Good morning. Welcome to the amazon.com Annual Shareholders Meeting. I'm Michelle Wilson, the company's General Counsel. It's my pleasure to introduce our directors: Jeff Bezos, our Chair; Tom Alberg; John Seely Brown; Dean Gordon; Jaron Lanier; Jon Rubinstein and Tom Ryder. Patty Stonesifer, our other director, wasn't able to join us today. Also joining us is Tom Szkutak, our CFO. I now call the formal portion of this meeting to order. The polls are open, and they will remain open until immediately after presentation of today's proposals. The agenda shows our items of business and rules of procedure. After the formal portion of the meeting, Jeff will give a presentation and answer your questions. Representatives of our auditors, Ernst & Young, also are here to address your questions. If you haven't voted yet, please give your proxy card to Diana Rausch of BNY Mellon Shareholder Services, our inspector of elections. Diana, would you please stand? It's right there. Okay, thank you.
BNY Mellon has certified that notice of this meeting was mailed beginning on April 27, 2011, to all shareholders of record as of the record date. BNY Mellon has also certified that a majority of our common stock is present or represented by proxy, so a quorum exists for the meeting. The first item of business is the election of directors. The board has nominated for reelection the eight directors named in the proxy statement, who I just introduced. We did not receive notice of any other nominations. The second item of business is the ratification of the appointment of Ernst & Young as independent auditors for fiscal 2011. The third item of business is the advisory vote on our executive compensation, as disclosed in the proxy statement.
The fourth item of business is an advisory vote on the frequency of future advisory votes on executive compensation. The proxy statement also contains two shareholder proposals properly submitted under SEC rules. The first shareholder proposal is regarding the shareholder ownership threshold for calling at special meetings. Brett Horvath will now present the proposal on behalf of James Mcritchie , the shareholder proponent.
Good morning, ladies and gentlemen. My name is Brett Horvath, here on behalf of Newg round Social Investment in Seattle. I'm here to represent James Mcritchie to move item number five on the proxy agenda. Shareholders ask our board to take the steps necessary to amend our governing documents to give holders of 10% outstanding common stock the power to call a special shareholder meeting. This includes a request that such bylaw and/or charter text will not have any exclusionary language in regard to calling a special meeting that would apply only to shareholders, but not to management and/or the board. Special meetings allow shareholders to vote on important matters, such as electing new directors, that can arise between annual meetings. If shareholders cannot call special meetings, management may become insulated, and investor returns may suffer.
Shareholder input on the timing of shareholder meetings is especially important during a major restructuring, when events unfold quickly and issues become moot by the next annual meeting. This proposal topic won more than 60% support at CVS Caremark, Sprint Nextel, Safeway, Motorola, and R.R. Donnelley. Please encourage our board to respond positively to this proposal in support of improved company performance.
Thank you. The proxy statement for this meeting contains the company's recommendation against this proposal. The second shareholder proposal and our final item of business is regarding an assessment and report concerning climate change. ` the shareholder proponents.
Thank you. Good morning, ladies and gentlemen. My name is Larry Dohrs of Newg round Social Investment here in Seattle, and I am here on behalf of Calvert Asset Management Company to move I tem 6 on the proxy agenda. Calvert has filed a proposal requesting that Amazon report how it is assessing and managing climate change. As investors, we believe that information from corporations on their Climate Change Ri sks and Management Strategies is essential to understanding the strengths of corporate securities in the context of climate change. Furthermore, we believe that all companies, regardless of industry, face potential challenges from climate change, and this is not just an issue of importance to Calvert.
Calvert is among 100 investors with over $10 trillion in assets under management that are members of the investor network on climate risk that seek to advance the investment opportunities and reduce the material risks posed by climate change. We acknowledge and applaud the company's current initiatives to green some of its operations. However, we're asking for specific data and qualitative information relating to Amazon' s impact on climate change from activities that cause greenhouse gas emissions and how it is dealing with risks and opportunities from climate change related to the company. 70% of S&P 500 companies and over 80% of Global 500 companies disclose this type of information through the Carbon Disclosure Project, including companies such as Google, eBay, Apple, and Target. Many of these companies also choose to disclose key climate-related information through public websites and sustainability or corporate social responsibility reports.
