Never waste a good crisis! The worldview according to Amazon CEO Andy Jassy
- The macro-economic climate is producing short-term headwinds, but innovation and change can win out, with AWS a case in point.
Companies are being more cautious in their tech spending, but Amazon CEO Andy Jassy remains upbeat in his assessment of prospects despite the current macro-economic uncertainties.
In his annual letter to shareholders, Jassy points to a 29% year-on-year growth rate, as well as to short-term headwinds. But he maintains:
While there were an unusual number of simultaneous challenges this past year, the reality is that if you operate in large, dynamic, global market segments with many capable and well-funded competitors (the conditions in which Amazon operates all of its businesses), conditions rarely stay stagnant for long.
In his 25 years at Amazon, he adds, he’s seen difficult periods come and go and the impact that they have had on the firm and its strategic and operational thinking:
There have also been times when macroeconomic conditions or operating inefficiencies have presented us with new challenges. For instance, in the 2001 dot-com crash, we had to secure letters of credit to buy inventory for the holidays, streamline costs to deliver better profitability for the business, yet still prioritized the long-term customer experience and business we were trying to build (if you remember, we actually lowered prices in most of our categories during that tenuous 2001 period).
You saw this sort of balancing again in 2008-2009 as we endured the recession provoked by the mortgage-backed securities financial crisis. We took several actions to manage the cost structure and efficiency of our Stores business, but we also balanced this streamlining with investment in customer experiences that we believed could be substantial future businesses with strong returns for shareholders.
But innovation can come despite - or perhaps because of - periods of pressure, he maintains:
Change is always around the corner. Sometimes, you proactively invite it in, and sometimes it just comes a-knocking. But, when you see it’s coming, you have to embrace it. And, the companies that do this well over a long period of time usually succeed.
AWS is a case in point as to why organizations shouldn’t pull back on investment even in tough economic times, he argues:
In 2008, AWS was still a fairly small, fledgling business. We knew we were on to something, but it still required substantial capital investment. There were voices inside and outside of the company questioning why Amazon (known mostly as an online retailer then) would be investing so much in cloud computing. But, we knew we were inventing something special that could create a lot of value for customers and Amazon in the future. We had a head start on potential competitors; and if anything, we wanted to accelerate our pace of innovation.
We made the longterm decision to continue investing in AWS. Fifteen years later, AWS is now an $85B annual revenue run rate business, with strong profitability, that has transformed how customers from start-ups to multinational companies to public sector organizations manage their technology infrastructure. Amazon would be a different company if we’d slowed investment in AWS during that 2008-2009 period.
That said, Amazon has taken a long hard look at its priorities in recent months and made some tactical and strategic changes. These have included no longer pursuing physical store concepts, such as Bookstores and 4 Star stores, and shuttering Amazon Fabric and Amazon Care. There have also been other moves focused on the bottom line, such as losing free shipping on online grocery orders over $35.
Internally, the pandemic-driven shift to remote working is no longer deemed the best approach and Amazon corporate employees now have to come into a physical office at least three days a week. Jassy explains:
We don’t think [home working] is the best long-term approach. We’ve become convinced that collaborating and inventing is easier and more effective when we’re working together and learning from one another in person. The energy and riffing on one another’s ideas happen more freely, and many of the best Amazon inventions have had their breakthrough moments from people staying behind after a meeting and working through ideas on a whiteboard, or continuing the conversation on the walk back from a meeting, or just popping by a teammate’s office later that day with another thought. Invention is often messy. It wanders and meanders and marinates. Serendipitous interactions help it, and there are more of those in-person than virtually. It’s also significantly easier to learn, model, practice, and strengthen our culture when we’re in the office together most of the time and surrounded by our colleagues.
As for what’s next for AWS, Jassy argues that the business is still early in its adoption curve, meaning that there’s plenty of opportunity ahead of it:
While some companies might obsess over how they could extract as much money from customers as possible in these tight times, it’s neither what customers want nor best for customers in the long term, so we’re taking a different tack. One of the many advantages of AWS and cloud computing is that when your business grows, you can seamlessly scale up; and conversely, if your business contracts, you can choose to give us back that capacity and cease paying for it. This elasticity is unique to the cloud, and doesn’t exist when you’ve already made expensive capital investments in your own on-premises data centers, servers, and networking gear.
In AWS, like all our businesses, we’re not trying to optimize for any one quarter or year. We’re trying to build customer relationships (and a business) that outlast all of us; and as a result, our AWS sales and support teams are spending much of their time helping customers optimize their AWS spend so they can better weather this uncertain economy. Many of these AWS customers tell us that they’re not cost-cutting as much as cost-optimizing so they can take their resources and apply them to emerging and inventive new customer experiences they’re planning.
It’s a case of never waste a good crisis as Jassy notes:
Many companies use discontinuous periods like this to step back and determine what they strategically want to change, and we find an increasing number of enterprises opting out of managing their own infrastructure, and preferring to move to AWS to enjoy the agility, innovation, cost-efficiency, and security benefits.
And of course, as is now compulsory, there’s a generative AI angle to what lies ahead for AWS. Jassy says:
Generative AI is based on very Large Language Models (trained on up to hundreds of billions of parameters, and growing), across expansive datasets, and has radically general and broad recall and learning capabilities. We have been working on our own LLMs for a while now, believe it will transform and improve virtually every customer experience, and will continue to invest substantially in these models across all of our consumer, seller, brand, and creator experiences.
Additionally, as we’ve done for years in AWS, we’re democratizing this technology so companies of all sizes can leverage Generative AI. AWS is offering the most price-performant machine learning chips in Trainium and Inferentia so small and large companies can afford to train and run their LLMs in production. We enable companies to choose from various LLMs and build applications with all of the AWS security, privacy and other features that customers are accustomed to using. And, we’re delivering applications like AWS’s CodeWhisperer, which revolutionizes developer productivity by generating code suggestions in real time.
I could write an entire letter on LLMs and Generative AI as I think they will be that transformative, but I’ll leave that for a future letter.
We have been warned!