Why Andy Jassy should spin off the massively lucrative AWS after he becomes Amazon CEO, according to a former AWS exec

Amazon's AWS executive Andy Jassy will take over as CEO from Jeff Bezos in Q3.
AWS is a hugely profitable part of Amazon's business — but it could make sense to spin it off.
Ex-AWS senior engineer Tim Bray said there are "a bunch of good reasons" for Jassy to make the move.
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Jeff Bezos' successor as Amazon CEO, Andy Jassy, made his mark on the company by building its hugely successful cloud computing service Amazon Web Services (AWS).

But as CEO, Jassy's best move might be to cut off AWS from the mothership, former AWS exec Tim Bray told Insider on Thursday.

Bray was an AWS vice president and distinguished engineer who worked at Amazon for five years before publicly quitting in May 2020. At the time, Bray published a blog post saying he was resigning in protest at the company firing warehouse workers who raised concerns about working conditions during the pandemic.

Bray, who reported to Jassy during his time at Amazon and praised his management in a quote to Insider's Eugene Kim and Ashley Stewart, told Insider there were "a bunch of good reasons" for Amazon to spin off AWS.

"AWS has both higher growth and higher margin than the mainstream retail part of Amazon," Bray said. Amazon's Q4 earnings showed AWS accounts for 52% of Amazon's operating income.

"I think the likelihood that AWS does get spun off is not trivial at all."

Jassy has said in the past that Amazon is not looking to spin AWS out - an understandable position, given what a money maker the division has become. But Bray said an increasingly hostile antitrust landscape, combined with business incentives, could make it a wise move.

Amazon's continued expansion into different business sectors means AWS' customers may increasingly also be Amazon competitors, and therefore Jassy might be reluctant to shovel lots of money into AWS in future, Bray said. "I think that in itself is a large and growing headwind for AWS and is not going to get any better," he said.

It would be possible for Amazon to cut ties with AWS without totally sacrificing its cash-cow status, he said.

"You can imagine a manoeuvre where AWS does an IPO, does a cash payment to Amazon of 50 to 100 billion or something like that," he said, citing an Economist article from June 2020 that gave AWS a "plausible" valuation of $500 billion.

This isn't the first time Bray has said AWS should be spun off. He gave an impassioned speech to Amazon workers at a union conference in June 2020 about why governments should break up Amazon from AWS.

"Why on earth should an online retailer, a cloud computing company, a smart speaker company, an organic supermarket company, and a video production company all be conglomerated into one corporate entity controlled by one person?," Bray said at the time.

Bray: Jassy could get ahead of regulators by spinning off AWS

Bray told Insider on Thursday that Jassy could spin off AWS before it starts to heap more regulatory scrutiny on Amazon.

"If [spinning off AWS] is going to happen, Amazon would be better off to do it under their own volition in a planned way as opposed to the Justice Department pointing a gun at their head."

Bray said cloud computing could become a big target for lawmakers looking to rein in Big Tech, as the market is essentially dominated by Amazon, Google, and Microsoft. As of Q4 2020, Amazon's market share totalled more than Google and Microsoft's combined, per data from analytics firm Canalys.

He said the wealth of Big Tech antitrust concerns gives Amazon some wiggle room. "It's an issue, but I think there's lots of other, hotter ones in the queue in front of it," he said.

Google and Facebook's ad business is the "biggest, softest target of all of them," Bray said. Other big targets are Google's wider business and Apple's online services business, which is already starting to draw the attention of regulators both in the US and the EU.

Amazon is already under the antitrust microscope along with the other tech giants, but so far lawmakers have honed in on its marketplace business, and whether it unfairly disadvantages third-party sellers.

The antitrust pressure from Washington looks set to mount rather than wind down. Sen. Amy Klobuchar has become the new chair for the Senate Judiciary subcommittee on antitrust, and has made it clear that Big Tech is in her crosshairs. On Thursday, she introduced a bill that would grant antitrust enforcement agencies sweeping new powers, including the ability to impose massive fines of 15% on companies' annual revenue.

Bray said Jassy would have to navigate the ongoing "techlash," and suggested that he may do a better job than Bezos.

"Jeff has obviously been an outstanding executive. Has he done a very good job of positioning the company in the public mind? Not really, I wouldn't say. He's not a gifted communicator to the public," he said.

"Maybe Andy will do better at that, because I think they need that," he added.

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