Amazon has not responded to the Carbon Disclosure Project despite being annually requested to do so for the past five years. Currently, Amazon does not disclose information on its data centers, energy consumption, emissions, or related reduction plans. The company has a growing Web Services business and plans to expand its cloud computing operations. Data centers are integral to this business but require significant amounts of energy to power cooling system infrastructure. Many leading companies in this industry report on risks from energy-consuming data centers, such as increasing costs, and disclose how they are managing energy use and related emissions. We are also concerned by the company's lack of disclosure around the environmental impact of its electronic products, such as the top-selling Kindle. Unlike some competitors, Amazon does not disclose key information regarding the environmental footprint of this product, including associated greenhouse gas emissions from its production or use. In closing, we encourage the company to take action by addressing potential climate change-related risks and opportunities related to its core business. Possible risks may be related to energy and fuel costs, reputation, competition, and physical impacts, which specifically could create challenges to the company's retail business that relies on a reliable logistics network for product delivery. Thank you.
Thank you. The proxy statement for this meeting contains the company's recommendation against this proposal. We did not receive notice of any other matters, so no other nominations or proposals may be introduced. We will close the polls shortly, though if you have not voted yet, please deliver your proxy to Diana now. If you have any questions or comments on the proposals, please raise your hand. Remember that Jeff will answer your general business questions after the formal portion of this meeting. Can we get the lights off? Make sure nobody's answering. Great. Since there's no discussion, the polls are now closed. Our preliminary results indicate that each nominee for director received a majority of the votes cast, so all eight nominees have been duly elected to hold office until their successors are elected and qualified.
A majority of the shares present in person or by- proxy and entitled to vote were voted in favor of ratifying Ernst & Young's appointment, so it has been ratified. A majority of the shares present in person or by- proxy and entitled to vote were voted in favor of our executive compensation. A majority of the shares present in person or by- proxy and entitled to vote were voted in favor of a three-year frequency for future advisory votes on executive compensation. A majority of the shares present in person and entitled to vote were voted against the shareholder proposal regarding changing the share ownership threshold for special meetings, so this proposal failed. Finally, a majority of the shares present in person or by- proxy and entitled to vote were voted against the shareholder proposal regarding an assessment and report concerning climate change, so this proposal failed.
There being no other matters, the formal portion of this meeting is now adjourned. Before Jeff starts his presentation, I want to remind you that the presentation, along with our responses to your questions, may include forward-looking statements, and our actual results may differ materially. The presentation is also available on our Investor Relations website. Information about factors that potentially could affect our financial results is included in our filings with the Securities and Exchange Commission. I'll now turn the meeting over to Jeff.
Thanks, Michelle. Good morning, everybody. Thank you very much for attending the annual shareholder meeting. It's always nice to see you, and it's very much appreciated the shareholders who take the time to come. We had $34 billion in sales last year, and the unusual thing about that is the growth rate. 40% growth on that base of sales is very unusual, and this is not something that CEOs accomplish. This is something that a broad team of people working very hard for a long number of years accomplishes. It's not something that that team can even do in the current year. It's something that that team works on over year after year, laying a foundation that allows for that kind of growth at that scale. It's difficult operationally. It's difficult in terms of attracting customers to be able to support that level of scale and the expansion plans that support it.
Anyway, it's something I'm very proud of, and I'm very proud on behalf of this big team that made that happen. Free cash flow driven by that top line was $2.5 billion. We expanded quite a bit in the last year. You can see here we added a new column. That's Italy over there on the right. All the red tins there represent new categories that we launched inside existing geographies. We also added a bunch of selection inside already existing categories. Millions of unique items were added, many of those in our own fulfillment centers ready for rapid delivery. Speaking of rapid delivery, we have a program called Amazon Prime, which I suspect all of you are familiar with. It pays $7 million a year in the United States. It's a global program, and it costs different amounts around the world.
$7 million a year in the United States, and you get unlimited, free, two-day shipping. As we've expanded categories, this program works literally from soup to nuts. You can see here, it's been a very popular program. It continues to grow rapidly. Customers really like it. They don't have to pay for that expedited delivery. Even if they can afford expedited delivery, it kind of induces a little bit of guilt. It feels like an unnecessary indulgence to pay for expedited delivery. When you buy it in an all-you-can-eat buffet like you do with Amazon Prime, then you can use it as much as you want. You can go ahead and indulge in getting your products very quickly. Take a look at that nut. It's not drawn to scale. There's the actual scale of that nut. We do sell nuts that small.
