In May 2023, an attendee at Amazon’s annual shareholder meeting asked CEO Andy Jassy about the company’s innovations in generative artificial intelligence. OpenAI’s ChatGPT had gone viral, and all of the major tech companies were hurrying to release new products to compete in the growing world of chatbots and picture producers.
Jassy reacted to the question by praising Amazon Web Services, the cloud operation he helped start 17 years ago and later turned into the company’s primary earnings generator. According to Jassy, AWS, led by Adam Selipsky, is building its own AI products and has the ability to provide essential infrastructure for other companies creating AI services.
“It’s very early days in generative AI,” said Jassy, who will succeed Jeff Bezos as CEO in 2021. “It’s very high potential, and we’re investing quite a bit in it and expect to be a leader.”
Selipsky, who took over AWS when Jassy was promoted, found himself working late.
In the most dramatic shake-up of Jassy’s tenure, Amazon said last week that Selipsky, 57, would leave AWS and be succeeded by Matt Garman, 48, a seasoned AWS executive who formerly managed sales and marketing.
The problem for Selipsky and the challenge for Garman is that Amazon has yet to emerge as a leader in generative AI, despite investing billions of dollars in OpenAI competitor Anthropic and developing its own large language models, or LLMs. The business faces criticism from developers and entrepreneurs for trailing behind cloud rivals Microsoft and Google, as well as OpenAI in AI tool development.
Following years of strong increase, AWS growth slowed to 13% in 2023, down from 37% in 2021 and 29% in 2022, reflecting businesses’ more conservative expenditure on IT and cloud services. Amazon has shrunk across the board, with at least two rounds of layoffs at AWS since last year.
AWS is the market leader in cloud infrastructure, but Microsoft is rapidly closing the gap. According to Canalys, AWS’ market share fell to 31% in the first quarter of this year, down from 32% three years ago, while Microsoft Azure increased its market share to 25% from 19% by 2021. Google is likewise increasing its market share, now accounting for 10%, up from 7% in early 2021.
In recent quarters, Microsoft has highlighted increased demand for AI products as a factor for its growth.
D.A. Davidson analyst Gil Luria told CNBC that Amazon was “caught flat-footed” by the generative AI explosion.
“It allowed Microsoft Azure to run laps around them, which should not have happened, and there was ultimately a price to pay for that,” Luria added, alluding to Selipsky’s departure.
Garman’s selection for the top position “indicates Mr. Jassy and perhaps Mr. Bezos believe he’s the person most likely to help Amazon close the lead and maybe establish a lead of their own,” said Luria, who advocates buying Amazon shares.
‘Next Generation of Leadership’
A person close to Amazon, who asked not to be identified because they were not permitted to comment on the topic, described Garman to CNBC as a “wartime” commander and stated that change was required to become more aggressive in AI.
In a staff memo announcing the transfer, Jassy stated that he and Selipsky agreed years ago, while considering the post, that Selipsky would “likely do it for a few years, and that one of the things he’d focus on during that time was helping prepare the next generation of leadership.”
Casey McGee, an AWS representative, told CNBC that Selipsky will leave the cloud division in a “strong position.”
“The growth, innovation, and profitability of AWS over the past three years speaks for itself, with AWS producing more absolute dollar growth quarter-over-quarter by our numbers so far this year than any other cloud provider,” McGee stated. He stated that AWS leads in security, reliability, and the “overall breadth and depth of our services.”
Amazon’s annual shareholder meeting, held remotely Wednesday, came at a critical time. It took place just days following Selipsky’s departure and was overshadowed by AI-focused events at major tech corporations.
Last week, OpenAI unveiled GPT-4o, a faster model with enhanced text, video, and audio capabilities. Google followed a day later at its developer conference, introducing the company’s lightest and most efficient AI models. This week, Microsoft unveiled new laptops with advanced CPUs meant to run AI features in Windows.
During a Q&A session on Wednesday, Jassy was asked twice about the state of Amazon’s generative AI projects. He stated that the company is “seeing a lot of momentum” in generative AI within AWS, which has grown to become a multibillion-dollar industry in terms of annualized revenue.
He reminded shareholders that Amazon has Alexa, a popular consumer offering that existed long before the latest chatbots entered the market.
“If you don’t believe there’s going to be a really broad personal assistant, you have your head in the sand,” Jassy said, adding that the business is developing a “much more expansive” AI model to power Alexa. Amazon has already stated that it plans to employ generative AI to make Alexa more conversational. CNBC reported on Wednesday that Amazon intends to levy a membership fee for the more powerful version.
