Amazon's new cloud chief takes over business at crossroads over AI

“Generative AI is still in its infancy,” said Jassy, ​​who succeeded Jeff Bezos as CEO in 2021. “It has huge potential, we are investing heavily in this and we expect to be a leader.”

Things quickly slowed down for Selipsky, who took over AWS when Jassy was promoted.

In the biggest change of Jassy's tenure, Amazon announced last week that Selipsky, 57, will be leaving AWS to be replaced by Matt Garman, 48, a veteran AWS executive who most recently led sales and marketing. announced that.

The problem for Selipsky, and the challenge for Garman, is that even though Amazon has poured billions of dollars into OpenAI competitor Anthropic and is rolling out its own large-scale language models (LLMs), it still generates It has not emerged as a leader in AI. The company is battling the perception in the developer world and among startups that it is not only lagging behind OpenAI in developing AI tools, but also behind cloud rivals Microsoft and Google. There is.

After years of rapid expansion, AWS' growth rate slowed to 13% in 2023, down from 37% in 2021 and 29% in 2022, reflecting more modest enterprise spending on IT and cloud services. Amazon has been reducing its overall size since last year, including making at least two rounds of job cuts at AWS.

AWS remains the cloud infrastructure leader, but Microsoft is quickly closing the gap: AWS' market share fell to 31% in the first quarter of this year from 32% three years ago, according to Canalys, while Microsoft Azure jumped from 19% to 25% in 2021. Google is also growing its share, increasing from 7% to 10% at the start of 2021.

Over the past few quarters, Microsoft has cited a surge in demand for its 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.

Mr. Luria said that Mr. Garman's selection as chief executive was a result of “Mr. Jassy, ​​and perhaps Mr. Bezos, believing that Mr. Garman was the person who could best contribute to Amazon's lead acquisition and even to their own lead. “This shows that the market is growing rapidly,'' he said, recommending buying Amazon stock.

A source close to Amazon, speaking on condition of anonymity because he is not authorized to speak on the matter, told CNBC that Garman is a “wartime” leader who says changes are needed to make AI more aggressive. He said that.

In a staff memo announcing the move, Jassy said that when they discussed the role years ago, they agreed that Selipsky would “probably do it for a few years and that one of the things I would focus on during that time would be helping prepare the next generation of leadership.”

AWS spokesperson Casey McGee told CNBC in a statement that Selipsky is 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 services across the board.”

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.

Last week, OpenAI announced GPT-4o, a faster model with improved text, video, and audio capabilities. Google followed suit the next day at its developer conference, announcing its lightest and most efficient AI model. And this week, Microsoft announced new computers with advanced chips designed to run AI functions in Windows.

During a Q&A session on Wednesday, Jassy was asked twice about the status of Amazon's generative AI efforts, and he said the company is “seeing a lot of momentum” with generative AI within AWS, which he said has now grown into a multi-billion dollar business based on annual revenue.

He reminded shareholders that Amazon owns Alexa, which was a popular consumer product long before the latest chatbots hit the market.

“If you don't believe that truly pervasive personal assistants are on the way, you're not even thinking about them at all,” Jassy said, adding that the company is building a “more extensive” AI model to power Alexa. Amazon has previously said it intends 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 the CEO role from Bezos, many speculated that Garman would be named CEO of AWS. Instead, Amazon chose Mr. Selipsky, who previously worked at Amazon for 11 years and at the time at Salesforce, where he ran Tableau Software.

Shortly after the transition, the economy turned against AWS. Inflation began to surge and interest rates rose steadily, forcing the company into capital conservation mode. By mid-2022, Amazon was telling investors it was “ready to help customers optimize their costs” due to the economic challenges they were facing. AWS acknowledged that it was accepting a short-term hit to revenue in order to maintain long-term relationships with customers.

Then ChatGPT appeared. Backed by Microsoft, OpenAI released a chatbot in November 2022 and watched it take off. A few months later, Microsoft invested another billion in OpenAI and made it the company's exclusive cloud partner, giving Amazon's biggest cloud rival a new competitive advantage.

Over the past year, Jassy has been learning about Amazon's opportunities in generative AI, both in providing automation services to advertisers and sellers, and in providing technology within AWS to run advanced models and workloads. He spoke passionately.

The company also boasts about the success of AWS' Trainium and Inferentia chips, which Anthropic uses to build and train models, a process often run on Nvidia graphics processing units. .

“I don't know if anybody has seen this kind of potential in technology for a really long time, certainly 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.

AWS took several months to announce 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 LLM from Anthropic.

Last year, Amazon released a chatbot for businesses called Q. An AWS employee who used Q told CNBC that he found the chatbot overwhelming, especially since it responded to queries with information that wasn't particularly relevant or valuable. The employee asked not to be identified because he wasn't authorized to speak on the matter.

AWS said its Q chatbot has garnered attention among a wide range of customers, including Accenture, Toyota, GoDaddy and GitLab. Bedrock, which allows users to access AI models from the likes of Amazon, now has tens of thousands of customers and partners, the company said.

The week before his departure, Selipsky made several changes to the Q team. He will oversee “the Amazon Q Business suite of services,” according to a memo to employees seen by CNBC, along with Dilip, a longtime Amazon executive who helped develop and launch cashierless checkout technology. Kumar has been nominated. Kumar will report to Swami Sivasubramanian, his vice president of AI and data at AWS.

A former AWS employee, who asked for anonymity to discuss private matters, said the company has restricted some staff from using AI services such as the software tool SageMaker and data visualization tool QuickSight for work internally, citing security reasons. The technique, known as dogfooding, is commonly used by software companies to allow employees to test products and services for bugs and 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 all the AI ​​challenges, Wall Street continues to rally around Amazon, which last month reported better-than-expected first-quarter results, with operating profits up more than 200%. AWS revenue increased by 17%, a slight acceleration from 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 owns Amazon shares, said he saw a change in AWS's leadership as a “natural progression,” adding that Gurman “has always been considered the successor.”

“AWS has always been focused on investing in growth,” Myers said, and that strategy is unlikely to change under Garman.

Garman is considered highly skilled within the company and is respected among engineers. Another former AWS employee said that when Jassy selected Garman to lead his AWS sales organization in 2020, he wanted someone who was a technical leader and someone who “knew everything inside and out.” He says he was looking for it. Garman's appointment to the role was widely seen within the company as a step in preparing 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 look forward to watching Matt and his outstanding AWS leadership team continue to shape our future,” said Jassy. “AWS is just the beginning.”

—CNBC's Jordan Nove 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. The previous version had an error in the description of that day.