In fact, we sell nuts even smaller than that. Enjoy. We added a new benefit to Amazon Prime. It's a very attractive benefit. No additional cost. We didn't raise the price of the program. We kept the program at $79 a year. We added free instant streaming at no additional cost of no commercial interruptions of more than 5,000 movies and television shows. You can watch these on your computer. You can watch them via your Roku box or your internet-connected television set. It's been very widely and popularly received, and we're going to continue to add additional selection to that program. It's something we're very excited about. We acquired a company called Quidsy. You may know Quidsy more from its consumer-facing brand names diapers.com and soap.com. At Amazon, we've seen good traction in our consumables business. We have a program called Amazon Mom.
We sell a lot of diapers, and we loved the management team and, in fact, the broader team at Quidsy. We acquired that company, and I'm very excited about what the two companies are going to be able to do together going forward in the consumables business. We just launched a website called myhabit.com. It's a private sale website, fashion website. Every morning at 9:00 A.M., there are new heavily discounted items available, and the team has done a terrific job of innovating on the website experience of myhabit.com. You saw the live model. All of the photography on myhabit is done on live models. It's all video photography, and that's helpful for making purchase decisions because you can actually see how the clothes hang, how they drape, how they look when the model is moving. It'll show it to you again.
You can also see there in the list of bullet points that we do another thing that helps customers make purchase decisions, which is that we show the size of clothing that the model is wearing, as well as the model's height and measurements. Talk about our digital business a little. We launched Cloud Drive. Cloud Drive is like a disk drive, a personal disk drive in the cloud on Amazon's servers that you can use to store any of your digital assets: photos, videos, music, documents, whatever you'd like to store that you might store on a disk drive, a local disk drive, you can now store in the cloud. We give everybody 5 GB of free disk space, and you can purchase additional cloud storage if you'd like to have more than 5 GB .
The music is a particularly attractive thing to store in the Cloud, and we created Cloud Player to go along with Cloud Drive. In Cloud Player, when you buy your digital music and you store it in the Cloud, you can now play it. You can stream it from the Amazon Cloud Player wherever you happen to be. If you have access to a web browser, you have access to your music. This is very different from the prior situation with digital music where the music ended up getting, when you would buy digital music, if you weren't careful, it could get set up on little islands. You may have some of your digital music at home, some of your digital music at the office, some of your digital music on your smartphone, and it was very difficult to coordinate and synchronize all of that music.
If you keep all of your music in the cloud and then stream it or copy it to where you need it, it's much easier to keep everything organized. We also, in our digital arena, launched the Amazon Appstore for Android. We have a very good selection of Android apps that you can buy. We have a whole selection of free Android apps and a big selection of paid Android apps. An everyday promotion that we do, this is not a special one-time promotion. This is something that we do day- in and day- out. Every day, there is a free paid app, and that has now become my favorite oxymoron. Give you a quick update on our frustration-free packaging initiative. Those of you who followed the company for some number of years will recall that we launched this a few years ago.
The frustration-free packaging initiative is designed to eliminate wire twist ties, blister packs, those clear, hard plastic packages that you need a small nuclear device to open, and usually they result in bleeding. I used to know the stat of how many emergency room visits there are per year from people trying to open blister packs, and it is very frustrating as a consumer. The reason that the wire twist ties and the four-color packaging and the clear blister packs exist is twofold. They're both designed for the physical traditional retail environment. The blister packs are important because you can see the product, and seeing the product is part of on-shelf merchandising. It's also important. You often see, you know, small items in big blister packs. The reason that that's done is to make shoplifting more difficult.
At Amazon, we don't need either of those, we don't have either of those reasons. We get to separate the physical packaging of the item from the merchandising of the item, and we also don't have to worry about shoplifting. This packaging that's designed for good on-shelf merchandising is also very expensive for the manufacturer to produce. It's expensive for the manufacturer, it's inconvenient for the consumer, and it's also very wasteful from an environmental point of view. We have been working to get manufacturers to repackage an online version of the item. The item is identical, but the packaging is idealized for the consumer and for the online environment. What you end up with is a much smaller package, so you're shipping less air around, which is very environmentally friendly. You don't have a bunch of four-color printing.
It can be plain cardboard, and you can open it, and there are never any twist ties or blister packs. This has been a very successful program. E-commerce is now big enough that manufacturers are seeing that it's worth their while to have two different packaging types, one for the in-store environment and one for the online environment. I'll give you a little data on this. When we launched this in 2008, we shipped 250,000 items in frustration-free packaging, and this past year, it's now gone up to 4 million. By the way, this does not include Amazon-branded items like the Kindle or our Amazon Basics line, which are also in frustration-free packaging. These numbers only represent our efforts working together with third-party manufacturers to get them to adopt our frustration-free packaging standards.
