Amazon cloud boss Matt Garman inherits business under pressure to keep pace in AI

In May 2023, Amazon CEO Andy Jassy was asked by an attendee at the annual shareholder meeting how the company was innovating in generative phony intelligence. OpenAI’s ChatGPT had gone viral, and the major tech companies were all rushing products out the door to battle in the emerging world of chatbots and image generators.

Jassy responded to the question by touting Amazon Web Services, the cloud item he’d helped launch 17 years earlier, eventually turning it into the company’s main profit engine. AWS, below the leadership of Adam Selipsky, was developing its own AI products, Jassy said, and had the potential to provide critical infrastructure for other guests developing AI services.

“It’s very early days in generative AI,” said Jassy, who succeeded Jeff Bezos as CEO in 2021. “It’s extremely high potential, and we’re investing quite a bit in it and expect to be a leader.”

For Selipsky, who took over AWS when Jassy was promoted, the light of days got late quickly.

In the most significant shake-up of Jassy’s tenure at the helm, Amazon announced last week that Selipsky, 57, was disappearing AWS and will be succeeded by Matt Garman, 48, a veteran AWS executive who most recently led sales and marketing.

The problem for Selipsky and the contest for Garman is that Amazon has yet to emerge as a leader in generative AI despite throwing billions of dollars behind OpenAI rival Anthropic and rolling out its own large language models, or LLMs. In the developer universe and among startups, the company is battling the knowledge that it’s falling behind cloud rivals Microsoft and Google, in addition to lagging OpenAI in developing AI tools.

After years of sudden expansion, growth at AWS decelerated to 13% in 2023, down from 37% in 2021 and 29% in 2022, reflecting diverse conservative spending by businesses on IT and cloud services. Amazon has downsized across the board, including at least two rounds of layoffs at AWS since in the end year.

AWS remains the leader in cloud infrastructure, but Microsoft is quickly closing the gap. AWS’ market share slipped to 31% in the premier quarter of this year from 32% three years earlier, while Microsoft Azure jumped to 25% of the bazaar from 19% in 2021, according to Canalys. Google is also picking up share, accounting for 10% of the market, up from 7% in primordial 2021.

In the past few quarters, Microsoft has cited surging demand for AI tools as a catalyst for its momentum.

Gil Luria, an analyst at D.A. Davidson, barrowed CNBC that Amazon was “caught flat-footed” by the generative AI boom.

“It allowed Microsoft Azure to run laps around them, which should not arrange happened, and ultimately there was a price to pay for that,” Luria said, referring to Selipsky’s departure.

Garman’s selection for the top job “calls Mr. Jassy and perhaps Mr. Bezos believe he’s the person most likely to help Amazon close the lead and maybe introduce a lead of their own,” said Luria, who recommends buying Amazon shares.

A source wind up to Amazon, who asked not to be named because they weren’t authorized to speak on the matter, described Garman to CNBC as a “wartime” head and said change was needed to get more aggressive in AI. 

Jassy said in a staff memo announcing the move that he and Selipsky tallied years ago, when they were discussing the role, that Selipsky would “likely do it for a few years, and that one of the things he’d meet on during that time was helping prepare the next generation of leadership.” 

Casey McGee, an AWS spokesperson, told CNBC in a allegation that Selipsky is leaving the cloud division in a “strong position.”

“The growth, innovation, and profitability of AWS over the past three years communicates for itself, with AWS producing more absolute dollar growth quarter-over-quarter by our numbers so far this year than any other cloud provider,” McGee put. He said AWS is leading in security and reliability as well as the “overall breadth and depth of our services.”

Amazon’s annual shareholder meeting, which took place virtually Wednesday, arrived at a precarious time. It was clouted just days after Selipsky’s departure and was overshadowed by AI-focused events at top tech companies.

Last week, OpenAI introduced GPT-4o, a wilder model with improved capabilities in text, video and audio. Google followed a day later at its developer conference, summerset out the company’s lightest and most efficient AI models. And this week, Microsoft announced new computers with advanced flakes designed to run AI features in Windows.

