When Amazon announced Wednesday that it had showered the hot AI startup Anthropic with an additional $2.75 billion to complete the $4 billion investment it had announced last fall, the company positioned the news as a royal win.
Amazon’s AWS, the king of cloud computing (with nearly a third of global market share), was deepening its partnership with Anthropic, the number two prince (Harry, not William) of generative AI foundation models. Under the pact, Anthropic will use AWS as its “primary cloud provider for mission critical workloads,” and train and deploy its future AI models on Amazon’s homegrown chips, while AWS customers get access to future generations of Anthropic’s AI technology.
Look more closely however, and the deal seems less like a sign of Amazon perpetuating its cloud dominance into the Gen AI era, and more like a hint at how vulnerable the company has become in a shifting landscape.
Amazon, considered a laggard in the race to deploy generative AI technology, really needs Anthropic’s highly-touted models, including the most recent Claude 3. At the same time though, Amazon is hitching its cart to an AI startup that, while boasting impressive technology, will not instantly distinguish or differentiate Amazon from the competition — since Google is also an Anthropic partner.
Pairing up with Anthropic is a necessary and beneficial move for Amazon. But with the AWS empire under siege, the question is whether the deal is too little too late.
A ‘shiny engine’ versus a Rolls Royce
AWS continues to be the reigning champion of the cloud business, with 31% global market share in 2023’s fourth quarter. But the race is getting tighter. Microsoft Azure, AWS’s biggest cloud competitor, has edged closer with 24%, while Google Cloud has 11%. Both Microsoft and Google have seen cloud growth thanks to their Gen AI offerings — the former with its powerhouse partnership with OpenAI, and the latter with its Bard and Gemini AI momentum.
According to Forrester principal analyst Tracy Woo, Amazon’s Gen AI efforts have not been very impressive. “It took three, four months [for Amazon] to come up with any sort of generative AI-specific announcements [in 2023],” Woo told Fortune, adding that the results were “really lackluster.”
The announcements at Amazon’s Re:invent conference in December 2023 — including Amazon Q, a generative AI work assistant, and next generation AWS-designed chips — should have been a “resounding response to show that you’re firmly back as the number one cloud provider that everyone looks to,” Woo said. Instead, it was “underwhelming” — especially given the competition with Microsoft, and its alliance with OpenAI.
Amazon announced the equivalent of a shiny engine, wheel and pane of glass for the windows, while Microsoft “came out with a Rolls Royce” — marketing its Copilot offering for Azure and OpenAI models like a car that “flies, it goes in the water, it is incredible.”
Microsoft’s bread-and-butter has always been software packages and solutions that slot perfectly into the enterprise workflow, so it’s not surprising that the company made such a strong showing. But Amazon’s underwhelming announcements underscored how mismatched the cloud competitors remain when it comes to the software side of things.
The AWS strong suit has always been infrastructure. And leveraging that skillset to differentiate is one way Amazon could try to get an edge. But there’s danger there too, thanks to the rise of Nvidia, whose GPUs rule the roost, and are only getting better with Blackwell, the new Nvidia AI chip announced at its GTC conference.
While it’s possible for Amazon to pull off an infrastructure cloud play, said Woo, the company would have to “do things differently.”
“Everyone builds on CUDA,” she said. “So to ask everyone to rearrange their software architecture so they can cater to these AI-based TPUs that AWS has come up with is a huge ask.”
Don’t count out the cloud king
At this point, AWS is arguably behind in both AI infrastructure and AI software, but no one should count out the cloud king, Woo emphasized. While Amazon “missed the boat” on recognizing that the cloud race was no longer at the infrastructure — but had moved up the stack to AI-powered software solutions — she added that with AWS, “anything is possible.”
“I see this as a little bit of a desperation call from [Amazon CEO Andy] Jassy responding to his shareholders,” she said. “[AWS CEO] Adam Selipsky…really understands the market and so I have a lot of confidence that he can steer the ship in the right direction.” Of course, Amazon has never been identified as the AI cloud king — “so they have a huge uphill battle ahead of them,” she added. “But I think they are resilient. They are an aggressive company that moves aggressively — they are not fat and happy.”
