Investors joining Amazon’s earning call earlier this month were greeted with a surprise guest: the group’s chief executive, Andy Jassy.

Unlike Apple’s Tim Cook, Meta’s Mark Zuckerberg or Alphabet’s Sundar Pichai, it is rare that an Amazon chief executive — whether Jassy or his predecessor Jeff Bezos — puts himself up for the quarterly session of unmoderated questions from the Wall Street analysts who monitor the company’s fortunes.

“I thought this [call] might be a good one to join,” he told the analysts.

Jassy knows that he must engage more with Wall Street this year. Few chief executives have had a more arduous start to the job. Since he took over in 2021, Amazon’s market value has nearly halved from its high point. Ecommerce revenue fell last year for the first time in the company’s 28 year history. The resulting programme of lay-offs will affect 18,000 people, the largest of any big tech company.

As Bezos’ handpicked successor, Jassy has been met with mostly goodwill so far. But if he has a vision for the future, now would the time to spell it out.

Loyalty is a good start. Jassy has been at the company since 1997 and had previously said he did not seek nor expect the top job. But now he has it, he is faced with a substantial in-tray of both immediate challenges and longer-term strategic questions.

His first challenges are to rein in the costs of Amazon’s pandemic-era expansion and respond to greater scrutiny from lawmakers and the general public, stakeholders that have grown more sceptical of the ecommerce juggernaut since the pandemic abated.

The longer term challenge is similar to the one Tim Cook faced at Apple: to take over from a visionary leader who created one of history’s most successful companies in their own image, and somehow put his own stamp on it.

Yet one year on, investors will want to see what fresh ideas the 55-year-old has to fend off “Day Two”, the uncomplimentary term Bezos used to describe the “stasis” of a company that was no longer innovating after the outpouring of ideas on “Day One”.

There are as yet no “Jassyisms” to add to the evangelical “Jeffisms” imprinted on employees; no significant projects that were not already well under way during the founder’s quarter-century in charge.

His decisions are also hampered by Amazon’s balance sheet. Prior to the pandemic, the company’s multiple high-margin operations drove up net income. That was supercharged by the boom in sales in 2020.

But a combination of high spending and falling demand led the company to report a $2.7bn net loss for 2022. Long-term debt now exceeds cash, cash equivalents and restricted cash.

Jassy is sanguine about the challenge. “Companies that last for long periods of time have to find ways to adapt, and be successful, in lots of different phases,” he tells the Financial Times. “And this is just one of them.”

The Covid boom

At times during the pandemic, Amazon looked more like an emergency service than a retailer. The enforced closure of traditional stores and the global lockdowns of millions of employees led to a surge in ecommerce. Overall revenue grew 38 per cent in 2020 compared to previous year.

That sales boom gave the company confidence to go big and move quickly. In just 18 months it doubled the size of its logistics network, opening hundreds of new warehouses, delivery centres and even an air cargo hub. It hired tens of thousands of frontline workers; at the peak, there were 1.7mn employees on Amazon’s books, not including delivery drivers or other contractors.

New business lines such as groceries, advertising and healthcare were still in their infancy but looked poised to become new “pillars” of the company. An $8.45bn deal to acquire the storied movie studio MGM illustrated Amazon’s aspirations in video content, as did spending $1bn creating a Lord of the Rings TV series and billions more on sports rights including the NFL and the England’s Premier League.

Yet just as these costly moves were expected to start paying off, the mood soured. Jassy blames external factors. “We thought we were emerging from the pandemic,” Jassy says “only to have Omicron happen, and then the war in Ukraine, the great resignation, and inflation, and this economy. There’s just been a lot of things that you wouldn’t have expected.”

Amazon’s helter-skelter expansion during Covid has left it with an oversized logistics network.

“We knew when we were making that decision that we might be building more capacity than we needed,” Jassy says, but the company opted to “shade on the side of consumers, and being able to serve them in that extraordinary time.”

Although he says Amazon would probably make the same decision again, the executive responsible for much of the expansion, Dave Clark, has since left the company.

Amazon claims it has mostly right-sized its frontline workforce, but the cost-cutting also needed to run higher up the chain: not just warehouse operatives but software engineers, product managers, recruiters. “People with a company email address,” as one person at Amazon put it.

Its retrenchment has been one of the largest among US tech giants, with 18,000 jobs going worldwide. While the jobs lost account for only a low single-digit percentage of the company’s total workforce, and Jassy says the company does not have “any intention to do more [job cuts] right now”, they became highly symbolic.

