tasks as chief executive officer of Amazon, the company he founded in 1994, although he will continue to be involved in the company as executive chairman of the board. Earlier this month, Bezos wrote his last annual letter to company shareholders. The main focus of the letter is on how Amazon creates "value." 

Amazon pickup & returns building
Image Source: Unsplash

 Of course, for economists, one measure of value is the total value of Amazon's stock (AMZN), which now stands at about $1.6 trillion (and Bezos owns about one-eighth of that). But his letter focuses on the most recent year. He writes: 

Last year, we hired 500,000 employees and now directly employ 1.3 million people around the world. We have more than 200 million Prime members worldwide. More than 1.9 million small and medium-sized businesses sell in our store, and they make up close to 60% of our retail sales. Customers have connected more than 100 million smart home devices to Alexa. Amazon Web Services serves millions of customers and ended 2020 with a $50 billion annualized run rate.

During 2020, Amazon had a net income of $21.3 billion. Bezos adds: 

In 2020, employees earned $80 billion, plus another $11 billion to include benefits and various payroll taxes, for a total of $91 billion.

How about third-party sellers? We have an internal team (the Selling Partner Services team) that works to answer that question. They estimate that, in 2020, third-party seller profits from selling on Amazon were between $25 billion and $39 billion, and to be conservative here I’ll go with $25 billion. ...
Customers complete 28% of purchases on Amazon in three minutes or less, and half of all purchases are finished in less than 15 minutes. Compare that to the typical shopping trip to a physical store – driving, parking, searching store aisles, waiting in the checkout line, finding your car, and driving home. Research suggests the typical physical store trip takes about an hour. If you assume that a typical Amazon purchase takes 15 minutes and that it saves you a couple of trips to a physical store a week, that’s more than 75 hours a year saved. That’s important. We’re all busy in the early 21st century. So that we can get a dollar figure, let’s value the time savings at $10 per hour, which is conservative. Seventy-five hours multiplied by $10 an hour and subtracting the cost of Prime gives you value creation for each Prime member of about $630. We have 200 million Prime members, for a total in 2020 of $126 billion of value creation. ...
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