Amazon scrutinises lossmaking units in search of savings

Amazon recently announced a hiring freeze amid economic and business headwinds. Photo / Patrick Semansky

Amazon is conducting a review of its lossmaking business units as part of a sweeping effort to cut costs at the ecommerce and cloud group, two people familiar with its plans confirmed.

The review, which is being overseen by Amazon’s chief executive, Andy Jassy, includes an examination of the Alexa voice assistant division, the people said.

Amazon has come under pressure from investors to rein in spending company-wide, with its shares having fallen by more than 40 per cent this year amid macroeconomic pressure and the mounting costs of running its logistics operation. Details of the review were first reported by The Wall Street Journal.

“Our senior leadership team regularly reviews our investment outlook and financial performance, including as part of our annual operating plan review, which occurs in the fall each year,” said Brad Glasser, an Amazon spokesman.

“As part of this year’s review, we’re of course taking into account the current macro-environment and considering opportunities to optimise costs.”

Investors appeared to welcome the news. Amazon shares closed up 12.2 per cent on Thursday.

It is the latest big technology group looking to significantly reduce spending. On Wednesday, Facebook parent Meta announced it would sack 11,000 employees, about 13 per cent of its entire workforce. That news followed around 3,700 job cuts at Twitter, which has just been taken over by billionaire Elon Musk.

Amazon is yet to announce similarly drastic changes to its business, although last week it said it was implementing a hiring “pause” due to the current market conditions.

“We anticipate keeping this pause in place for the next few months, and will continue to monitor what we’re seeing in the economy and the business to adjust as we think makes sense,” wrote Beth Galetti, Amazon’s head of HR, in a note to staff later published on its corporate blog.

In recent months Amazon has also scaled down or closed several small experimental units, such as its autonomous robot concept, Scout.

It recently told investors that capital expenditure on logistics this year would be about US$10 billion ($16.6b) lower than in 2021 — though costs of expanding its AWS cloud business would increase.

“We’ve always had these ebbs and flows of heavy investments,” Joe Quinlivan, Amazon’s vice-president of global robotics, told the Financial Times. “And then a bit of a pullback to see which investments are working, and assessing them, and shutting down some of them. Macroecomonic conditions have heightened everyone’s awareness of this.”

As part of the business review, it is looking at development costs regarding Alexa.

While a market leader in the so-called connected home sector, there have been longstanding concerns that most owners of Alexa use just a small number of features, such as asking to set timers or play music, rather than using the device to make purchases.

“We’re as optimistic about Alexa’s future today as we’ve ever been, and it remains an important business and area of investment for Amazon,” Glassar said.

Speaking to the FT earlier this year, Dave Limp, Amazon’s head of devices, played down those concerns, saying that half of Alexa users had interacted with some kind of shopping functionality on the device.

“Are we done figuring out ways to monetise Alexa? No, I think, for developers and us, we’ll figure out more ways as we continue on this journey,” he said. “But I feel like the progress is substantial over the last couple of years.”

Written by: Dave Lee

© Financial Times