What had felt like limitless ambition and gusto under Bezos had suddenly turned to retreat under Jassy. Shock spilled out in chats on workplace messaging tool Slack and in the media.

Jassy ducks any suggestion that Amazon hoarded talent during the pandemic, or that its startling rate of employee growth was irresponsible.

The aggressive hiring was “emblematic of the way we think about opportunities here,” he says. “There are times where you’re growing really well and it makes sense to be doubling down. And then the economy changes, and the macro changes. You realise you’re out in front of your cost structure more than you want to be and you pull back.”

The Jassy way

Operationally, little appears to have changed within Amazon under Jassy. He still begins ideas meetings with the famed Bezos method of asking the presenter to write a six-page memo, which meeting attendees read in silence before any discussion can begin.

“I don’t think that will change, it’s an incredibly effective way to communicate information,” Jassy said.

Nor has he altered any of Amazon’s core leadership principles, which include things such as “frugality” and “customer obsession”. But days before Jassy took the helm, Amazon for the first time added two more to the list.

“We must be humble and thoughtful about even the secondary effects of our actions,” read one, in relation to the company’s growing impact, primarily on the planet. Another says Amazon must “strive to be the world’s best employer”, added in the wake of a unionisation movement that took the company by surprise in April 2022.

The push for union recognition has yet to gain serious momentum outside of New York state, but poses the constant threat of negative publicity.

Bezos remains Amazon’s largest individual shareholder, with a 9.7 per cent stake, and is the executive chair. Jassy says he speaks to his predecessor around once a week. “We’ve had a very long, strong relationship for 20-plus years. So we talk regularly — I enjoy that.”

Outside of Amazon’s Seattle base, one significant difference between the two men becomes apparent. While Bezos generally shunned the company of politicians, Jassy is more comfortable in the corridors of power, making frequent trips to Washington. Those familiar with his leadership style say he comes armed with “substance” and “data”; a contrast to Bezos’s big persona.

“I have tried to spend some time understanding what some of the concerns people may have about the company are,” Jassy says. “If you don’t spend enough time sharing what’s really happening, people will fill that vacuum. So we’re just trying to make sure we have that open dialogue”.

Those efforts have so far failed to generate much goodwill towards the company as it looks to expand through acquisitions.

Amazon’s big buys in recent months are locked in review. Its $3.9bn deal to take over US-based primary health provider OneMedical is in the “second request” stage of deeper scrutiny, as is a swoop on iRobot, the maker of the Roomba vacuum machine, for $1.7bn.

According to multiple media reports, the FTC is considering a broader lawsuit against the company’s practices, such as how it treats the millions of third-party sellers that list goods on the Amazon marketplace. The FTC declined to comment.

Compared with the company’s previous comments on the supposed motives of regulators — Amazon has accused the FTC of bias and harassment against the company and its executives — Jassy seems ready to cut a more diplomatic posture in 2023.

“You have to work within the confines of whatever the situation is,” he says. “[Deals] may be taking longer than is typical, or than we think should be the case. But that is what it is today, and we’ll keep moving forward.”

New frontiers

The post-lockdown adjustment is also intensifying scrutiny of Amazon’s expansion into new business areas, especially artificial intelligence where an unprecedented land grab for the breakthrough technology is rapidly getting under way.

While AI and machine learning technology can be found across AWS and within Amazon’s own operations, there is sizeable concern even among the company’s supporters that it has already fallen behind in the “generative” AI race, compared with moves by Microsoft and Google.

“Microsoft is clearly in the lead and has won a lot of mindshare here,” says Matt McIlwain, managing director of Madrona Venture Group, a major, early investor that has worked closely with Amazon over two decades.

“Amazon has to be cognisant of this massive trend towards intelligent and generative apps. Amazon needs to have its strategic response.”

Jassy says he sees “opportunities” to work with smaller companies in the space, but would not elaborate. One of them, Stability AI — a competitor to the Microsoft-backed OpenAI — is already integrating its software with the AWS platform.

“I think it’s exciting, what’s possible with generative AI,” Jassy says. “And it’s part of what you’re seeing with models like ChatGPT. But most large, deeply technical companies like ours, have been working on these very large, generative AI models themselves for a long time.”

