Wednesday, July 7, 2021

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Andy Jassy has his work cut out for him as Amazon's new CEO

Jeff Bezos is out of a job. The former head of Amazon Web Services, Andy Jassy, has taken Bezos’ place as Amazon (AMZN) CEO, leaving the world’s richest human to his rocket company Blue Origin, the Bezos Earth Fund and, of course, his role as chairman of Amazon’s board.

Jassy, meanwhile, takes over at a time when Amazon faces its biggest existential challenges yet. There are ongoing antitrust investigations; battles with labor advocates; and increased competition in the lucrative cloud space from the likes of Microsoft (MSFT) and Google (GOOG, GOOGL).

“Amazon has been under siege from different quarters,” Ari Ginsberg, professor of at the NYU Stern School of Business, told Yahoo Finance.

But Jassy, who’s worked for Amazon since 1997 and ran its most profitable business, may be the perfect person to guide Amazon through its most tumultuous era yet.

“You want somebody who has the confidence of the chairman and the board,” said Harvard Business School professor of business administration Rosabeth Moss Kanter. “You want somebody who understands the strategy, and was part of it, and knows where the bodies are buried, and the mistakes that have been made and how to move forward.”

Still, the road ahead for Jassy will be tough.

The antitrust suits are coming

While Amazon started out as an online bookseller, it’s now a gargantuan business with its tendrils in everything from cloud computing to groceries, entertainment, pharmaceuticals, and even physical stores. It now has a market capitalization of nearly $2 trillion.

And now the regulators are circling.

“Probably, the most important at this point is the antitrust regulation issue, because that threatens the continued stability and growth of Amazon as this huge corporation,” Ginsberg explained.

Amazon has already been sued by Washington, D.C. Attorney General Karl Racine, who accused Amazon of violating the District of Columbia Antitrust Act by forbidding third-party sellers from offering cheaper rates for their products on competing websites.

Federal regulators may be coming soon, too. It doesn’t help Amazon that the FTC’s newly appointed chair, Lina Khan, is a fierce critic of the e-commerce giant who made a name for herself by publishing an article for the Yale Law Journal titled "Amazon's Antitrust Paradox” calling for changes in the current antitrust regulatory framework.

Then there are the six antitrust bills targeting Big Tech working their way through the House.

“The intensity of the spotlight on Amazon from an antitrust perspective is only going to increase,” said Christopher Krohn, adjunct associate professor of marketing at the University of Chicago Booth School of Business. “So that's an area for Andy as a CEO that he's going to face, much more so than Bezos ever did in the past.”

Amazon’s labor relations problem

Amazon is one of the largest employers in the U.S., and after years of complaints from warehouse workers, labor unions are beginning to take action.

The International Brotherhood of Teamsters recently announced it will begin working to organize Amazon workers, an effort that could succeed where an earlier campaign to unionize a warehouse in Bessemer, Alabama, failed.

“They're going to have tons of political pressure, pressure from their customers, pressure from their employees, and I would not be surprised at all to see a continued drive toward unionization,” Krohn said.

Amazon has responded to criticism of its workplace practices by pointing out that it offers warehouse workers starting pay of $15 per hour plus benefits. But the pandemic saw increased calls for Amazon to treat its workers better, especially as they helped keep Americans’ cupboards full when the aisles of traditional brick and mortar stores were running bare.

“[Jassy] needs to deal with this perception...that has been reported in the media that Amazon kind of dehumanizes or mistreats its workers in the warehouses,” Ginsberg said.

To cut off that criticism, Amazon recently made an addition to its famous Leadership Principles that guide the company, which calls on the e-commerce giant to “Strive to be Earth’s Best Employer.”

Still, Jassy will need to follow up on this pledge by providing more tangible benefits to workers.

The competition is only getting tougher

It’s not just antitrust regulation or workers’ rights initiatives hanging over Jassy’s tenure. Amazon’s competition is also getting tougher in spaces ranging from the cloud to e-commerce.

The company may still hold a substantial lead in cloud market share over Microsoft, with Amazon owning 40.8% of the global market to Microsoft’s 19.7% in 2020 — but the Windows market isn’t standing idly by.

“Amazon is one of the major players in that space,” Krohn said. “But they're up against Google, and Microsoft, and Microsoft has been particularly tenacious in building its Azure platform and related services.”

It’s not just the cloud industry, either. Amazon’s biggest retail competitor, Walmart, continues to push its Prime alternative, Walmart+.

Then there’s Amazon’s push into groceries, which began with its $13.4 billion acquisition of Whole Foods in 2017. The company’s number of Amazon Fresh grocery stores is also still growing, and Amazon’s also expanding into the grocery delivery space.

“They're also right up against Walmart (WMT), which has the physical distribution, and is looking to build their online business,” Krohn said.

It’s Walmart’s physical stores and on-sight pickup that make it the largest online grocery in the U.S., but Instacart has quickly gained on the Walton family's empire. The two now hold 31% and 30% of the market, respectively. Amazon, meanwhile, is working to catch up. What’s more, The Wall Street Journal reports that less than 3% of Amazon’s U.S. fulfillment centers are dedicated to fresh food.

Despite these challenges, Jassy will likely still have Bezos’ guidance.

“From what I understand, the succession was in progress for a while, so...it's very orderly and very well thought out. So I think the hope is to have a smooth transition,” said University of Pennsylvania Wharton School professor of marketing Barbara Kahn.

“Of course Bezos might be going on space trips...but he's still the chairman. So he's not really going anywhere. He's still there.”

By Daniel Howley, tech editor. Follow him at @DanielHowley

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