2016: How will Amazon affect other companies?

AUDIENCE MEMBER: Greetings to all of you from the Midwest of Europe. I’m Norman Rentrop from Bonn, Germany, a shareholder since 1992.

My question is about the future of salesmanship in our companies.

Warren, you have always demonstrated a heart for direct selling. When we met you in the midst of a tornado warning, in the barbershop, you immediately offered to write insurance for us. (Laughter)

WARREN BUFFETT: That’s true. They were all huddled down there in the barbershop. There wasn’t going to be any tornadoes, so I told them they give me a dollar, I’d — they can go upstairs and if anything happened to them I’d pay them — I forget — a million dollars, or something of the sort. (Laughter)

AUDIENCE MEMBER: Now we see with the rise of Amazon.com and others a shift from push marketing to pull marketing. From millions of catalogs having been sent out in the past, to now consumers searching on what they are looking for.

What is your take on how this shift from push to pull marketing will affect our companies?

WARREN BUFFETT: Well, Norman, the development you refer to is huge. I mean, really huge.

And it isn’t just Amazon, but Amazon is a huge part of it and what they’ve accomplished, in a fairly short period of time, and continue to accomplish, is remarkable. The number of satisfied customers they’ve developed and —

We don’t make any decision involving even the manufacturing of goods, the retailing, whatever it is, without thinking long and hard about what the world will look like in five or 10 or 20 years with that powerful trend — really hugely powerful trend — that you just described.

So, we’re not — we don’t look at that as something where we’re going to try and beat them at their own game, you know. They’re better than we are at that. And so, Charlie and I are not going to out-Bezos Bezos, by a long shot.

But we are going to think about that.

It does not worry us, obviously, with Precision Cast — it doesn’t worry us, in terms of the overwhelming majority of our businesses.

But it is a huge economic trend that, 20 years ago, was not on anybody’s radar screen, and lately, has been on everybody’s radar screen. And many of them have not — and including us, in a few areas — have not figured the way to either participate in it or to counter it.

GEICO’s a good example of a company in an industry that had to adjust to change, and some people made the change better than others.

We were slow on the internet. The phone had worked so well for us, you know, this traditional advertising, and the phone had worked so well, you know, there’s always a resistance to think about new possibilities.

When we saw what was happening on the internet, we jumped in with both feet and you know, with mobile and whatever. But — but there are — capital — the nature of capitalism is somebody’s always trying to figure — if you’ve got some good business — they’re always trying to figure out how to take it away from you and improve on it.

And the effect — I would say just of Amazon, but others that are playing the same game — the effect on industry — the full effect — is far from having been seen.

I mean, it is a big, big force and it will — it already — has disrupted plenty of people and it will disrupt more.

I think Berkshire is quite well situated. For one thing, one big advantage we have is we didn’t ever see ourselves as starting out in one industry. I mean, we didn’t go into — we went into department stores — but we didn’t think of ourselves as department store guys, or we didn’t think of ourselves as steel guys, or tire guys, or anything of that sort.

So we’ve thought of ourselves as having capital to allocate. If you start with a given industry focus and you spend your whole time working on a way to make a better tire, or whatever it may be, I think it’s hard to have the flexibility of mind that you have if you just think you have a large — hopefully large — and growing pile of capital, and trying to figure out what is the best — next — best next move that you can make with that capital. And I think we do have a real advantage that way.

But I think — I think the fellow that — I think Amazon’s got a real advantage, too, in this intense focus on having, you know, hundreds of millions of, generally, very happy customers getting very quick delivery of something that they want to get promptly, and they want to shop the way they shop.

And if I owned a bunch of shopping malls, or something like that, that would be — I’d be thinking plenty hard about what they might look like 10 or 20 years from now.

Charlie?

CHARLIE MUNGER: Well, I would say that we failed so thoroughly in retailing when we were young that we pretty well avoided the worst troubles when we were old.

I think, net, Berkshire has been helped by the internet. The help at GEICO has been enormous. And it’s contributed greatly to the huge increase in market share.

And our biggest retailers are so strong that they’re — they’ll be among the last people to have troubles from Amazon.

WARREN BUFFETT: I didn’t get that dollar from you, Norman, actually that — after I gave you that wonderful advice.