Our seller business, as you know, in addition to selling items ourselves, we invite third- parties to sell on our detail pages. We've been doing this for a large number of years now, and the business continues to do exceedingly well. More than 30% of the units sold on Amazon are sold by third- parties. A few years ago, we launched a program called Fulfillment by Amazon. Fulfillment by Amazon allows these third-party sellers to put their inventory in our Fulfillment Centers. This is a huge advantage for the third-party seller because they don't have to worry about shipping and packing. As soon as they put their inventory in our fulfillment centers, those products become eligible for Amazon Prime. Those products become eligible for free Super Saver shipping. Those items now have the standard Amazon customer experience with regards to customer service, with regards to returns.
This is a big win for the consumer because now that third-party item acts and behaves exactly the same as if it were an Amazon-owned item. It's great for the seller because their sales go up, primarily because the item is now eligible for Prime and free Super Saver shipping. This is working very well. I'll give you an example of one of the items. Here's this game some of you may know about called Bananagrams. It's a very good game. It has a five-star review. Here, you can see it's sold by Innovation Unlimited and fulfilled by Amazon. When you see that, I put the orange circle around it there so you can spot what I'm talking about. When you see that on the website, that's what's going on. This is inventory that Amazon does not own, but we do all the fulfillment for that inventory.
If you buy Bananagrams or any other fulfilled by Amazon item and an Amazon-owned inventory item in the same order, we will sort those things together into one box and ship them to you in one box, which, of course, is a huge cost savings and environmental benefit. Let's talk about our developer-facing business, Amazon Web Services. We started this half a dozen years ago. Talk about one service first, our Simple Storage Service, or S3. When we launched this back in 2006, at the end of that year, we had just under 3 billion objects stored in S3. Today, we have more than 262 billion objects stored in S3. That's just one of the many services that comprise Amazon Web Services. Here's a list of some of our other services. I will not go through all of these. Of note, the Elastic Compute Cloud, CloudFront, the Elastic Block Store.
There are a number of very interesting and useful pieces of infrastructure in Amazon Web Services. What these infrastructure services do is they allow companies that rely on servers and this kind of compute infrastructure to not have to involve themselves in the undifferentiated heavy lifting down at that infrastructure level. Those companies, the customers of AWS, can focus on the thing that differentiates their business. Whatever their secret sauce is, they can focus on that. These things that we're providing are things like the Simple Queuing Service, Data torage, the Relational Data Service, and so on. These are so foundational that all companies need access to them, but they're not differentiating for those companies. They have to be done at a high-quality level, but given that, they're not differentiating. They're priced with mission infrastructure.
Here are just some of the companies that are using AWS today, and they range from small startup companies to very large enterprises. Business is growing very rapidly, and the team is doing a fantastic job. Kindle. Our vision remains the same: every book ever printed in any language, all available in less than 60 seconds. This is the universal library. It would be incredibly cool to achieve this vision. The team is a team of missionaries, and they're working very hard on this. That selection vision, we're making great progress against it. Take a look at this. When we launched Kindle less than four years ago, we launched Kindle with only 90,000 titles. By the way, that was incredibly hard work to get those 90,000 titles into e-book form. Huge heavy lifting working together with publishers to get that done.
Three and a half years later, we're now at 950,000 titles. My personal anecdote for me, I rarely now come across a book that I want to read that isn't available in Kindle format. It's one of the great advantages of the Kindle ecosystem that we have put so much energy into getting even obscure books into Kindle book format. By the way, that 950,000 figure does not even include the millions of pre-1923 out-of-copyright books that you can also read on your Kindle. We've had a huge milestone here this year, 2011. We now sell more Kindle books than print books. First, Kindle books outsold hardcovers, and we announced that. Kindle books outsold paperbacks, and we announced that. Just recently, for the first time ever, Kindle books are now outselling the combination of hardcover and paperback.
One of the things that has happened as a result of that is that our book growth rates are now the greatest that we've seen in 10 years. By the way, our physical book business still continues to grow year-o ver- year. We have a fast-growing Kindle business layered on top of a growing physical book business. This is accelerating the growth rate of that combined business. This is true, by the way, that these growth rate figures, it's true that this is the fastest growth rate we've seen both in terms of unit growth rates and dollar growth rates. With that quick update, I would love to turn it over to questions. If there are any questions, I'd be happy to take them. Thank you. We've got some mics in the audience.
