In May 2023, Amazon CEO Andy Jassy was questioned by an attendee at the annual shareholder meeting about the company’s innovation efforts in generative artificial intelligence (AI). At the time, OpenAI’s ChatGPT had gained significant popularity, and major tech companies were swiftly developing products to compete in the burgeoning field of chatbots and image generators.

Jassy responded by highlighting Amazon Web Services (AWS), the cloud division he helped establish 17 years earlier, which has since become Amazon’s primary profit driver. Under Adam Selipsky’s leadership, AWS was developing its own AI products and providing essential infrastructure for other companies' AI services. “It’s very early days in generative AI,” said Jassy, who took over as CEO from Jeff Bezos in 2021. “It’s very high potential, and we’re investing quite a bit in it and expect to be a leader.”

Despite these efforts, Amazon faced challenges in establishing itself as a leader in generative AI. AWS struggled to compete with Microsoft and Google, who were advancing rapidly in this domain. The company’s growth in the cloud sector slowed, with AWS’s growth rate dropping to 13% in 2023 from 37% in 2021. This deceleration came amid broader economic pressures that led businesses to reduce IT and cloud service spending.

Last week, Amazon announced a significant leadership change: Adam Selipsky would be leaving AWS, and Matt Garman, a longtime AWS executive, would take over. This shake-up is seen as a response to AWS’s struggle to keep pace with its competitors in the AI space. Gil Luria, an analyst at D.A. Davidson, noted that Amazon was “caught flat-footed” by the generative AI boom, allowing Microsoft Azure to gain a substantial lead.

AWS remains the leader in cloud infrastructure, but its market share has slipped slightly from 32% to 31% over the past three years, while Microsoft Azure’s share increased from 19% to 25%, and Google Cloud’s share rose from 7% to 10%. This competitive pressure highlights the urgency for AWS to innovate and regain its footing in the AI market.

The shift in leadership to Garman, described as a “wartime” leader, reflects Amazon’s need for a more aggressive approach in AI. In a memo to staff, Jassy emphasized that he and Selipsky had previously agreed that Selipsky would focus on preparing the next generation of leadership during his tenure. AWS spokesperson Casey McGee stated that AWS remains in a strong position, citing its growth, innovation, and profitability.

AWS’s Q&A chatbot, launched last year, has seen mixed reviews. While AWS claims it has been gaining traction among customers like Accenture, Toyota, GoDaddy, and GitLab, some internal feedback suggests it may not yet meet the high expectations set by competitors like OpenAI’s ChatGPT. AWS has been working to improve its AI offerings, including its own large language models (LLMs) and partnerships with third parties like Anthropic.

Despite these challenges, Amazon continues to emphasize its commitment to AI. Jassy has highlighted the potential of generative AI to transform various sectors, including advertising, e-commerce, and cloud computing. AWS’s custom chips, Trainium and Inferentia, are also part of its strategy to support AI development, with companies like Anthropic using these chips to train their models.

Amazon’s plans to enhance Alexa with generative AI capabilities demonstrate its broader AI ambitions. Jassy reiterated the importance of AI-driven personal assistants and hinted at future advancements for Alexa, which could include a subscription-based model for enhanced services.

The leadership transition at AWS marks a critical juncture for Amazon. With Garman at the helm, AWS aims to accelerate its AI initiatives and regain its competitive edge. His technical expertise and deep understanding of AWS’s operations are expected to drive innovation and growth in the coming years.

Investors remain optimistic about Amazon’s future in AI, despite the recent challenges. The company’s first-quarter results exceeded expectations, with a significant increase in operating income. AWS’s sales growth of 17% indicates a positive trend, albeit at a slower pace than previous years.

Overall, the transition to Garman’s leadership is seen as a strategic move to ensure AWS remains at the forefront of cloud and AI technologies. As AWS continues to develop its AI capabilities and expand its market presence, the company aims to leverage its vast resources and technical prowess to deliver cutting-edge solutions to customers worldwide.