Amazon CEO Andy Jassy on using AI to win over consumers and growing as an ads business | Analysis

“Consumers are spending, but they’re just being really careful about what they spend on and how much they spend,” said Andy Jassy, CEO of Amazon.

Jassy recently sat down with CNBC’s Andrew Ross Sorkin on ‘Squawk Box’, revealing everything from how to win over cash-poor consumers with the help of AI to the driving factors behind Amazon’s growth as both an advertiser and a streamer.

He told CNBC: “Wherever they can, consumers are trading down on an average selling price. You see, consumers, wherever they can find a deal, they take a deal. It’s going to take a lot for people not to buy detergent or shampoo or things like that.

“You can see that in the growth of our everyday essentials business, which in Q4 of 2023 was up over 20% year-over-year (YoY). Some of that is because people are going to buy all the time, but some of that is just because of the speed that we have and we’re getting to people quicker, so they consider us for more.”

Using AI to transform the consumer experience

According to Jassy, AI is the tool that can help brands win over increasingly savvy consumers. With discretionary items like TVs and electronics being most impacted by consumers “trading down”, brands need to be equally as savvy in their approach to marketing in a struggling economy.

Jassy said: “I do think that AI is going to transform every customer experience that we know. I think a lot of the discussion has been around applications, starting really with ChatGPT which really caught people’s attention, but we think there are three big macro areas of the generative AI stack, each of which are gigantic and each of which we’re investing deeply in.

“At the lowest layer are people that are building their own large language models, and the two things that really matter there are the computer, to train the model and to run the predictions and the inferences, and what matters in that is the chip.

“We’ve built a training chip called Trainium and an inference chip called Inferentia that are meaningfully more price performant than what you can find elsewhere. A lot of the training and a lot of the predictions are going to be done on those chips.”

As for consumers’ impressions of AI, Jassy said what we’ve seen most consistently through the early stages of its consumer-facing inception, “is that customers want choice”.

He added: “They want different model types for different types of applications and use cases. They want different model sizes because it changes the latency and the cost structure.”

Representative of Amazon’s belief in AI is its recent $4 billion investment in AI startup, Anthropic. The AI safety and research company doesn’t operate exclusively with Amazon, but the partnership sees Amazon become Anthropic’s primary cloud partner, training future AI models on Amazon’s chips like Trainium.

‘It doesn’t even feel like advertising to them’

Amazon has its fingers in many pies, and more recently, has become a major player in advertising and data collection. Last year, the company’s advertising business grew 24% year on year, increasing from $38 billion in 2022 to $47 billion in 2023.

On the company’s growth in this respect, Jassy said to CNBC: “Advertising doesn’t work unless you provide the right experience for customers and they respond to it and then it actually benefits the brands.

“Most of our advertising is actually machine learning practitioners who are figuring out the right products to put in front of people, so it doesn’t even feel like advertising to them. It feels like they are finding the items that they were searching for.”

For brands, Amazon’s launch of Sponsored Products and more recently Sponsored TV is allowing companies to leverage this machine learning by putting their brand at the forefront of relevant advertising that reaches the right consumers at the right time in the purchase funnel.

Jassy said: “The Sponsored TV offering allows people to have self-service access to entities like Freevee and Twitch and things like that, but we’ve recently added the ability for people to do advertising on Prime Video shows and movies, and that’s at a very early stage. But, you know, I expect that we will continue to very thoughtfully find ways to place advertisements within the different entities we have.”

Amazon’s streaming offering, Prime Video, has become a profitable arm of the business in its own right, competing well in an increasingly competitive streaming climate. Jassy said when Prime started, “it was very much about driving people to find value in our overall Prime offering”.

He added: “We found that actually a lot of people would sign up for Prime because of our exclusive content, and then once they become Prime members, they would shop in our e-commerce offering. And so, it really drove our business downstream and that continues to very much be the case.

“But we now have conviction that apart from the value it drives for the rest of the business, it will be a good economic business on its own as well.”

With Amazon’s stock up 22% this year, the e-commerce giant is continuing to grow at a rapid rate, staying ahead of the AI curve and entrenching itself as a data-collection and advertising service as well as an e-commerce marketplace and a streamer. It’s uncertain exactly what the future holds across the business and tech landscape, but rest assured, Amazon will play a major role in shaping that future.