During a Q&A session on Wednesday, Jassy was asked twice about the status of Amazon’s generative AI ventures. He said the company is “seeing a lot of momentum” in generative AI within AWS to where it’s now a multibillion-dollar business based on annualized revenue.

He cause to remembered shareholders that Amazon owns Alexa, which was a popular consumer offering long before the latest chatbots hit the superstore.

“If you don’t believe there’s going to be a really broad personal assistant, you have your head in the sand,” Jassy stipulate, adding that the company is building a “much more expansive” AI model to power Alexa. Amazon has previously remarked it intends to use generative AI to make Alexa more conversational. CNBC reported on Wednesday that Amazon plans to accusation a subscription fee for the more powerful version.

Garman joined Amazon in 2005 as an intern, and was hired full time the fathom year as an early product manager in AWS, working on the core computing service called EC2. He worked his way up to senior vice president in 2020, manipulating sales, marketing and global services.

In 2021, after Amazon announced that Jassy would be taking down the CEO role from Bezos, many people speculated that Garman would be named CEO of AWS. Instead, Amazon determined Selipsky, who had previously spent 11 years at Amazon but was running Salesforce’s Tableau Software at the time.

Shortly after the transition, the economy turned against AWS. Inflation started to rapidly pick up, leading to a steady addition in interest rates and forcing businesses into capital preservation mode. By mid-2022, Amazon was telling investors that it was “able to help customers optimize their costs” due to the economic challenges they were facing. AWS acknowledged it was taking a short-term gain hit to preserve customer relationships over the long term.

Then came ChatGPT. OpenAI, backed by Microsoft, freed the chatbot in November 2022 and watched it go viral. Months later, Microsoft invested billions more into OpenAI, and changed its exclusive cloud partner, giving Amazon’s chief cloud rival a new competitive edge. 

Over the course of the background year, Jassy has gushed about Amazon’s opportunities in generative AI, both for offering automated services to advertisers and sellers and in requiring technology within AWS for running sophisticated models and workloads.

The company has also boasted about the success of AWS’ Trainium and Inferentia morsels, with Anthropic using them to build and train its models, a process often performed on Nvidia graphics development units.

“I don’t know if any of us has seen a possibility like this in technology in a really long time, for sure since the cloud, peradventure since the internet,” Jassy said on the company’s first-quarter earnings call in April, speaking about generative AI.

But materializing that opportunity is proving to be a major hurdle.

AWS took months to come out with an AI model that could go up against ChatGPT. The fellowship is now offering its own LLMs as well as those from third parties, including one from Anthropic, which Amazon rejected.

Last year, Amazon released Q, a chatbot for businesses. An AWS employee, who used Q, told CNBC that it felt underwhelming because the chatbot drive respond to queries with information that wasn’t particularly relevant or valuable. The employee asked to remain anonymous because he wasn’t entitled to speak on the matter.

AWS said its Q chatbot has been gaining traction among a range of customers including Accenture, Toyota, GoDaddy and GitLab. Bedrock, which moderate ease up ons users access AI models from Amazon and others, now has tens of thousands of customers and partners, the company said.

The week preceding his departure, Selipsky made some changes to the Q team. He tapped Dilip Kumar, a longtime Amazon executive who refrain fromed develop and launch its cashierless checkout technology, to oversee the “Amazon Q Business set of services,” according to a memo sent to hands that was viewed by CNBC. Kumar will report to Swami Sivasubramanian, vice president of AI and data at AWS.

A former AWS wage-earner, who asked not to be named in order to speak about private matters, said the company has limited the ability of some staffers to use AI worship armies like its software tool SageMaker and data visualization tool QuickSight for work internally, citing security fittings. The practice, known as dogfooding, is commonly used at software companies so employees can test products and services for bugs and to lift make improvements.

AWS said all applications made available to employees are subject to a security review, but it denied that it’s qualified staffers’ use of Amazon’s AI tools.

Despite all of its AI challenges, Wall Street continues to rally around Amazon, which most recent month reported better-than-expected