This article was originally published on Forbes.com
A Finance Leader Looks Back at a Game-Changing Decision
Inside the conference rooms of 21st-century businesses, few strategy debates have led to a decision as impactful as the one Amazon.com made in 2001.
In the wake of the dot-com crash, members of Amazon’s fledgling financial planning and analysis, or FP&A, team became locked in a debate concerning customer shipping fees. Namely, whether the online retailer should do away with them completely.
“It’s hard to imagine Amazon today without Prime or without free shipping,” says Jason Child, a former Amazon FP&A executive whose team ultimately paved the way for Amazon’s free shipping. Child remembers his involvement in Amazon’s formative years and uses those experiences to impress on his current FP&A analysts the importance of the work. “That’s the impact that we can have in FP&A,’” explains Child, who today is chief financial officer of Splunk, a fast-growing software developer that specializes in monitoring and analyzing machine-generated data.
Child first joined Amazon in 1999 as a corporate controller before migrating to the company’s FP&A team. He would later serve in a number of finance leadership roles before leaving the company after a dozen years. Since his stint at Amazon, Child has occupied the CFO office at multiple companies, including Groupon—where less than a year after his arrival, the company would raise $700 million in an initial public offering, the second-biggest tech IPO in history at the time, behind Google’s $1.7 billion IPO in 2004.
Amazon immediately springs to mind for Child when he lists career milestones. The online retailer grew into a colossus during his 12-years there, with annual revenue jumping from roughly $1 billion (1999) to $50 billion (2011) while its workforce exploded from about 5,000 employees to more than 100,000 within two years of his departure.
Child remembers that it was in 2001 when the shipping debate emerged.
“My group was tasked with evaluating the impact of free shipping,” explains Child. “What we found was that with free shipping, we were effectively giving only a 10% discount, but the resulting growth was two times higher than if we had given a 10% discount.”
This realization led Amazon to explore how it could offer free shipping to its customers all the time. One obstacle was the “cannibalization” of existing revenue from customers who were not deterred by shipping fees and were willing to pay them. This snag led to a number of smaller meetings attended by Amazon’s leader Jeff Bezos, in which Child introduced additional analysis on the cannibalization concern. Child recalls that Bezos was frustrated by the puzzle until another finance executive spoke up and suggested offering free shipping with a five day delay.
By comparing the “5-day delay” concept to “the Saturday night stay” tactic used by airlines to attract lower-fare consumers, Amazon’s FP&A team began to achieve some traction. “People who want something in 2 days are going to pay for it, but everyone who wants free shipping will get their stuff in 5 days,” says Child, who describes the 2001 shipping fees debate as foundational for the Amazon Prime program and Amazon’s explosive growth. Child also remembers the period as providing the basis for his future CFO career. After little more than 2 years as a corporate controller, he joined the FP&A team and was assigned to the marketing department.
The strategy of embedding finance executives inside functional groups—while not unusual inside large businesses—was not as common inside smaller firms, where finance talent is often sparse. But Amazon, from its earliest days, sought to embed finance analytical skills inside various departments—a move that Child believes ensured the organization focused on future growth instead of short-term gains.
“Just being thrown into this environment where you had to learn and think about growth and how to build systems and processes that can grow 10 times bigger than they were at the time—this was a mind-set that I had not been exposed to before and that helped me to prepare for the next 20 years of my career,” explains Child, whose tenure inside the marketing department allowed him to collaborate with a number of Amazon’s leaders, including Andy Jassy, the current CEO of Amazon Web Services.
“I had never met people like this before, and it was just a fantastic environment in which to really learn and develop,” says Child, who also characterizes his early years at Amazon as the time when the elements of low prices, increased selection and fast delivery coalesced to become Amazon’s “flywheel” effect—where each element starts to gain momentum and together accelerate growth.
Child’s deployment inside marketing, however, didn’t seem advantageous at the time. “There was the dot-com crash, and the capital markets just shut down. People don’t remember, but Amazon was struggling to figure out how to grow back then,” says Child, who recalls Bezos’ mantra that “constraint drives innovation” and watched the idea take root across the organization. – Jack Sweeney