In a big surprise, Pentagon grants Microsoft $10B JEDI cloud contract over Amazon

Microsoft Corp. today won the Department of Defense’s hotly contested $10 billion, 10-year cloud computing contract, beating out frontrunner Amazon Web Services Inc. Inc.’s cloud computing unit had been the presumed favorite for the plum contract, known as the Joint Enterprise Defense Infrastructure or JEDI, for well over a year partly thanks to its leading position as a cloud services provider. The contract award came in statement issued by the DOD today.

Under the JEDI contract, the Pentagon will spend up to $10 billion over 10 years on cloud infrastructure and services if all options in the contract are exercised. The pool of bidders once included IBM Corp. and Oracle Corp, but it was narrowed down in April to AWS and Microsoft. The services will help the DOD analyze and process swaths of classified and sensitive military data.

The contract was seen as a huge win for whichever company got it, because it also might influence many more multibillion-dollar contracts with the government down the road.

Now it’s a huge win for Microsoft, which has already been riding the success of its cloud computing services ranging from applications such as Office 365 to its Azure cloud infrastructure services. It’s also a win for Microsoft Chief Executive Satya Nadella (pictured), who has shepherded Microsoft’s multiyear return to form thanks largely to a focus on its cloud services.

At the same time, the loss is a blow for AWS, whose revenue growth has been slowing for several quarters, now settling in at a 35% clip with yesterday’s third-quarter earnings report.

In a statement from a spokesperson provided to media, AWS said it was surprised at the decision. “AWS is the clear leader in cloud computing, and a detailed assessment purely on the comparative offerings clearly lead to a different conclusion,” the spokesperson said. “We remain deeply committed to continuing to innovate for the new digital battlefield where security, efficiency, resiliency, and scalability of resources can be the difference between success and failure.”

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Microsoft had been seen as unlikely to beat AWS because the latter had more extensive security certifications. But Microsoft has been endeavoring to up its security to the top federal standards. Apparently the delays in awarding the contract, which was supposed to happen originally early this year, gave it time to do so to the Pentagon’s satisfaction.

Earlier this week, Defense Secretary Mark Esper recused himself from considering the contract because his son works at IBM and he said he wanted to avoid an appearance of a conflict of interest, though IBM hasn’t been in the running for awhile now. Esper had been in charge of evaluating Amazon’s and Microsoft’s bids since August when he was sworn in as defense secretary.

In July, U.S. President Donald Trump said he was “looking into” the JEDI contract after hearing of “tremendous complaints” from companies, including Microsoft, Oracle and IBM.

Speculation, whether founded or not, has swirled over whether Trump was getting involved in the decision to thwart Amazon, which he has criticized on several occasions. Amazon Chief Executive Jeff Bezos also owns the Washington Post, which has run many hard-hitting stories about Trump.

According to the New York Times, “a speechwriter for former Defense Secretary Jim Mattis, who over time became an enthusiast of moving Pentagon operations to the cloud, alleged in a book scheduled for publication next week that Mr. Trump had wanted to ‘screw’ Amazon and give the contract to another company.”

Photo: Microsoft/livestream

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