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🔢 Amazon Prime and Relentless Long-Termism

Published almost 2 years ago • 3 min read

Amazon Prime started in the Bezos boathouse and ended with 200 million members.

Here's the story and 3 non-obvious lessons you can use today:


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"You shouldn't be letting Jeff do this. This is setting a bad example."

Today, when you think of Amazon, you probably think of Jeff Bezos the business genius.

But back in 2004, there isn't blind faith.

Our story starts with Charlie Ward and the Bezos' boathouse...

So Charlie Ward is a one-click checkout addict.

And in 2004, he has a problem.

By using Amazon's Super Saver Shipping, he could never do one-click checkout.

Super Saver forces shoppers to hit a $25 minimum to qualify for cheap 8-10 day shipping.

So he has an idea...

"What if customers just gave us money at the beginning of the year and we calculated zero for their shipping charges the rest of that year?”

- Charlie Ward

Some co-workers think he's crazy.

But he writes a 1-page memo pitching his all-you-can-eat shipping service to Bezos.

Bezos likes it.

But it misses a key insight.

"No one wakes up in the morning hoping for slower shipping."

- Bezos, 2004

All-you-can-eat shipping isn't enough.

We need speed.

So it's a Friday in December 2004 and Vijay Ravindran and the rest of the Prime team have a meeting with Jeff.

The day of the meeting, Amazon's website crashes.

So the team is scrambling and Vijay calls Jeff to reschedule for next week...

Jeff says, "Of course, I understand. But this is so important that you have to come over to my house on Saturday morning.”

The Prime team shows up the next day and gathers in Jeff's boathouse.

They talk strategy and timing.

But here's the key insight:

"We're going to change the psychology of people not looking at the pennies differences between buying on Amazon versus buying somewhere else."

- Bezos

Jeff wants consumers to choose Amazon by default.

They are given 4 weeks to launch Prime by Amazon's earnings release.

And the secret project name?

Futurama

The best part?

Every time the Prime team poached someone from a different division, you got this t-shirt.

After some crazy weeks and long nights, Amazon launches Prime in February 2005.

The model is simple:

Pay $79 and you get unlimited 2-day delivery for over 1 million items.

But they still have a big problem.

How the heck can you make this profitable?

To make the math work, Prime members needed to buy 10 times per year.

This seemed insane.

But here lies the stupidly simple insight in hindsight:

If customers liked Prime, demand would go up.

And because the demand goes up, Amazon can build new fulfillment centers.

And..

New fulfillment centers means lower costs.

Lower costs make profitability easier.

And the cycle continues.

Now you may think Prime is a rocket ship from the start.

But it isn't.

The truth is Prime never takes off until they bundle in digital video in 2011.

Prime video makes membership a no brainer for Amazon customers.

And creates the key habit:

Default to Amazon.

Today there are over 200 million members with 3x more spend on Amazon on average.

And here are the 3 key principles you can take from Prime:

Lesson 1: Double Down on the Winners

Most businesses focus on getting new customers.

But Prime's entire goal is to make sure the biggest Amazon fans never leave:

"I want to draw a moat around our best customers. We won't take them for granted."

How can you do the same?

Lesson 2: Peter Thiel's 10x Law

Tech that wins builds a 10x better product.

The original idea for Prime is not this.

Charlie Ward focused on shipping cost but Bezos focused on speed.

And 2-day shipping turns penny-pinching to a default to Amazon.

How can you build a 10x?

Lesson 3: Relentless Long-Termism

Bezos didn't care if Prime won from Day 1.

In fact, it didn't take off until Prime Video in 2011 which is 6 years later.

Most people think long-termism is all about compounding good actions.

But it partially misses the point.

Long-termism changes the projects you pursue because the focus is on results over decades versus days.

And that frees you to think differently.

And think much bigger.

How would long-termism change your project selection?


See ya next week,

Chris Hlad

How I Think

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