Less fashionable but arguably as important to Amazon’s future is its misfiring grocery business. Five years on from the $13.7bn acquisition of Whole Foods, Amazon has yet to come up with the reinvention of physical retail that traditional supermarket chains feared when the deal was announced. Revenue from Amazon’s physical stores unit has grown by just 10 per cent over the period.

Industry analysts say Whole Foods’ store formats are inconsistent and have failed to provide suitable hubs for grocery delivery in a way that some onlookers had predicted. “They’ve really reached capacity with what they can do with Whole Foods,” says Neil Saunders, a retail analyst.

Attempts to create its own physical store brands have underwhelmed. It has experimented with Amazon Go conveniences stores where cameras log what a shopper picks up and automatically debit their Amazon account. The “just walk out” technology works with startling accuracy but attempts to sell it to other physical retailers have met with limited results.

The company also opened larger Amazon Fresh stores, comparable to the traditional supermarket in size, which also act as mini-distribution centres for online customers. Despite plans for hundreds, just a few dozen have opened.

“We’re doing a lot of experiments, and we’re encouraged by several of them,” Jassy says. “We’re experimenting with selection, checkout formats, assortment, price points. We’re hopeful that in 2023, we will have a format that we want to go big on.”

Until then, expansion of Amazon’s physical stores has slowed and the company took a $720mn charge on severed leases and other costs related to scaling back in grocery in its fourth quarter.

“They don’t really understand physical retail very well,” Saunders says, describing Amazon as “a retailer that has a very good brain that doesn’t have much heart to it”.

Increasingly, doubts are being raised over Amazon’s “endless aisle” online shopping experience too. Its advertising unit, which Jassy describes as one of his big bets for the future, has flourished. It brought in almost $38bn in sales in 2022.

But cheap and sometimes counterfeit goods from fly-by-night Chinese manufacturers are often displayed more prominently than legitimate brands, creating a poor user experience that one New York Magazine commentator describes as the “junkification” of Amazon.

“It’s becoming increasingly difficult and unpleasant to shop [on Amazon],” Saunders says.

Amazon said its surveys showed the “vast majority” of shoppers were satisfied with using the site.

Prime numbers

One Bezos masterstroke was the introduction of Prime. Launched in 2005, the subscription plan initially offered free, fast delivery but has now expanded to encompass entertainment, gaming and, more recently, healthcare. Last year, revenue from “subscription services” — mostly Prime — was $35.2bn, up 11 per cent on 2021 but a slower rate of growth than in preceding years.

Retaining Prime members is key: they shop more often and spend more, than non-Prime customers. Amazon does not reveal subscription numbers but estimates from Insider Intelligence put them at around 90mn in the US. With Prime now being used by 69 per cent of American homes, it is reaching saturation point.

Touting the value of Prime has become more critical after Amazon raised the price for the first time in several years. In the US, it was a 17 per cent rise, to $139 per year. But keeping Prime an appealing prospect for increasingly cost-sensitive consumers is expensive and never-ending.

Amazon spent $17bn on entertainment content in 2022, up from $13bn in 2021. While attracting large viewerships — the Lord of the Rings series has attracted 100mn viewers — critical reception has been mixed. Amazon had just one Oscar nomination this year to Netflix’s 16, for instance. At the most recent Emmys, it was outshone by almost the entire streaming field.

Jassy says he is “really excited with the content we’re producing” and that the offering is still in its early stages.

Amazon also acts as a marketplace for other streaming platforms, allowing it to pick up commission when customers add channels such as HBO, Showtime or PBS.

Jassy says the company’s goal is “to provide the best selection of streaming video content. Yes, some of that, hopefully, will include our own ‘originals’, but a lot of that will include other people’s ‘originals’.”

Who produces original content on its streaming platform may not be pivotal in Amazon’s success, but the issue of whether he can leave his own mark on the company certainly will.

In the short-term, analysts consider Jassy’s record in creating and running AWS sufficient experience to keep control of Amazon during a difficult period.

“He’s actually in a better spot than Bezos,” said Brent Thill, a Jefferies analyst. “Software execs, in their DNA, don’t like things that lose money or don’t have high margins or high recurring [revenue] visibility. I think he’s less excited about doing the moonshot projects and will focus on more profitable, proven projects.”

Jassy told the analysts on the earnings call that his immediate priorities were just such bread-and-butter things: reducing costs, boosting the Prime offer, keeping prices down and speeding up delivery.

But holding off the dreaded Day Two is becoming increasingly difficult.

Photographs: Bloomberg/Getty Images/Reuters

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