Hello. There's a long history where founders occupying the President's position, the CEO's position, it leads to a robust discussion, debate around a very narrow bandwidth on the board. Have you seriously considered splitting up those offices?
Are you saying splitting up sort of Chairman and CEO, for example?
Yeah.
We have considered it. We have a lead director, which I think is helpful. I think the Leadership and Development Compensation Committee, which is the committee along with the rest of the Board that would make that decision, believes that because of my founder role and my long tenure with Amazon, and my clear passion for the business, that it's appropriate to combine those two roles. We will keep watching that. If we think that we can do a better job for shareholders by changing that situation, I would be the first one to support that. I'm highly aligned with Amazon shareholders. I'm a big shareholder in the company. I don't like to take options or equity compensation and then keep my salary relatively low so that I can have the luxury of being aligned with my fellow shareholders. I see it that way. It is a luxury for me.
I can't imagine how providing the additional compensation would increase my incentives to do well. I'm well aligned. I'm highly incented. I love the company. I'm a missionary for the company and not a mercenary. I love inventing. We've got so much opportunity ahead of us. I think it's a very reasonable question, and we'll keep watching it.
Thank you.
Thank you very much. If we're here 10 years from now, how would the online retailing business in general, what would be the major changes that you see, including resolution of the sales tax issue?
Okay, a few things. I'll go in reverse order of the question if I can remember. I'm bad at multi-part questions, and that one's tied together enough. I may be able to get it all. If I were to go out 10 years, I believe we will have the Simplified Sales Tax Initiative passed. The right solution to sales tax, in my view, and certainly this is Amazon's position, and it's been consistent. We've had this position for 10 years, is that the right place to solve this is Federal egislation. There is an initiative called the Simplified Sales Tax Initiative. 22 states have already signed on. That legislation needs to get passed. I believe that that will happen in the timeframe that you laid out. I hope it might happen much sooner than that.
I think it's the right thing to do, and I think it would be great for Amazon. By the way, for the sales tax issue, keep in mind that in more than half of the geographies where we do business, certain states as well as Europe and Asia, but altogether, more than half of our business is in jurisdictions where we already collect sales tax or its equivalent, like the value-added tax. We're very, you know, this issue is our position on this hasn't changed. We think our position is a good one, and we'll just stick with that. 10 years from now, what else will have changed in online retail? I'm going to end this answer telling you the things I think won't have changed, and I think those are the most important things.
One thing that I think will change is that we will see way better mobile devices even than we have today. If you look back five years, try using the web on a mobile device five years ago was an extraordinarily painful experience. Today, it's still a marginal experience in many cases. If you have a good Wi-Fi connection and a very good smartphone or tablet, it's now getting to be a pretty good situation. With the average phone that people have and the average cellular connection that people have, the mobile browsing experience is still a pretty marginal one. That is going to change. We are going to continue to have pervasive wireless bandwidth that's going to continue to increase. The form factors of the phones, the displays, the battery life, smartphones are going to get smarter. They're going to get better.
They're going to be unbelievably good web browsing devices. That is a huge tailwind for Amazon in our retail business. We are very excited about that. I feel the same way about tablets. Most of our customers shop with us from laptops or desktop computers. People have a different posture with tablets, like leaning back on their sofa. People leaning back on their sofa, buying things from Amazon, is another tailwind for our business. I am very excited about that. What is not going to change in 10 years is probably the most important thing for us as a management team and as a company to stay focused on because those are things we can build strategies around since we know they will not shift from underneath us. Those things are selection. Customers are still going to want vast selection. Low prices.
Customers are still going to want low prices, which means we have to continue to improve our variable costs, our fixed cost. We need to be more productive. We need to figure out how to have fewer defects, find out the root causes of those defects, eliminate them so that we can save money and pass that on to our customers. Selection, low prices, speed of delivery, convenience—these are trends that are so powerful. They are never going to go away, or at least not in a 10-year timeframe. It is impossible to imagine 10 years from now that a customer would say, "I love Amazon. I just wish your prices were a little higher." If we focus on those, or that you delivered, it would be great if you delivered a little more slowly. It is just impossible to imagine. When we put energy into those stable pieces that we know we can count on 10 years from now, we know that we will get dividends for it all along the way. You go ahead. You guys just pass out the mics.
