Amazon Retail and Cloud Growth Slows in Q1 but AI Investments Hold Promise
Amazon’s net sales grew 9% year-over-year to $127.4 billion in Q1 2023. Net income was $3.2 billion for the period, compared with a net loss of $3.8 billion in Q1 2022. Growth in both retail sales and AWS services was slow compared to past quarters, in line with the uncertainty the retailer warned about earlier in the year, but investments in generative AI could pay off in the near future.
Amazon put an emphasis on convenience as a driver for its retail business during the quarter: nearly 26 million customers utilized same-day delivery, up 50% compared to Q1 2022, according to CEO Andy Jassy. Amazon also is reportedly planning to build up ultrafast delivery options with the rollout of a network of specialized warehouses called same-day sites. These facilities, smaller than traditional warehouses, are designed to prepare items for immediate delivery.
Additionally, despite earlier plans to scale back brick-and-mortar investments, the retailer’s physical retail operations have remained a key part of its value proposition. “There’s a lot to like about how our teams are delivering for customers, particularly amidst an uncertain economy,” said Jassy in a statement. “Our Stores business is continuing to improve the cost to serve in our fulfillment network while increasing the speed with which we get products into the hands of customers (we expect to have our fastest Prime delivery speeds ever in 2023).”
While Amazon’s retail sales growth held steady from 2022, AWS’ growth of 16% to $21.4 billion was the lowest in a decade, according to Julian Skelly, Retail Lead at Publicis Sapient in commentary shared with Retail TouchPoints. The ecommerce and tech giant is facing fierce competition from rivals like Microsoft and Google and struggling with the downturn in tech spending that has weighed on players across the industry.
However, Skelly believes Amazon’s investments making Large Language Models and Generative AI available to AWS customers could pay off. He noted that the technology gives “a wide range of organizations access to the tools which can accelerate adoption of these potentially game-changing technologies.
“In a time of economic adversity, it is great to see Amazon sticking to its core values: invent and simplify,” Skelly added. “Generative AI has the potential to impact every corner of the retail experience: from supply-chain optimization, personalization, predictive ordering, content creation…the list is endless. Andy Jassy acknowledges that every aspect of the customer experience on Amazon could be radically improved by this new form of machine learning.”
One example is Amazon Bedrock, a managed service designed to help users build and scale enterprise-ready generative AI applications. Amazon Bedrock was created to provide easy access to leading foundation models, which are the ultra-large machine learning models that generative AI relies on, from AI startups like AI21 Labs and Anthropic. This broad access to models helps customers find the flexibility and choice they need to customize and scale the technology to their specific needs.