Amazon Web Services CEO Selipsky on its growth, India market, AI bet and more
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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Summary
India continues to be a big focus area though where AWS does enjoy a leadership position. Having invested about USD 3.7 billion in India since 2016 to set up its cloud infrastructure and service the market, AWS is ready to make a big bet.
Amazon Web Services (AWS) has seen its revenues grow by 16 percent in Q1 at USD 21.35 billion, contributing about 17 percent of Amazon’s overall revenues. While growth was ahead of estimates the pace of growth is slower than in the previous quarter. Now AWS is not immune to the challenges that the tech businesses are seeing and is also seen job cuts as part of Amazon’s plans to lay off.
India continues to be a big focus area though where AWS does enjoy a leadership position. Having invested about USD 3.7 billion in India since 2016 to set up its cloud infrastructure and service the market, AWS is ready to make a big bet, says Chief Executive Officer Adam Selipsky, in a freewheeling interview.
Below is the verbatim transcript (edited excerpts) of his interview to CNBC-TV18.
Q: Talking about the global demand outlook, clearly the macroeconomic headwinds are not helping your business at this point in time. You have of course talked about the slowdown that we have seen. Your CFO has talked about the fact that revenue trends in April are trending lower by almost 500 basis points. Given where you see yourself today and I know you believe that in the long term, your prospects look strong, but how much pain do you anticipate in the short to medium term?
A: I was just in India very recently for an entire week and was just so energized by all the activity there and that really matters how we think about the business worldwide. We feel very solid about the outlook for AWS. Customers continue to adopt the cloud and really all reasons why over the past 17 years we have been the leader in this space and the pioneer, and it remained true today. So it’s true that in the short term, many, many companies worldwide are cost conscious, there is some belt-tightening going on as folks look to optimize their spending on the cloud, and, as you mentioned, that just had a short-term impact just on pure growth rates.
However, we think that is actually a good and healthy thing for our customers to be doing. We want them to be efficient, and we want them to be really making the best use of their cloud spending possible. So I think companies will spend a period of time doing that cost optimization, and then will be ready to reaccelerate.
Now at the same time, I will say that it’s really important to keep on innovating and we see so many companies, not just cost-cutting, but actually continuing given how efficiently they can operate in the cloud. We see so many companies continuing to figure out new offerings, new ways, and better ways to reach their customers so that when their part of the economy does turn around, there will be better positioned than their competitors to capture that demand.
Q: You know, you are right in pointing out Adam, that this is not AWS specific, we are, of course, seeing many companies having to deal with the kind of slowdown that we are seeing. But I want to pick up on two of the issues that you spoke about you said that you do expect your clients to go in for cost optimization, and that is something that you are seeing today. But you also hope that there will be a reacceleration my question is, is this cost optimization only cutting spending at this point in time? Are you actually seeing deferrals take place as well? And when do you anticipate this reacceleration to kick back in? Specifically, on the issues of what Amazon itself and AWS itself are doing to bring costs down and you know, you have been part of the restructuring of jobs that’s taken place as well across Amazon, and AWS has been part of that exercise as well, should we expect more?
A: Well, first, let me say that in terms of role eliminations, it is clearly never an easy thing for anybody involved. And we have tried very hard to be incredibly respectful of anybody whose role has been eliminated and to offer useful and attractive benefits and packages to help people along their way. That being said, so many companies are going through this type of thing now and there have been so many role eliminations across many different sectors, including the tech sector worldwide.
It is very important to figure out and then get really focused on our top priorities, the things that matter the most to our customers. We have really gone through that exercise recently and have really tried hard to say these are things we are going to put more research sources on, we are going to double down on these areas and of course, to deprioritize things which just are no longer as important to our customers.
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Now, in most cases, that just meant moving people around between projects, between teams, and so forth. There have been times, of course, when what we have needed to do is to get new skill sets onto the team. And for the most part, those are the cases where we have unfortunately had to eliminate roles.
More broadly, we still see many, many customers investing deeply in the cloud. I was with a Fortune 100 Bank last week, and they have already moved hundreds of applications into the cloud onto AWS. And they are looking to do far more of that and to move up to the next 1000 applications onto the cloud. So despite the economy, we see a lot of customers still leaning into the cloud, not despite the economic uncertainty, but actually, because of it. This is the best time to save cost, to not have to make the capital expenditure and to have the agility to move faster than competitors. To create wonderful offerings that are going to really benefit customers for years to come.
People who can accelerate out of any short-term economic uncertainty they have are going to be the ones who will be the winners for the years to come. So while many customers are, indeed trying to be frugal with the resource today, they are still investing in the cloud.
Q: Which of the sectors that you believe are the most vulnerable? In terms of the challenges that we are seeing today? Where do you believe the spending is being impacted the most?
A: I think you see some amount of this happening across industries, I wouldn’t say it is any one country, I wouldn’t say it is any one sector. Again, I don’t think there is any real new news here in terms of the very unusual economy and the number of surprises the world has had the past few years, ranging from the pandemic to, of course, all of the impacts of the war in Ukraine, and the impact that that has had, but we still see tremendous signs of optimism.