Hi, Jeff. Early on in Amazon's history, there were several notable missteps, either partnerships or initiatives that just didn't work out. Lately, it seems like Amazon has been executing really well. My question is really about risk. If it's still Amazon's philosophy to make bold bets, I would expect that maybe some of them wouldn't work out. I'm not seeing that. My question is, where are the losers of the bold bets? Is Amazon taking the win?
By the way, that's like the nicest compliment I've ever gotten. First of all, I think we have gotten pretty lucky recently. You should anticipate a certain amount of failure. Our two big initiatives, AWS and Kindle, have worked out. Two big clean sheet initiatives have worked out very well. 90+% of the innovation at Amazon is incremental and critical and much less risky. You know, we know how to open new product categories. We know how to open new geographies. That doesn't mean that these things are guaranteed to work, but we have a lot of expertise, a lot of knowledge. We know how to open new fulfillment centers, whether to open one, where to locate it, how big to make it. All of these things, based on our operating history, are things that we can analyze quantitatively rather than have to make intuitive judgments.
When you look at something like go back in time, we started working on Kindle almost seven years ago. That is a very difficult, you know, there you have to place a bet. Now, these are not, if you place enough of those bets, and if you place them early enough, none of them are ever betting the company. By the time you're betting the company, it means you haven't invented for too long. If you invent frequently and fail, and are willing to fail, then you never get to that point where you really need to bet the whole company. You know, we've got AWS also started about six or seven years ago.
We are planting more seeds right now, and you know, it's too early to talk about them, but we're going to continue to plant seeds, and I can guarantee you that everything we do will not work. I'm never concerned about that because I know that on the day, if something stops, if we finally conclude, we're stubborn on vision. We're flexible on details and stubborn on vision. We don't give up on things easily. Our third-party seller business is an example of that. It took us three tries to get the third-party seller business to work. We didn't give up. If you get to a point where you look at it and you say, "Look, we're continuing to invest a lot of money in this, and it's not working, and we have a bunch of other good businesses." This is a hypothetical scenario.
We're going to give up on this. On the day you decide to give up on it, what happens? Your operating margins go up because you stopped investing in something that wasn't working. Is that really such a bad day? It never really, I can't really ever get my mind, my mindset never lets me get in a place where I think we can't afford to take these bets because the bad case never seems that bad to me. I think to have that point of view requires a corporate culture that does a few things. I don't think you can do that. I don't think every company can do that, can take that point of view. A big piece of what the story we tell ourselves about who we are is that we are willing to invent. We are willing to think long-term.
We start with the customer and work backwards. Very importantly, we're willing to be misunderstood for long periods of time. I believe if you don't have that set of things in your corporate culture, then you can't do large-scale invention. You can do incremental invention, which is critically important for any company. I think it's very difficult if you're not willing to be misunderstood. People will misunderstand. Anytime you do something big that's disruptive, Kindle, AWS, there will be critics. There will be at least two kinds of critics. There will be well-meaning critics who genuinely misunderstand what you're doing or genuinely have a different opinion. There will be self-interested critics who have a vested interest in not liking what you're doing. They will have reason to misunderstand. You have to be willing to ignore both types of critics. You listen to them because you want to see all this testing, is it possible they're right? If you pull back and you say, "No, we believe in this vision," you just stay heads down, focused, and you build out your vision.
Hi, good morning.
Good morning.
Any online shopping experience really is only, it depends upon the security underlying it. Sony got hacked recently, and their customer information was in a simple text file. Now, what is Amazon doing to prevent? I know the hackers are lining up out there around the world to get in. What's Amazon doing to protect all that customer data?
This is something we spend a significant amount of time thinking about, and we have for the entire 17-year history of the company. We work extremely hard, and we have a bunch of very talented people who work extremely hard to safeguard that customer information. This is a dynamic situation. In other words, what do I mean by dynamic situation? Every year, the bad guys get better, and every year, we have to get better. My view is that will never change. There will never be a time when we as a civilization say we've defeated cybercrime. There will always be criminals. There will always be some bad guys. There will always be a small minority, but there's going to always have to be a concerted effort to stay one step ahead of them.
Good morning, Jeff.
Good morning.
