If you’ve heard anything about Amazon CEO Andy Jassy’s annual shareholder letter, chances are it was his prediction that AI could become the biggest tech development since the internet itself. But it’s what he said elsewhere in his nearly 5,500-word letter that really got our attention. Let’s see what the world’s second-largest retailer have in store (in about 5,000 fewer words).
“Shovels” ’n’ More. About that AI prediction. While AWS is the world’s largest cloud provider, AWS and Amazon overall have not kept up with big tech rivals on AI. Jassy himself wrote that “the vast majority” of new AI applications that could “transform virtually every customer experience that we know (and invent altogether new ones as well)” “will ultimately be built by other companies.”
Wait. Amazon, of all companies, is heralding the future of a technology (1) that they’re getting beat on and (2) for which they have no plans to dominate? That doesn’t sound very Amazonian.
Except it is, because “much of this world-changing AI will be built on top of AWS” through its software services and AI chips, Jassy wrote. Amazon will benefit from AI developers’ massive demand for computing power and tools without the risk of building the world-changing AI itself. It’s the strategy of “in a gold rush, sell shovels.”.
Worlds to conquer. No surprise, but the company that has shaped both IT and the consumer economy in its own image hasn’t lost its ambition. While Amazon’s consumer business earned nearly $500 billion last year and AWS is bringing in revenue at a yearly pace of nearly $100 billion, Jassy wrote, that still means four-fifths of the global retail market is in brick-and-mortar stores and “more than 85% of the global IT spend is still on-premises.” And in the next several years, he wrote, "Globally, hundreds of millions of people who don’t have adequate broadband access will gain that connectivity in the next few years." One might call that a prime opportunity, if one was inclined to terrible dad jokes (and you know we are).
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Speedy. Jassy said Prime members got deliveries faster than ever last year, helped in the US by “regionalization,” where the company stores products in warehouses closer to its customers, and by the company expanding its facilities to deliver same-day orders. “As we get items to customers this fast,” he wrote, more will turn to Amazon for daily purchases like its Everyday Essentials grocery and convenience items, sales of which grew 20% annually in the fourth quarter, Jassy said.
Chop chop. Besides speeding up deliveries, regionalization also lowered Amazon’s costs, Jassy wrote. That’s on top of hundreds of layoffs, some as recently as this month, of employees working on AWS, its entertainment division, and its Alexa assistant. Although, Jassy didn’t write about the layoffs.
On top. Jassy opened his third annual shareholder letter with a brief listing of revenues, free cash flow, and operating income. But the investors reading the letter did need to be told that Amazon is crushing it: They can’t get enough of the shares. On Monday, AMZN’s year-to-date return was more than triple the S&P 500 average.
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