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Amazon’s founder is giving up the chief executive’s chair, and the last set of results he will present as boss include a number he will not mind being remembered for. In 2020 the company’s retail operations in North America and abroad earned a combined $9.4bn of operating income.^{1SEC EDGAR, Amazon.com, Inc. Form 8-KAmazon.com Announces Fourth Quarter Results (Exhibit 99.1)2 Feb 2021} Amazon Web Services (AWS), the cloud arm, earned $13.5bn.^{1SEC EDGAR, Amazon.com, Inc. Form 8-KAmazon.com Announces Fourth Quarter Results (Exhibit 99.1)2 Feb 2021} On 2 February Amazon said that Jeff Bezos will become executive chair in the third quarter, and that Andy Jassy, the head of AWS, will succeed him as chief executive.^{1SEC EDGAR, Amazon.com, Inc. Form 8-KAmazon.com Announces Fourth Quarter Results (Exhibit 99.1)2 Feb 2021,2SEC EDGAR, Amazon.com, Inc.Form 8-K, Item 5.02: Departure and Appointment of Officers2 Feb 2021}

The arithmetic is worth a second look. AWS made 12% of Amazon’s $386.1bn in sales last year but 59% of its operating profit, which comes to $22.9bn once the three segments are added up.^{1SEC EDGAR, Amazon.com, Inc. Form 8-KAmazon.com Announces Fourth Quarter Results (Exhibit 99.1)2 Feb 2021} The shop that gives the firm its name is a magnificent machine for gaining customers, and the cloud is where those customers’ goodwill turns into cash. We think the promotion of Mr Jassy is therefore less a surprise than an acknowledgement, and a sensible one.

Mr Jassy joined Amazon in 1997. He ran AWS as a senior vice-president from April 2006 and became its chief executive in April 2016.^{2SEC EDGAR, Amazon.com, Inc.Form 8-K, Item 5.02: Departure and Appointment of Officers2 Feb 2021} Under him AWS sold $45.4bn of services in 2020, up 30%, and its operating income rose 47%.^{1SEC EDGAR, Amazon.com, Inc. Form 8-KAmazon.com Announces Fourth Quarter Results (Exhibit 99.1)2 Feb 2021} Mr Bezos, who is to remain a director, says he wants more time for his “Day 1 Fund, the Bezos Earth Fund, Blue Origin, The Washington Post” and other passions.^{2SEC EDGAR, Amazon.com, Inc.Form 8-K, Item 5.02: Departure and Appointment of Officers2 Feb 2021,4TechCrunchJeff Bezos will no longer be CEO of Amazon as of later this year2 Feb 2021} The announcement came with the firm’s best quarter yet: $125.6bn of revenue, the first time Amazon has passed $100bn in a quarter.^{4TechCrunchJeff Bezos will no longer be CEO of Amazon as of later this year2 Feb 2021} The departing chief executive justified the timing in words that would please any actuary: “Right now I see Amazon at its most inventive ever, making it an optimal time for this transition.”^{1SEC EDGAR, Amazon.com, Inc. Form 8-KAmazon.com Announces Fourth Quarter Results (Exhibit 99.1)2 Feb 2021}

The optimism is not baseless, but it hides a small problem. AWS is slowing, in percentage terms at least. Its sales grew 28% in the fourth quarter, down from 34% a year before.^{4TechCrunchJeff Bezos will no longer be CEO of Amazon as of later this year2 Feb 2021} Microsoft, which reported a week earlier, said the revenue of Azure, its rival cloud, grew 50% in the three months to December.^{3Microsoft Investor RelationsMicrosoft Cloud strength drives second quarter results26 Jan 2021} Azure’s growth is not directly comparable: Microsoft’s whole Intelligent Cloud segment brought in $14.6bn in the quarter, only a little more than AWS’s $12.7bn alone.^{1SEC EDGAR, Amazon.com, Inc. Form 8-KAmazon.com Announces Fourth Quarter Results (Exhibit 99.1)2 Feb 2021,3Microsoft Investor RelationsMicrosoft Cloud strength drives second quarter results26 Jan 2021} Whatever the base, the rival is catching up, and the new chief executive will spend his first months defending a lead rather than extending one.

That competition is the case for hope. Cloud computing is a market in which customers can, and do, shop around, and where price cuts and new services have been the main weapons. The business that funds Amazon’s ambitions earns its keep by winning contracts against capable rivals. A firm that makes most of its profit that way has little to fear from a changing of the guard, and its customers have little to fear from the firm. Competitive pressure is the best governor of any company’s behaviour, and Mr Jassy has spent his career under it.

The sceptic’s objection concerns Mr Bezos rather than Mr Jassy. A founder’s willingness to lose money for years on an idea nobody else believes in is a trait, not a process, and it may not survive a handover. The Q1 guidance hints at the tension. Amazon expects operating income of $3.0bn-6.5bn on sales of $100bn-106bn, a range wide enough to drive a delivery lorry through.^{1SEC EDGAR, Amazon.com, Inc. Form 8-KAmazon.com Announces Fourth Quarter Results (Exhibit 99.1)2 Feb 2021} Whether the next chief executive will be as relaxed about a profit margin that is a matter of judgment, not accident, is the question shareholders will want answered.

There is a comfort in the structure. The founder is staying as executive chair and director, so the culture’s author remains in the building to read the draft.^{2SEC EDGAR, Amazon.com, Inc.Form 8-K, Item 5.02: Departure and Appointment of Officers2 Feb 2021} A company that generated $66.1bn of operating cash flow over the past year, up 72%, is hardly short of funds for a few more experiments.^{1SEC EDGAR, Amazon.com, Inc. Form 8-KAmazon.com Announces Fourth Quarter Results (Exhibit 99.1)2 Feb 2021}

For all the talk of a new era, Amazon has chosen continuity. A firm built on making customers wait less has kept its own succession impressively on time.