I'm Doug Kilgore with the Worker Owner Council. I was pleased to hear today that you have it within your long-term vision to absorb the cost of sales tax assessments on the company. Our funds have really benefited from the tremendous growth and that $32 billion figure in sales. As we look in the press this morning, we see that our economy is being held back by the layoffs in municipal and state governments, and all of that is affected in the states where you don't collect sales tax and return it to the government. What are the obstacles that you see to adopting some national legislation that would put this issue to bed for Amazon and others in the industry? What is the company doing to bring that about and get ahead of this problem?
Thank you. We have our Public Policy office in Washington, D.C., led by a guy named Paul Meisner. For years, he has been actively supporting the Simplified Sales Tax Initiative. In fact, he continues to do so. There is some activity underway on that right now as we speak. I think the economy is a motivating force to maybe get some action on that. We will see. I do not pretend to be an expert in the workings of government policy. We employ such people, and it is a complicated area, but you know we're working on it.
I have two questions that are more local. The first one's about Amazon Fresh. You didn't mention that. I see it seems like more trucks and more deliveries around town. The second question is, how is Amazon involved in the fabric and the civic life of Seattle?
Amazon Fresh is a test. It's only in Seattle, and the customer experience is good. The economics, we're still tinkering. The reason it's a test is because we're still tinkering with the business to try and make the economics acceptable. It's an expensive service to provide. We're basically working on it here in Seattle, seeing if we can get it to work. It's a similar kind of operation to what Home Grocer did 10 years ago, what Webvan did 10 years ago. We like the idea of it, but we have a high bar of what we expect in terms of the business economics for something like Amazon Fresh in terms of profitability and return on invested capital. We continue to think about that. In terms of Amazon's, our communities are, we support about 60 different writers' groups around the world and the country.
Each of our fulfillment centers supports their local communities wherever they happen to be. We're a global company, so we do this everywhere. We support the Red Cross and the Mercy Corps whenever there's national disasters, most recently in Japan with the horrific situation that they had there. There's a lot going on at Amazon in that regard. In particular with respect to your question, I would point you to look at the writers' groups, some of which are local here.
Thank you. In view of Apple's announcement yesterday with respect to iCloud, how do you view the Cloud competitive positioning going forward?
There are a couple of different things. The word C loud is a very broad word used in a lot of different ways. If you look at Cloud Drive and Cloud Player, these are consumer-facing offerings that use the Cloud. It's very similar, actually, to the Kindle archive so that when you buy a Kindle book, we store it for you in the Cloud. You can delete it off of your device anytime you want, and you can redownload it anytime you want. There will be, I think, a number of offerings for consumers in terms of helping them manage their digital assets. I think the right way to think about that is it's tied into applications that help consumers use those digital assets, whether that be a photo viewer or a Cloud Player for music or something that helps you read books or something that helps you watch videos.
Integrating those consumer experiences, those digital media experiences into the Cloud is something that will be very helpful for consumers. That's one. The second way I would use the word Cloud is what Amazon Web Services is doing. It's a very different business. There you are actually doing your computation in the Cloud with things like EC2 and Elastic Beanstalk and so on. In both cases, the consumer-facing Cloud business and the developer-facing Cloud business, my point of view on this is that these are big markets, big market segments that can support lots of winners. As has been our practice from the very beginning, we will stay heads down, focused on the customer experience, and expect that there will be other winners as well.
Thanks, Jeff. I really appreciate your presentation on this incredible company. At last year's annual meeting, a resolution was presented asking for Amazon to provide a report to shareholders as to how shareholder dollars are being spent to influence the political process, in particular dollars that are funneled through trade associations so that the source of the money remains hidden. More than a 1/3 of shareowners of Amazon considered both sides and chose not to support management on this issue. This year, the same shareholder refiled the same resolution on the topic of transparency of political spending. Despite the familiar topic, familiar shareholder, and significant support for this resolution last year, Amazon used shareholder dollars to hire outside counsel, which successfully used a technicality to keep this resolution from being considered by company owners this year. We consider this approach to an important issue to be most unfortunate.
We've subsequently had a good meeting on this issue with Michael Diehl and his team. It sounds as though management may have the opportunity to consider this issue in coming weeks. Given all the trouble that Target Store has gotten in over that company's political spending, and given widespread news coverage of Amazon's involvement in the political realm regarding the sales tax issue, and widespread concerns among citizens of the states involved that Amazon may be manipulating the political process for its own benefit, can you assure shareholders that Amazon will take a serious look at this issue and will take steps to protect our company's reputation by pledging to participate in the political realm in a fully transparent manner?
