How Amazon CEO Jeff Bezos Has Lured Investors: 1998 Shareholder Letter Analysis

How Amazon CEO Jeff Bezos Has Lured Investors: 1998 Shareholder Letter Analysis

Overview

1998 proved to be a difficult year for the worldwide economy. At an all time low since the 1930s, the effect of the crippling global economy started to become a direct threat to the United States. While the US had managed to expand the economy and send the stock market to record levels, international financial markets became unpredictable as investors became nervous about the future.

For Amazon, this worldwide fear was not reflected. Amazon’s 1998 Letter to Shareholders serves as the mean to give life to complex quantitative measures that occurred the prior year. This letter serves to establish the firm’s competitive position. As per tradition, Jeff Bezos attributed Amazon’s growth to their continuous emphasis on customer satisfaction. In 1998, Amazon’s revenue grew by more than 330% as customers began to become loyal to the brand. In addition to revenue growth, Amazon also began to expand their product line by adding the Amazon.com Music Store, incorporating innovations such as 1-Click shopping, and integrating video and gift options for increased customer fulfillment.

We learned it in elementary: Ethos, Pathos, and Logos.

Establishing Credibility to Shareholders: Ethos

In order to build credibility as a CEO and leader of a newly public company, it was crucial for Bezos to establish credibility. Some of the most important qualities were to portray himself as an honest, authoritative, and trustworthy individual.

In order to portray himself as leader who is able to make honest decisions with the shareholders' capital, Bezos projects himself as as modest, cautious, and trustworthy by not being overly assertive. For example:

• "Hopefully, some will turn out to be winners. Certainly, some will turn out to be mistakes."
• "We aren't so bold as to claim that the above is the "right" investment philosophy, but it's ours."

Bezos is also aware that mitigating responsibility from possible failed enterprises in the future due to a weakened economy is important. For this reason, he lessens his assertions by distancing himself:

• "Online book selling, and online commerce in general, should prove to be a very large market, and it's likely that a number of companies will see significant benefit."

Bezos uses the positive atmosphere surrounding Amazon in 1998 in order to build on credibility as a confident and decisive CEO:

• "We believe that the overall e-commerce opportunity is enormous."
• "We believe that a fundamental measure of our success will be the shareholder value we create over the long term."

To further build on credibility, Bezos goes as far as placing a hyperlink in the middle of the text which guides the reader to Amazon’s website as if to prove that they are actually doing the things they state they are doing.

An aspect that Bezos fails to draw on to build credibility are external sources. External sources could underline authority on his assertions. In the 1998 Shareholder Letter, Bezos draws no comparisons to other competitors or cites any external sources.  

Rational Appeal: Logos

Bezos guides readers with a solid structure and informative titles in order to guide shareholders in the direction of the argument. Throughout the 1998 Shareholder Letter, Bezos uses the following headlines as to create a framework for the reader:

• “A recap of 1998”
• “Our Customers”
• “Work Hard, Have Fun, Make History”
• “Goals for 1999”

In order to help shareholders grasp the significance of the information provided throughout the letter, Bezos uses numerical comparison with results from prior years. This would in turn allow shareholders to grasp the significance of growth that occurred within one year of becoming a publicly traded company.

• "Sales grew from $148 million in 1997 to $610 million, a 331% increase change."
• "Cumulative customer accounts grew from 1.5 million at the end of 1997 to 6.2 million at the end of 1998."

Bezos also uses Amazon’s recent market expansion to help shareholders understand new initiatives that have been taking place.

• "The addition of music was followed by the addition of video and gifts in November [...]"
• "Innovations like 1- Clicks SM shopping, Gift Click, store-wide sales rank, and instant recommendations."

Creating a Rational Argument: Pathos

In this letter, Bezos does a great job of aligning his goals and desires to those of the readers which emphasizes shared understandings. For example:

• "We must be committed to constant improvement, experimentation, and innovation in every initiative."
• "We must ensure that we build wide, strong customer relationships"

Bezos also makes the reader a participant of the dialogue by asking questions and using asides. These techniques in writing aid to make the letter more personable and allows Bezos to interrupt the text to personally address the reader.

• "Will you admire this person?"
• "I encourage you to run – not walk – to www.amazon.com and click on the Auctions tab."

Throughout the letter, Bezos also uses the word you repeatedly. This aids in creating an emotional tie between Bezos and the shareholders by generating a common ground – as if Bezos was a person with similar interest or views.

Why does Bezos keep adding the 1997 Shareholder Letter?

After redacting the 1998 Letter to Shareholders, Bezos began with the tradition of attaching the first Letter to Shareholders. Bezos introduces the 1997 Shareholder Letter by assuring that the most important matter to address was already stated in the prior year. He continues to draw a rational appeal by stating that the number of shareholder letters has exponentially grown from the prior year. In a way, the addition of the 1997 Letter to Shareholders aggregates a sense of consistency and credibility in what Amazon values the most: “It’s All About the Long Term.”

Year after year, Bezos successfully lures investors to trust both Amazon and himself.

Overall, Bezos succeeds to address his audience in a personable, direct letter where he both touched his audience’s hearts and wallets. Given that 1998 proved to be a great year for Amazon, Bezos successfully highlighted Amazon’s year with a friendly tone and a sense of optimism.

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