Amazon.com Founder and CEO Jeff Bezos will step down from the corner office in the third quarter, handing the reins of the e-commerce giant to Andy Jassy, who currently runs the company’s wildly profitable Amazon Web Services (AWS) arm.
In a statement buried in the Seattle-based company’s quarterly earnings call, Bezos said he would transition to the role of executive chair at that time. According to Bezos, Amazon’s strong financial results show the results of the company’s history of “invention” and make 2021 an “optimal” time for the change.
“Amazon is what it is because of invention. We do crazy things together and then make them normal. We pioneered customer reviews, 1-Click, personalized recommendations, Prime’s insanely-fast shipping, Just Walk Out shopping, the Climate Pledge, Kindle, Alexa, marketplace, infrastructure cloud computing, Career Choice, and much more,” Bezos said in a release.
“If you do it right, a few years after a surprising invention, the new thing has become normal. People yawn. That yawn is the greatest compliment an inventor can receive. When you look at our financial results, what you’re actually seeing are the long-run cumulative results of invention. Right now I see Amazon at its most inventive ever, making it an optimal time for this transition,” Bezos said.
While Jassy is not yet well known in the business world, he has been at Amazon since 1997 and has led the AWS cloud platform unit since its founding. According to his biography on the company’s website, he held various leadership roles across the company before launching AWS and ultimately delivering more than 90 cloud infrastructure and application services. Jassy has an AB from Harvard University and an MBA from Harvard Business School.
Web service division’s fat profit margin fuels Amazon’s expansion
Since founding Amazon in 1994, Bezos has focused relentlessly on growth, plowing revenues into expanding the small, Pacific Northwest bookseller’s network of e-commerce distribution centers. That strategy allowed the company to grow at lightning speed, but did not generate much profit.
However, in recent years that picture has changed thanks to the success of its web services arm, which rents out memory space on servers instead of selling physical items through an online marketplace. AWS makes its money by providing cloud infrastructure and application services to millions of startup, enterprise, and government customers, the company says.
That recipe has produced more profit than any other division. While Amazon collects far more revenue through its e-commerce sales than its AWS business, those sales are not very profitable due to the high logistics costs of providing warehouse, transportation, and shipping services.
In the 12 months ending December 31, Amazon made a scant $8.6 billion in profits on $236 billion in sales for its North American business, and just $717 million profit on $104 billion in sales for its international business. But it cleared a whopping $13 billion in profits on just $45 billion in sales for AWS. Put another way, the profit margin for Amazon’s North American e-commerce sales was 3.6%, the margin for its international sales was 0.6%, and the margin for web services was a juicy 29%.
Despite incurring huge logistics costs, Amazon kept its foot on the expansion pedal, forcing its retailer competitors to adjust to “the Amazon effect” and match its premium services like next-day or same-day shipping. The impact of that titanic battle for customers has rewritten the rules of retail across North America and the world, sparking huge investments in warehouse technology and jump-starting the sector’s transformation to digital business practices.
Having accomplished those measures, Bezos says he now intends “to focus my energies and attention on new products and early initiatives” from his role as executive chair, according to an email he sent to the company’s 1.3 million employees today.
“I find my work meaningful and fun. I get to work with the smartest, most talented, most ingenious teammates. When times have been good, you’ve been humble. When times have been tough, you’ve been strong and supportive, and we’ve made each other laugh. It is a joy to work on this team,” Bezos said in the letter. "As much as I still tap dance into the office, I’m excited about this transition. Millions of customers depend on us for our services, and more than a million employees depend on us for their livelihoods. Being the CEO of Amazon is a deep responsibility, and it’s consuming. When you have a responsibility like that, it’s hard to put attention on anything else.”
However, Bezos said he is not retiring. “As Exec Chair I will stay engaged in important Amazon initiatives but also have the time and energy I need to focus on the Day 1 Fund, the Bezos Earth Fund, Blue Origin, The Washington Post, and my other passions. I’ve never had more energy, and this isn’t about retiring. I’m super passionate about the impact I think these organizations can have.”
Editor's note: This article was revised on February 2 to add information about Amazon's most recent earning's report and Bezos' letter to employees.
A message from Jeff Bezos to Amazon employees earlier today. https://t.co/W5I99qCJrZ— Amazon News (@amazonnews) February 2, 2021