I think we are looking at that. If you're talking to Michael Diehl, you're certainly talking to the right person. I don't see any reason why we can't continue to talk about it. Amazon, as a company, doesn't make political contributions. We have a political action committee that does make contributions, and those are all publicly disclosed. I'm not familiar with the details of what you're talking about in terms of channeling through third- parties, but it seems like a reasonable discussion to have. We will certainly attempt to do what's right for shareholders as we see it.
Back to the tax issue, earlier you mentioned that some portion of the business was already subject to sales tax or its equivalent. I was curious if you could comment on that as either some percentage of customers or units or gross sales that it's currently subject to.
It's more than half, more than half.
Thank you.
You're welcome.
Hi. Your shareholder letter talks a lot about technology systems that you have to build, and a lot of interesting stuff. Great letter. How should we think of Amazon? Should we think of you as a technology company, an infrastructure company, an e-commerce company?
Yes. I mean that, I know it's done. I mean that in a non-flip way. Yes, we are all of those things. I think one of the, we've always been a heavy technology company. In fact, if you look at Internet companies and you just sort of make two lists, companies that won and companies that didn't win, the ones that are more likely to win in most cases have had strong technical underpinnings and have seen themselves as technology companies. Regardless of the fact that you can view them through a different lens and they're really providing consumer services, underneath those consumer services is very deep technical work. That's always been true of Amazon. In the last six years, as we've built Amazon Web Services, we've also become a company that provides technology. Now we sell technology, which really we hadn't done. We had been users of our own proprietary technology. Now we're actually on both sides of that. I like both sides of that.
Hi, Jeff. With fond memories of the days when we had stock splits frequently, I wonder if we're just going to forget that or still consider it.
In the general class of sort of corporate finance decisions, you know, we're always considering looking at different things and trying to figure out what the right thing to do is for shareholders. I don't have anything to say about a stock split or the possibility of one in the future. Other questions? Yeah. Oh, see me there.
You've talked about the long-term vision for Kindle. Can you speak some more about the short and intermediate-term strategies you expect to be using to move in the direction of that vision? What are the shortcomings in your offerings that you are focusing on improving at this point?
Our approach to electronic books, Kindle, is very straightforward. We've been clear about our strategy. We want to have the best purpose-built e-reader. We want to have the best e-book store. We want to have the best ecosystem so that you can read where you want to. If you think of it, it's a very unusual strategy. You can compare it to other companies where they don't necessarily want the other industries, music, video. They don't necessarily allow their digital content to be played on their competitors' devices. Our view on this is that we want people to buy Kindle books. We want the Kindle bookstore to be the best e-book store in the world. We want that.
The team that works on that needs to be motivated by knowing that that store is going to do well because it's the best bookstore, not because it happens to work well with the best hardware device. The team who make the Kindle device have to know that that device is going to do well because it's the best device. If you want to read your Kindle books on your Android phone or your iPhone or your iPad or your Android tablet or your PC or your Macintosh laptop, we have apps for all of those. We have significant teams working on advancing those apps and keeping them world-class so that you can read where you want. We invented this technology called Whispersync, which seamlessly synchronizes your reading location. You can read a few pages on your Android phone while you're in the grocery store line.
When you get back home, you pick up your Kindle, and it's right where you left off. That ecosystem approach, we think, is the right one. We think because, again, we're very simple-minded about this. It seems like what our customers would want.
Great. I look forward to hearing the actual vote totals from the matters that were considered today. I know that those numbers will be out in a few days. I do note that on page two of the proxy, it says that on shareholder proposals, abstentions "Will have the same effect as a vote against the matter." If a shareholder carefully considers an issue and chooses to mark the box to abstain, management effectively deletes that mark in the abstain box and makes a mark in the against box. This does not respect voter intent, and it's just wrong. Seattle-based Plum Creek Timber this year changed its bylaws to correct this problem. Will Amazon do the same?
Michelle, you want to take that one? I'm not familiar with this.
Sure. Thank you. The way that the voting works right now is, of course, in accordance with law, both corporate law and SEC regulations, and also in accordance with our bylaws. That is certainly something that we can consider and we'll look at. Thank you.
I would like to thank all of you for being supportive shareholders. Thanks for being a part of what we're doing. We are excited about continuing our mission to be Earth's most customer-centric company, setting a new standard there, and being a role model for other companies who would like to start with customers and work backwards. Thank you for taking the time to come to this meeting.