Attendees at Amazon Web Services’ Reinvent conference walk through an exhibit hall at the Venetian on Nov. 29, 2022 in Las Vegas.
Noah Berger | Getty Images Entertainment | Getty Images
May 2023, Amazon CEO Andy Jassy was asked by attendees at the company’s annual shareholder meeting how the company was innovating in the field of generative artificial intelligence. OpenAI’s ChatGPT had gone viral, with big tech companies rushing to release products to compete in the emerging field of chatbots and image generators.
Jassy answered the question by touting Amazon Web Services, the cloud division he helped launch 17 years ago and that eventually became the company’s main source of revenue. Jassy said AWS, under the direction of Adam Selipsky, is developing its own AI products and could provide critical infrastructure for other companies developing AI services.
“We’re still in the early stages of generative AI,” said Jassy, who succeeded Jeff Bezos as CEO in 2021. “We think it has huge potential, we’re investing heavily in it, and we expect to be a leader.”
The days quickly slowed for Selipsky, who took over at AWS following Jassy’s promotion.
In its most significant personnel change under Jassy’s tenure, Amazon announced last week that Selipsky, 57, was leaving AWS and would be replaced by Matt Gurman, 48, a veteran AWS executive who most recently led sales and marketing.
The problem for Selipsky, and the challenge for Gurman, is that Amazon has yet to emerge as a leader in generative AI, despite pouring billions into OpenAI rival Antropic and rolling out its own large language models (LLMs). In the developer world and among startups, the company is battling the perception that it is lagging behind its cloud rivals. Microsoft and GoogleIt also lags behind OpenAI in the development of AI tools.
After years of rapid expansion, AWS growth is expected to slow to 13% in 2023, down from 37% in 2021 and 29% in 2022, reflecting more conservative enterprise spending on IT and cloud services. Amazon has been downsizing across the board, including implementing at least two rounds of job cuts at AWS since last year.
AWS remains the cloud infrastructure leader, but Microsoft is rapidly closing the gap: AWS market share fell to 31% in the first quarter of this year from 32% three years ago, while Microsoft Azure has surged to 25% from 19% in 2013. 2021according to CanalisGoogle has also been gaining share, increasing its market share from 7% at the beginning of 2021 to 10%.
Over the past few quarters, Microsoft has cited surging demand for AI tools as a driver of its momentum.
DA Davidson analyst Gil Luria told CNBC that Amazon was “caught off guard” by the generative AI boom.
“They allowed Microsoft Azure to overtake them, which should not have happened, and they ended up paying the price,” Luria said of Selipsky’s departure.
Luria said Gurman’s selection as executive “suggests that Jassy, and likely Bezos, believe Gurman is the person best able to help Amazon gain a lead and, ultimately, establish a lead for themselves,” and recommended buying Amazon shares.
“Next Generation Leadership”
A source close to Amazon, who spoke on condition of anonymity because they were not authorized to discuss the matter, described Gurman as a “wartime” leader and said changes were needed to take a more aggressive approach to AI.
In a staff memo announcing the changes, Jassy said that when he discussed the role with Selipsky several years ago, they agreed that Selipsky “would likely serve for several years while focusing on developing the next generation of leaders.”
AWS spokesperson Casey McGehee said in a statement to CNBC that Selipsky was leaving the cloud division in a “position of strength.”
“AWS’ growth, innovation and profitability over the past three years speaks for itself as AWS has achieved more absolute quarterly dollar growth than any other cloud provider so far this year,” said McGehee, who noted that AWS leads in security and reliability, as well as “the breadth and depth of its overall services.”
Amazon Web Services CEO Adam Selipsky spoke with Anthropik CEO and co-founder Dario Amodei at AWS re:Invent 2023, a conference hosted by Amazon Web Services, held at the Venetian Las Vegas on November 28, 2023 in Las Vegas.
Noah Berger | Getty Images
Amazon’s annual shareholder meeting, held virtually on Wednesday, came at a volatile time: It came just days after Selipsky’s departure and was overshadowed by AI-focused events from other big tech companies.
During Wednesday’s question-and-answer session, Jassy was asked twice about the current state of Amazon’s generative AI efforts, and he said the company is seeing significant momentum for generative AI within AWS, making it a multibillion-dollar business in annual revenue.
He reminded shareholders that Amazon owns Alexa, which was a popular product with consumers long before the latest chatbots hit the market.
“If you don’t believe that a truly broad personal assistant is on the way, you’re missing the point,” Jassy said, adding that the company is building a “much broader” AI model to power Alexa. Amazon has previously said it plans to use generative AI to make Alexa more conversational. CNBC reported Wednesday that Amazon plans to charge a subscription fee for the more powerful version.
