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Sunday, September 24, 2023
Sept. 24, 2023

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Amazon still adapting, CEO Andy Jassy tells shareholders


SEATTLE — Amazon CEO Andy Jassy is optimistic about the company’s future — but still probing parts of the business to determine what comes next.

In his annual letter to shareholders Thursday, Jassy told investors the sprawling business had “just scratched the surface” with some efforts, was in the “early stages of evolution” with others and was still ready to adapt in others.

Amazon Web Services, the company’s cloud-computing arm, is facing short-term headwinds as customers optimize their costs, Jassy said. Amazon’s network of fulfillment centers that get deliveries to customer doorsteps is facing rising costs as Amazon adjusts to an end to its explosive growth during the COVID-19 pandemic. And facing economic uncertainty, Amazon spent the past year evaluating each part of its business, resulting in the end of some projects and job cuts that have so far impacted 27,000 people.

On Thursday, Jassy said Amazon would “continue to evaluate what we’re seeing in our business and proceed adaptively.”

Looking toward the future, Jassy pointed to investments in machine learning, Amazon’s growing advertising business and expansion of its physical grocery footprint. He compared Amazon’s efforts in health care and satellite broadband in 2023 to its growth in AWS in 2003.

“While it’s tempting in turbulent times only to focus on your existing large businesses, to build a sustainable, long-lasting, growing company that helps customers across a large number of dimensions, you can’t stop inventing,” Jassy wrote.

Amazon in 2022

Amazon lost $2.7 billion in 2022, a year marked by drastic cost-cutting measures across the business. The company credits much of that loss to its investment in electric vehicle startup Rivian.

The cost-cutting measures started last March when Amazon closed its physical bookstores and 4-Star shops, where customers could find electronics, toys and home goods. In November, Amazon froze corporate hiring almost across the board. It also started job cuts then and has now announced more than 27,000 layoffs. The most recent round of job cuts is set to hit workers this month.

At the same time, the company faced heightened scrutiny of working conditions in its warehouses. State and federal safety regulators are investigating Amazon facilities after complaints from workers about safety conditions. Washington’s Department of Labor and Industries has cited and fined Amazon four times for safety violations at its warehouses in the state. OSHA has cited seven Amazon facilities around the country and issued nearly $122,800 in fines.

Amazon has appealed all of the state citations and plans to appeal the citations from federal safety regulators.

The Department of Justice is investigating whether Amazon executives knew about the safety hazards at its warehouses and misled others about the company’s safety record.

Jassy did not mention working conditions in Amazon warehouses in his letter to shareholders on Thursday.

Advertising and algorithms

On Thursday, Jassy said Amazon has switched its fulfillment centers from a national model to a regional-focused model in an effort to reduce costs and speed up deliveries.

AWS, meanwhile, is feeling the impact of “challenging, macroeconomic conditions” as other companies become more cautious, Jassy said. But customers are not cost-cutting, rather they are cost-optimizing, he wrote.

The cloud-computing division is “still in the early stages of its evolution,” he continued, and “has a chance for unusual growth in the next decade.”

Amazon Business — which offers office supplies and other products to big businesses, municipalities and other organizations — flies under the radar still but recorded $35 billion annualized gross sales, Jassy said. It’s an area where Amazon has “only scratched the surface of what’s possible,” he wrote.

Amazon’s advertising business continues to grow, Jassy said. Revenue increased 25% year over year in 2022 and 23% in the last quarter of the year.

He credited Amazon’s algorithms, machine learning and trove of customer data that help brands target advertisements.

“Unlike physical retailers, Amazon can tailor those sponsored products to be relevant to what customers are searching for given what we know about shopping behaviors and our very deep investment in machine learning algorithms,” he said.

As an example, Jassy pointed to Amazon’s advertising “clean room,” a secure digital environment where customers can gather insights on ad campaigns to tailor their broader strategy.

Amazon also has a lot of ways to reach customers — both digitally and physically — he continued. There’s an opportunity to “integrate advertising into our video, live sports, audio and grocery products,” he wrote.

Amazon’s grocery business

Meanwhile, Jassy said Thursday that Amazon will continue investing in its brick-and-mortar grocery business.

Earlier this year, Jassy and Chief Financial Officer Brian Olsavsky told investors the company was slowing expansion of two of its grocery offerings — Amazon Go convenience stores and Amazon Fresh grocery stores — as it re-evaluated its store format to find what worked best for customers. Amazon also operates Whole Foods stores after it acquired the grocery brand in 2017.

In February, the company opened an Amazon Go store in Puyallup, part of its push to bring its stores closer to customers in the suburbs. In March, Amazon shuttered eight other convenience stores, part of an assessment of its “portfolio of stores,” a spokesperson said at the time.

On Thursday, Jassy said Amazon aspires to “serve more of our customers’ grocery needs than we do today. To do so, we need a broader physical store footprint given that most of the grocery shopping still happens in physical venues.”

While Whole Foods is on “an encouraging path,” Jassy said Amazon is looking for a grocery format that it believes is “worth expanding broadly.” Amazon Fresh is the brand they have been experimenting with so far, he added. Jassy did not mention Amazon Go.

Future investments

Looking toward to the future, Jassy listed three areas where Amazon is investing heavily and optimistic about its growth: health care; satellite broadband and machine learning.

In 2022, Amazon shut down its own health care service, Amazon Care, after determining it wasn’t the right long-term solution for customers. In the same year, it bought primary care provider One Medical, as a “foundation” for its future in health care, Jassy said Thursday. Now, it is focused on working with One Medical to change what primary care looks like for customers, he continued.

Amazon is also focused on its low-Earth orbit satellite system, Project Kuiper, that is meant to deliver broadband internet services to places around the world that don’t currently have access. It plans to launch two prototype satellites this year and to be in beta with commercial customers in 2024.

When it comes to new ways to use machine learning, Amazon is focused on generative AI and language learning models, Jassy said.

Amazon has already used machine learning to personalize shopping recommendations for customers, power its delivery drone network and give voice to Alexa. Now, it expects generative AI (a new form of machine learning) and language learning models (which train that new machine learning) to “transform and improve virtually every customer experience,” Jassy wrote.

“I could write an entire letter on LLMs and Generative AI as I think they will be that transformative,” he continued. “Let’s just say that LLMs and Generative AI are going to be a big deal for customers, our shareholders and Amazon.”