So just to stick with financial services, I was very recently in India, as I mentioned, and spent time with many of the largest banks there. Just one exciting example is the Axis Bank. So of course, the Axis is the third largest private sector bank in India. And they have selected AWS as the primary cloud provider, and they are going to work with us to accelerate their digital transformation. In fact, the bank plans to migrate 70 percent of its total workloads to the cloud over the next two years. And that is going to help them meet their growing demand for digital banking services.
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They have deployed over 50 mission-critical applications to AWS already, including new loan management systems, video know-your-customer applications, WhatsApp banking, and in addition, they are going to be moving core IT workloads to the cloud, to reduce costs to improve resiliency, to increase agility, and most important to enhance their customer experiences. So around the world, and especially in India, we are seeing really, really exciting innovation happening in the cloud.
Q: So let us talk a little bit more about India because you brought up the Axis Bank as an example of why you continue to be committed and excited about the India story. You spent a week here, and you started by saying that you were excited by what you saw in India. What does that then translate into in terms of incremental investments? Amazon has invested about $3.7 billion between 2016 and 2022 in India so far, what is the scale of the aspiration that you have for the Indian market given how excited you seem to be about it?
A: I am very excited about it. I am glad that is coming through because I left India, just absolutely excited about what the country is doing. The role of the government, what enterprises and startups are doing, and by the way, that $3.7 billion, that’s just Amazon Web Services, AWS, separate from the rest of Amazon’s investment. I am very pleased to announce today that AWS plans to invest an additional $12.7 billion US in our local cloud infrastructure in India by 2030.
So on top of, the existing investment, we will be investing another $12.7 for a total of $ 16.4 billion US by the year 2030 and that is going to support over 130,000 full times jobs annually on average in India.
Its economic impact is estimated to be over $23 billion of additional GDP in India by 2030. So we are very excited about all of that. We think it’s going to be great for the country, we think it’s going to be great for employees for people learning cloud skills, becoming part of the tech and the digital and the cloud economy. Of course, we think it will be good business for us as well because it is such an attractive environment.
Q: That is certainly the big headline coming in from you $12.7 billion to be invested in India, by AWS, by 2030. If you can give me some indication of where this investment is going to go into what you are going to be spending this money on specifically?
A: It is really in a whole number of areas. So in 2016, we opened our first large series of data centers, we call that an infrastructure region. And that first region was in Mumbai and we continue to grow that significantly. Then last year, we opened up a whole second series of data centers, a second infrastructure region in Hyderabad and so we anticipate growing up all that infrastructure rapidly between now and 2030. In addition, of course, we will be investing directly in a very sizeable team in India, and all the different business functions. So we think that will be important.
Then there are a number of other areas so we are committed to being 100 percent renewable energy across all of Amazon by 2025. We are ready over 85 percent of the way there and what that means is that we have become the largest corporate purchaser of renewable energy on Earth, four times larger than the second largest purchaser and a lot of that’s happening in India. So in order to power our operations there, we have already invested in six large utility-scale projects to generate renewable energy, which totals over 920 megawatts which is enough to power almost 1 million average-sized Indian households. So those are renewable energy projects happening inside India.
In addition, we have committed to becoming water positive by 2030. That means putting more water back into local communities where we operate than we consume. We are working with nonprofits like water aid, like Water.org, to improve access to clean water and sanitation. That has already benefited more than 250,000 people across a number of states since 2020.
Finally, I will just say we are also working really hard on upskilling India’s digital workforce. It is a critical initiative, there is going to be a big lack of cloud skills and a big gap between what’s needed and the available workforce over the coming years. We are trying to help close that gap. So since 2017, we have actually helped educate more than 4 million people in India, training them with cloud skills, through a lot of different AWS programs and working in concert with local government, local nonprofits, and our local systems integrators and consulting partners in the country.
Q: How much of a bet are you willing to take on AI? And how large of a focus is that likely to be? Your competitor Microsoft, for instance, the CFO is talking about AI service tools, adding about one percentage point to revenues in Q2. Now, what could this typically mean for AWS going forward? How large of an AI bet Are you willing to take?
A: We are making extremely large bets in AI and machine learning in general. Amazon has been a leader in machine learning and AI for literally decades. If you go back to the late 1990s, personalization on the AWS retail website is artificial intelligence. And in 2017, we launched SageMaker, which is an AWS machine-learning platform that has over 100,000, AWS customers, and is the leading machine-learning platform in the world. We have a lot of experience, we have been investing in AI for years, there are foundation models LLM, as folks are calling these large language models, in operation today inside of Amazon powering Alexa, powering search on the retail site.
But Amazon intends to double down, triple down on all these investments, and to continue to really be a leader in generative AI. We do think that virtually every application that people see that people interact with, will be transformed in some way by generative AI. And we know it’s important for our customers, that we be the provider of those solutions to them. So, we have recently announced a bunch of innovations already across the generative AI space.
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One of the biggest is Amazon Bedrock, which is a new easy way to scale and build enterprise-ready generative AI applications. So, the idea here is that, just like AWS has tried to democratize IT for over 17 years, we are going to democratize a generative AI, making sure that many companies have access to generative AI, and that they have access to all the most exciting models that startups and other companies are building.
