1998 To our shareholders, customers, and employees: The last 3½ years have been exciting. We’ve served a cumulative 6.2 million customers, exited 1998 with a $1 billion revenue run rate, launched music, video, and gift stores in the U.S., opened shop in the U.K. and Germany, and, just recently, launched Amazon.com Auctions. We predict the next 3½ years will be even more exciting. We are working to build a place where tens of millions of customers can come to find and discover anything they might want to buy online. It is truly Day 1 for the Internet and, if we execute our business plan well, it remains Day 1 for Amazon.com. Given what’s happened, it may be difficult to conceive, but we think the opportunities and risks ahead of us are even greater than those behind us. We will have to make many conscious and deliberate choices, some of which will be bold and unconventional. Hopefully, some will turn out to be winners. Certainly, some will turn out to be mistakes. A Recap of 1998 Heads-down focus on customers helped us make substantial progress in 1998: • Sales grew from $148 million in 1997 to $610 million – a 313% increase. • Cumulative customer accounts grew from 1.5 million at the end of 1997 to 6.2 million at the end of 1998 – an increase of over 300%. • Despite this strong new customer growth, the percentage of orders placed on the Amazon.com Web site by repeat customers grew from over 58% in the fourth quarter of 1997 to over 64% in the same period in 1998. • Our first major product expansion, the Amazon.com music store, became the leading online music retailer in its first full quarter. • Following their October launch under the Amazon brand and with Amazon.com technology, the combined fourth-quarter sales in the U.K. and German stores nearly quadrupled over the third quarter, establishing Amazon.co.uk and Amazon.de as the leading online booksellers in their markets. • The addition of music was followed by the addition of video and gifts in November, and we became the leading online video retailer in only 6 weeks. • 25% of our fourth-quarter 1998 sales was derived from Amazon.co.uk, Amazon.de, and music, video, and gift sales on Amazon.com, all very new businesses. • We significantly improved the customer experience, with innovations like 1- SM Click shopping, Gift Click, store-wide sales rank, and instant recommendations.