Amazon CEO Talks AI, Cost Cutting, and Prime Video

Amazon today published its annual letter to shareholders, with CEO Andy Jassy highlighting why he’s optimistic about the future. And he has a firm foundation on which to build: As noted in the letter, Amazon in 2023 grew overall revenues by 12 percent to $575 billion, while operating income grew 201 percent in the year to $36.9 billion.

“While we’ve made meaningful progress on our financial measures, what we’re most pleased about is the continued customer experience improvements across our businesses,” he wrote. “In our Stores business, customers have enthusiastically responded to our relentless focus on selection, price, and convenience. We continue to have the broadest retail selection, with hundreds of millions of products available, tens of millions added last year alone, and several premium brands starting to list on Amazon.”

Amazon’s retail business is incredible for all kinds of reasons, but 2023 was particularly notable for its reach, efficiency, and speed. The firm somehow delivered over 70 percent of the items customers delivered the same day or the next day. That’s 7 billion items overall, and 4 billion in the U.S. alone. And it did this while cutting costs dramatically. It now costs Amazon just 45 cents per ordered item. (On a more personal note, I feel at least partially responsible for Amazon Mexico achieving profitability in 2023 for the first time.)

Amazon’s business is built on three pillars—its Marketplace online store, the Amazon Prime membership, and AWS, which saw revenues grow 13 percent in 2023 to $91 billion. And that third pillar will become even more important with the rise of generative AI, Jassy said. And while most of the world is focused on generative AI “applications”—front-facing services like OpenAI and the custom GPTs and other services that build off them—Amazon is investing deeply at a more foundational level with what it calls primitive services. These are “discrete, foundational building blocks that builders can weave together in whatever combination,” services like Simple Storage Service (S3) and Elastic Compute Cloud (EC2).

Amazon’s approach to generative AI follows a familiar strategy: It is investing in both hardware and software, with custom AI-accelerated chipsets for its cloud servers like Graviton (generalized CPU), Trainium (AI training), and Inferentia (inference), middle layer services like SageMaker and Bedrock, and in-house apps like Rufus (an AI-powered shopping assistant), Alexa (which is being upgraded with generative AI capabilities), and Amazon Q (an AWS-based coding assistant).

“The vast majority of GenAI applications will ultimately be built by other companies,” he said. “However, what we’re building in AWS is a set of primitives that democratize this next seminal phase of AI, and will empower internal and external builders to transform virtually every customer experience that we know (and invent altogether new ones as well). We’re optimistic that much of this world-changing AI will be built on top of AWS.”

Jassy also addressed Amazon’s controversial decision to add “limited advertisements” to the content streamed via Prime Video, a paid service and perk of the Prime membership. (Customers can pay an addition $2.99 each month to remove the ads.) The goal, he says, is to make Prime Video “a large and profitable business on its own,” rather than a service that is subsidized by other parts of the company. This change will help the service continue to provide exclusive content like Thursday Night Football, Lord of the Rings, and Reacher, he said, and is a “long-term” investment.

“Brands can reach over 200 million monthly viewers in our most popular entertainment offerings, across hit movies and shows, award-winning Amazon MGM Originals, and live sports like Thursday Night Football,” Jassy noted. “Streaming TV advertising is growing quickly and off to a strong start.”