Garman joined Amazon as an intern in 2005 and was employed full-time the following year as an early product manager in AWS, working on the core computing service known as EC2. In 2020, he was promoted to senior vice president, responsible for sales, marketing, and worldwide services.
After Amazon revealed that Jassy would succeed Bezos as CEO in 2021, many believed that Garman would be chosen CEO of AWS. Amazon chose Selipsky, who had previously worked at Amazon for 11 years but was currently overseeing Salesforce’s Tableau Software.
Rough patch.
Shortly after the transition, the economics swung against Amazon Web Services. Inflation began to accelerate, resulting in a continuous rise in interest rates and putting enterprises into capital preservation mode. By mid-2022, Amazon had informed investors that it was “prepared to help customers optimize their costs” in response to the economic issues they were facing. AWS stated that it will take a short-term revenue impact to protect customer relationships in the long run.
Next came ChatGPT. OpenAI, supported by Microsoft, launched the chatbot in November 2022 and watched it become viral. Months later, Microsoft spent billions more in OpenAI and became its exclusive cloud partner, providing Amazon’s primary cloud rival a new competitive advantage.
Over the last year, Jassy has spoken about Amazon’s prospects in generative AI, both in terms of offering automated services to marketers and sellers and in terms of providing technology within AWS for running advanced models and workloads.
Anthropic uses AWS’ Trainium and Inferentia chips for model building and training, which is typically done on Nvidia GPUs.
“I don’t know if any of us has seen a possibility like this in technology in a really long time, for sure since the cloud, perhaps since the internet,” Jassy said during the company’s first-quarter results call in April, referring to generative AI.
But seizing that chance is proving to be a significant challenge.
AWS took months to develop an AI model that could compete with ChatGPT. The company currently offers both its own and third-party LLMs, including one from Anthropic, which Amazon sponsored.
Last year, Amazon launched Q, a chatbot for enterprises. An AWS employee who used Q told CNBC that it felt underwhelming since the chatbot would react to requests with information that was neither relevant nor meaningful. The employee requested anonymity since he was not authorized to comment on the topic.
AWS claimed its Q chatbot is growing popularity among a variety of customers, including Accenture, Toyota, GoDaddy, and Gitlab. Bedrock, which provides users with access to AI models from Amazon and other companies, now has tens of thousands of customers and partners, the business said.
Last year, Amazon launched Q, a chatbot for enterprises. An AWS employee who used Q told CNBC that it felt underwhelming since the chatbot would react to requests with information that was neither relevant nor meaningful. The employee requested anonymity since he was not authorized to comment on the topic.
AWS claimed its Q chatbot is growing popularity among a variety of customers, including Accenture, Toyota, GoDaddy, and Gitlab. Bedrock, which provides users with access to AI models from Amazon and other companies, now has tens of thousands of customers and partners, the business said.
A former AWS employee, who asked not to be identified in order to discuss private topics, stated that the business has blocked some employees’ access to utilize AI services such as its software tool SageMaker and data visualization tool QuickSight for internal work, citing security concerns. The approach, known as dogfooding, is widely employed in software firms to allow employees to test products and services for flaws and offer changes.
AWS stated that all applications made available to employees are subject to a security review, but it denied that it has limited employees’ usage of Amazon’s AI technologies.
Despite its AI issues, Wall Street remains bullish on Amazon, which last month announced better-than-expected first-quarter profits and a more than 200% gain in operating income. AWS sales increased by 17%, a modest acceleration from previous quarters.
Amazon shares are up 21% this year, outperforming the Nasdaq’s 12% rise, after rising 81% in 2023. Earlier last month, the stock reached a record high.
Jamie Meyers, a senior investment analyst at Laffer Tengler Investments, which holds Amazon stock, described the AWS leadership change as a “natural progression,” adding that Garman has “always been looked at as a successor.”
“AWS has always been about investing in growth,” Meyers noted, and he believes this strategy will not alter under Garman.
Garman is regarded internally as highly technical and well-respected among engineers. When Jassy chose Garman to manage the AWS sales department in 2020, he was looking for a technical leader and someone who “knew everything inside out,” according to another former AWS employee. Garman’s selection to the position was largely viewed internally as a step toward preparing him to manage AWS, the source noted.
In his message to staffers last week, Jassy mentioned Garman’s past “on both the product and demand generation sides” of AWS, stating that he had “an unusually strong set of skills and experiences for his new role.”
“I’m excited to see Matt and his outstanding AWS leadership team continue to invent our future,” Jassy stated. “It’s still such early days in AWS.”
— CNBC’s Jordan Novet and Kate Rooney contributed to this story.
CNBC reported Wednesday that Amazon intends to charge a subscription fee for a more capable version of Alexa. An earlier version incorrectly stated the day.
