Jeff Bezos warns Amazon will have 'multibillion-dollar failures'

  • In his annual letter to shareholders, Jeff Bezos warns that Amazon will "occasionally have multibillion-dollar failures."
  • Bezos mentions the creation of the Amazon Fire phone and Echo, which developed around the same time but only the Echo succeeded.
Jeff Bezos, president and CEO of Amazon and owner of The Washington Post, speaks at the Economic Club of Washington DC's "Milestone Celebration Dinner" in Washington, September 13, 2018.
Joshua Roberts | Reuters
Jeff Bezos, president and CEO of Amazon and owner of The Washington Post, speaks at the Economic Club of Washington DC's "Milestone Celebration Dinner" in Washington, September 13, 2018.

Amazon CEO Jeff Bezos warned on Thursday that the company will have large, failed experiments.

"Amazon will be experimenting at the right scale for a company of our size if we occasionally have multibillion-dollar failures," Bezos said in his annual shareholder letter. "We will work hard to make them good bets, but not all good bets will ultimately pay out."

As the company grows, he said, it only makes sense for their failures to grow at a larger scale. Bezos mentioned the creation of the Amazon Fire phone and Echo, which developed around the same time.

The former, he said, was a "failure." Amazon discontinued the phone in 2015 and took a $170 million write-off.

"(We) were able to take our learnings (as well as the developers) and accelerate our efforts building Echo and Alexa," Bezos said.

The annual letter has been published since 1997 and is often looked at for glimpses into the company's long-term plans. This year's focus was on the growth of third-party sellers, up 4% from last year in comparison to the company's first-party sales.

"We could not foresee with certainty what those programs would eventually look like, let alone whether they would succeed, but they were pushed forward with intuition and heart, and nourished with optimism," Bezos said.

Amazon has plans to increase its reach into new sectors like health care, health insurance, internet delivery from outer space and even consumer robotics. Bezos' letter seems to be a warning that not all of these big bets will work out.

Amazon's new brick-and-mortar stores were mentioned too, as Bezos wrote the company had to "imagine the impossible."

The stores, which allow customers to walk in, pick items and leave without checking out in a line, has paid off so far, he said, adding customers have called the current 10 stores "magical."

Bezos also challenged other retailers to increase their minimum wage to $15 per hour.

"Better yet, go to $16 and throw the gauntlet back at us. It's a kind of competition that will benefit everyone," he said, challenging his unnamed competitors.

The company raised its wages last November to benefit more than 250,000 employees and about 100,000 seasonal workers. Amazon is largely challenged today in the U.S. by Walmart and Target, who have been making strides in pay.

Last week, Target announced it is raising its wage to $13 an hour. Walmart's minimum wage was set last year at $11 an hour.

Amazon is also looking forward to future potential employees. The company pledged $50 million to support STEM and computer science education, hoping to attract more girls and minorities to the field. The company also pledged to hire 25,000 veterans and military spouses in the next two years.

"We strongly believe that this will benefit our business as we invest in our employees," Bezos said.

You can read the full letter here.