So, we are providing those on a managed basis, we have a managed service, where people will be able to access many different large language models from different providers. But a critical distinction for AWS is we are building enterprise-level security and enterprise-level privacy from the very beginning. So, companies are very concerned that if they use these models their data doesn’t leak out to other companies, and that if they make improvements to these models, that their competitors don’t get the benefits of those improvements.
And we have built this in a siloed way if you will, where if an enterprise uses models through Bedrock, then their data will not go anywhere, and only that company will have the benefits of improvements to the model. So, it’s a Bedrock, we are very excited about, in addition, to companies building these large language models. These are very large jobs, it’s large compute jobs to build these and can cost a lot of money to train these models. And so, we have been investing in our own custom chips, our own custom silicon program for years, and have specialized chips that we put into our compute capacity now, for training these models, also for running these models, we are doing inference as it’s called on these models and we have been doing it for a long time now and we think more and more over time, we will just have leading-edge price performance, and be really the best place in the world to run these models.
Q: That is quite the headline there – AWS and Amazon are hoping to democratize generative AI. So let me understand from you what the execution roadmap for this is going to look like. You have also given us a sense of the kind of investments that have been made in this space already. But do you see this largely being driven by organic innovation and organic growth? Do you see inorganic possibilities, and big-ticket acquisitions in this space as well? What kinds of future investments are you likely to make for you to be able to realize this dream of democratizing generative AI and the role that India can possibly play in the scheme of things?
A: We are going to be open to wherever the innovation comes from. Amazon and AWS have been very innovative since the beginning. We have been the innovation leader, so I do not think we are going to slow down for a single second on our pace of internal innovation. That being said, we will certainly also opportunistically look for external opportunities, if attractive ones exist. Just to give you a sense of the innovation that we are already doing ourselves on top of these large language models, we also, a few weeks ago, when we announced a Bedrock, we also announced Amazon CodeWhisperer. And CodeWhisperer is a coding companion for developers, which helps them write code and essentially takes the heavy lifting, the muck of code writing from them, so they can focus on the most value-added activities.
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Q: I am looking at numbers from Synergy Research, market share for AWS at 32 percent, but we have seen, as you and Microsoft move up to almost 23 percent now, do you believe you are going to be able to retain share, and also, as far as operating margins are concerned at 24 percent, the narrows that we have seen them in 2017, on the back of the cost-cutting efforts that have been put in place the reprioritization that has taken place, do you feel confident of being able to hold margins as well?
A: Competitively, to be honest with you, we focus primarily on our customers, not so much on competitors. And that differentiates Amazon a lot in that, the maniacal customer focus, the customer obsession that we have. That being said, we do keep an eye on what competitors are doing. AWS created this cloud space in 2006 and because we were so different and so threatening to the business models of the old-guard, technology vendors, they pretty much denied it, and then ignored it as long as they could. So, we really had about a 5–7-year head start in this space. And because we innovate so quickly, and it’s always our goal and we have succeeded in this and moving faster than anybody else, we have continued to have a significant lead in terms of the number of services we have, and the depth of capability in each of our services. Our security capabilities critically are our operating performance and reliability, which is clearly number one in the cloud space. So, we are very significantly ahead in all those spaces and as a result, we have far more customers who are far more deeply deployed than anybody else. If you look at the big deep case studies and references that we have around the world, in India in Bharti Airtel, for example, innovative things happening with the metaverse and virtual reality in the Bengaluru airport. It’s really going through every sector. So, we are very comfortable with our competitive position, but we believe you should always wake up every day really scared of disappointing your customers. So that is what scares us and not our competitors.
Q: Let me end by asking you about India and go back to that because that is the vote of confidence coming in from AWS for India. This USD 12.7 billion that you hope to incrementally invest in India by 2030. I want to understand from you what India’s contribution is likely to be as far as AWS’ revenues are concerned, you contribute 17 percent to Amazon, what will India contribute to AWS in the next 5-10 years?
A: India is already a significant contributor to AWS and that is only going to increase proportionally over the next few years. India is a critical country for AWS, it is very important to our future health, our future growth, and the shape of the business in coming years. So, we intend to continue to invest very significantly. We are going to continue to build infrastructure there, we are going to continue to hire more people there, and we are going to continue to work more with local systems, integrators, and consultants. Wipro is just one example of an integrator and consultant that we work with very deeply and we partner with them across a whole variety of dimensions, and many others as well. And I just see so much innovation that is going to come out of India, with the national digital pillars, for example, and many of those pillars are going to be built on AWS, including CoWin, which is, of course, the national COVID solution and that entire solution from registration to scheduling to vaccination track to certification and ongoing management, all built on AWS and as India digitally transforms and the pace of that is incredible and we realize it’s going to be a trillion dollars of digital business thereby by the year 2025. And we realize our role as an important enabler of that. So, I was really excited by what I saw on my recent visit to India, in visits with government officials, enterprises, our partners, and startups we just see an incredibly bright future for India, and it is our intention to be a part of that future for many years to come.
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