Gurman joined Amazon as an intern in 2005 and was hired full-time the following year as one of the company’s early product managers for AWS, working on a core computing service called EC2. In 2020, he was promoted to senior vice president, overseeing sales, marketing and global services.
After Amazon announced in 2021 that Jassy would take over from Bezos as CEO, many speculated that Gurman would be named AWS CEO, but Amazon instead chose Selipsky, who had worked at Amazon for 11 years. Salesforce Tableau Software at the time.
Challenging times
Shortly after the transition, the economy turned against AWS. Inflation began to surge and interest rates steadily rose, forcing the company into capital conservation mode. By mid-2022, Amazon was telling investors that it was “ready to help customers optimize their costs” due to the economic challenges they were facing. AWS acknowledged that it was taking a short-term revenue hit to maintain customer relationships for the long term.
And then there’s ChatGPT. Microsoft-backed OpenAI will release the chatbot in November 2022. It made headlines. A few months later, Microsoft invested another billion dollars in OpenAI and became the company’s exclusive cloud partner, giving Amazon’s biggest cloud rival a new competitive advantage.
Over the past year, Jassy has spoken enthusiastically about Amazon’s opportunity in generative AI, both in providing automation services to advertisers and sellers and in providing the technology within AWS to run advanced models and workloads.
The company also boasted about the success of AWS’ Trainium and Inferentia chips, which Anthropic uses to build and train its models, which are often NVIDIA Graphics processing unit.
“I don’t know if we’ve seen anything like this in the technology space in a long time, since the cloud, maybe since the internet,” Jassy said of generative AI during the company’s first-quarter earnings call in April.
But realizing that opportunity has proven to be a major hurdle.
It took AWS several months to roll out an AI model capable of competing with ChatGPT, and the company now offers its own LLMs as well as third-party LLMs, including the Amazon-backed Anthropic LLM.
Last year, Amazon released a business chatbot called Q. An AWS employee who used Q told CNBC that he found the chatbot disappointing because it responded to inquiries with information that wasn’t particularly relevant or valuable. The employee, who requested anonymity because he wasn’t authorized to speak about the matter, said.
AWS said its Q chatbot has proven popular among a wide range of customers, including Accenture, Toyota, GoDaddy and GitLab. Bedrock, which gives users access to AI models from Amazon and others, now has tens of thousands of customers and partners, the company said.
A week before his resignation, Selipsky made some changes to the Q team. He appointed Dilip Kumar, a longtime Amazon executive who helped develop and launch the company’s cashierless checkout technology, to oversee the “Amazon Q Business service,” according to a memo to employees seen by CNBC. Kumar will report to Swami Sivasubramanian, AWS’ vice president of AI and data.
A former AWS employee, who spoke on condition of anonymity to discuss a private matter, said the company restricts some employees from using AI services such as the software tool SageMaker and data visualization tool QuickSight in their work for security reasons. The practice, known as dogfooding, is common at software companies, where employees test products and services for bugs to help improve them.
AWS said all applications provided to employees are subject to security reviews, but denied allegations that it restricted employees’ use of Amazon’s AI tools.
Despite the AI-related challenges, Wall Street continues to favor Amazon, which last month reported better-than-expected first-quarter results and an operating profit increase of more than 200%. AWS revenue rose 17%, a more moderate increase compared to the past few quarters.
Amazon shares have risen 21% this year and are on track to rise 81% in 2023, outpacing the Nasdaq’s 12% gain. The stock hit a record high earlier this month.
Jamie Myers, a senior investment analyst at Laffer Tengler Investments, which holds Amazon shares, said the leadership transition at AWS was a “natural progression”, adding that Gurman “was always seen as the successor”.
“AWS has always placed a premium on investing in growth,” Myers said, adding that that strategy is unlikely to change under Gurman.
Gurman is considered highly technical within the company and is respected among engineers. When Jassy selected him to head AWS’ sales force in 2020, he was looking for a technical leader who “knows everything,” said another former AWS employee. Gurman’s appointment to the role was widely seen within the company as a step to prepare him to lead AWS, the person added.
In a memo to employees last week, Jassy cited Gurman’s background “on both the product and demand generation sides” at AWS and said he has “exceptional skills and experience that are uniquely suited to this new role.”
“I’m excited to watch Matt and his incredible AWS leadership team continue to shape our future,” Jassy said. “AWS is just getting started.”
—CNBC’s Jordan Novett and Kate Rooney contributed to this report.
Correction: CNBC reported Wednesday that Amazon plans to charge a subscription fee for a more powerful version of Alexa. An earlier report had the wrong date.
