Amazon, the pioneer and long-time leader in cloud computing, is showing unprecedented signs of fatigue. The company's profit engine is struggling due to growing internal bureaucracy, a sluggish response in the critical AI arena, and fierce competition that poses a serious challenge to its market dominance.
Recent developments have heightened market concerns. On Thursday, Google's parent company Alphabet announced it would supply AI startup Anthropic PBC with up to one million dedicated AI chips. This move not only strengthens Google's partnership with the rapidly growing AI newcomer, but it also delivers a direct blow to Amazon, which has previously invested billions of dollars in Anthropic.
At the same time, AWS's operational stability has raised red flags. On Monday, the cloud division experienced one of its most severe outages in history, leading to the shutdown of one of its most important data center clusters and disrupting operations for hundreds of companies and consumer applications. The incident lasted about 15 hours before services were fully restored.
These events highlight deeper issues facing AWS. Nearly three years after OpenAI's ChatGPT ignited an AI boom, the market generally believes that AWS has fallen behind its tech peers in the AI space. Although AWS remains the leader in the cloud market, its growth has shown signs of fatigue, with competitors closing in and eroding its once-stable position, creating new uncertainties for investors and the market.
Slow Start in the AI Race In the battle for the future of AI, AWS has clearly lagged. A symbolic moment occurred on November 30, 2022, when then-AWS CEO Adam Selipsky delivered a two-hour speech at the annual re:Invent conference, with nearly no mention of AI. On the same afternoon, OpenAI released ChatGPT, fundamentally transforming the entire industry.
According to insiders, AWS was not blind to AI's potential. The company had even provided robust computing support to startup Anthropic early on but initially missed the opportunity to invest due to skepticism about the profitability of emerging technologies and an internal culture resistant to paying for external technologies. This hesitation allowed competitors like Google to seize the advantage.
It wasn’t until September 2023 that Amazon made its first substantial investment in Anthropic, planning to invest up to $4 billion in exchange for Anthropic's commitment to use AWS's computing power and in-house chips. Many veteran employees who understand Amazon's aversion to paying for high-tech premiums viewed this move as more of a “desperate measure.” Google’s deepened collaboration with Anthropic further underscores Amazon's passive position in this race.
The "Big Company Disease" of a Large Empire Once proud of its "startup" spirit, Amazon is now weighed down by bureaucracy characteristic of a large empire. In interviews with 23 current and former AWS employees, the media revealed a prevalent description of a slow-moving bureaucracy at a time when agility is crucial.
A sales engineer recalled that before the pandemic, he was just six management levels away from then-CEO Jeff Bezos, but after a promotion, he discovered he was now 15 levels away from current CEO Andy Jassy (Amazon described this experience as a unique case). As the culture has become increasingly bureaucratic, decision-making speed has significantly slowed. Three employees working on different AI projects stated they were repeatedly asked to revise project proposals until market conditions changed and their ideas became outdated.
Simultaneously, the massive hiring during the pandemic led to an explosion in management levels, while subsequent layoffs and cost-cutting measures made promotions and raises difficult. In a battle for AI talent across the industry, AWS has lost several key executives, including those in AI, startup sales, chip design, and data center infrastructure.
A Shift in the Competitive Landscape, Startups Turned Away While AWS struggles against internal bloat, the external competitive landscape has dramatically shifted. Microsoft's cloud business has seen a surge in orders that outpace Amazon's. Oracle, once seen as a "runner-up" in the cloud market, has signed billion-dollar contracts to provide managed services for cutting-edge AI development. Google has also become a more formidable opponent, especially in attracting AI startups.
“If you aren’t winning those native AI startups today that will scale five to ten times in the future, that could be a real problem for your business,” said Josh Beck, an analyst at Raymond James. Pete Schwab, who worked at Amazon for ten years, chose Google when founding his own AI company, stating that Google “does a better job of supporting small companies like ours.”
Even AWS’s existing large clients are shopping around in the AI space. Grammarly Inc., which has operated on AWS for a long time, had its CTO Mark Schaaf state in an interview that AWS’s AI model market, Bedrock, could not meet the company’s needs, including pricing, prompting them to switch to models from OpenAI and Meta.
New Leadership Aims to Regain Initiative Facing internal and external challenges, AWS is actively seeking change. This year, veteran Matt Garman, who has been with AWS for many years, replaced Selipsky as the new CEO. Colleagues describe him as astute and determined, and external analysts see him as a more suitable leader for AWS's current "wartime" situation.
Since taking office, Garman has urged employees to focus on delivering promised products. To speed up processes, some AI teams have even set aside typical product development guidelines, sacrificing documentation and standard reviews. Over the past two years, AWS has terminated or halted the development of approximately thirty services and major features to free up engineers to work on AI tool construction.
AWS is pinning its hopes for a comeback on AI services like Bedrock and its in-house Trainium2 chips. Company spokesperson Selena Shen mentioned that Bedrock has amassed tens of thousands of customers and is widely regarded as the company’s most successful AI product. Amazon CEO Andy Jassy has repeatedly emphasized that the cost-effectiveness of Trainium2 chips represents a potential competitive advantage, as their costs for handling AI tasks are 30% to 40% lower than competitors’ hardware.
However, whether in Indiana, where $11 billion is being invested to build a data center for Anthropic, or in the accelerated iteration of internal product lines, AWS must confront a harsh reality: its once easily outpaced competitors have now dragged it into a fierce struggle. Google’s latest collaboration with Anthropic once again indicates that in this critical AI race for the future, Amazon no longer has the luxury of an easy win.
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