Microsoft wins $10bn Pentagon cloud contract
http://www.hrlnews.com/2019/10/microsoft-wins-10bn-pentagon-cloud.html
Microsoft has won the sought-after JEDI cloud computing contract with
the Pentagon valued at as much as $10 billion (€9 billion) over a
decade, dealing a blow to the market leader, Amazon, which had been the
front-runner.
The decision, which was announced by the Defense Department late
Friday, may be challenged by Amazon, according to a person familiar with
the matter, because President Donald Trump weighed in on the bidding
process. The terms of the competition was also hotly contested by
another rival, Oracle.
The Pentagon has said the cloud project, known as the Joint
Enterprise Defense Infrastructure, or JEDI, is intended to help bring
American military technology into the modern era.
The Defense Department is investing in commercial cloud services,
which host computing power and storage in remote data centres, to
improve data security and speed up real-time sharing of information
across the military.
The Pentagon said the contract was expected to be completed by 2029. Microsoft shares rose 0.6% to $140.73 at Friday’s close.
Amazon, which won a lucrative cloud contract with the Central
Intelligence Agency in 2013, was long seen to have the upper hand in the
competition. But politics entered the picture. Trump has long been at
odds with Amazon’s Chief Executive Officer Jeff Bezos. Bezos also owns
the Washington Post, which Trump claims has treated him unfairly in its
coverage
“We’re surprised about this conclusion,” said Douglas Stone, an
Amazon spokesman. He added that the company was “the clear leader in
cloud computing, and a detailed assessment purely on the comparative
offerings clearly lead to a different conclusion. 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.”
Trump surprised the industry earlier this year when he openly questioned whether the contract was being competitively bid.
A new book by Guy Snodgrass, a speechwriter to former Defense
Secretary Jim Mattis, alleges that Trump, in the summer of 2018, told
Mattis to “screw Amazon” and lock it out of the bid. Mattis didn’t do
what Trump asked, Snodgrass wrote. Mattis has criticized the book.
Amazon was believed to be the front-runner until Friday evening. The decision is a big boost for Microsoft’s cloud business.
“This is a paradigm changer for Microsoft,” said Daniel Ives, an
analyst at Wedbush Securities who has a “buy” rating on Microsoft. “It’s
a landmark win that will change the cloud computing battle over the
next decade. It’s a shocker to Amazon and Bezos to lose it. But for
Microsoft it signals a new era of growth in cloud. This adds $10 to the
stock in my opinion.”
A Microsoft representative referred questions to the Defense
Department announcement. The White House did not respond to a request
for comment.
Amazon Web Services, the retail giant’s cloud computing arm, has a
wide lead in the business of selling cloud services to businesses and
governments, with $32.5 billion (€29.3 billion) in sales during the most
recently reported 12 months. Microsoft, which doesn’t break out
comparable sales for its Azure unit, likely pulled in a fraction of
that, analysts say.
In a statement released later Friday night, the Defense Department
said that “the acquisition process was conducted in accordance with
applicable laws and regulations. The process cleared review by” the US
General Accounting Office and the Court of Federal Claims.
“All offerors were treated fairly and evaluated consistently with the
solicitation’s stated evaluation criteria,” the department added,
saying that “additional contracts are planned for both cloud services
and complementary migration and integration solutions necessary to
achieve effective cloud adoption.”
The Pentagon’s inspector general said in a separate statement on
Friday night that it had “not found evidence that we believe would
prevent the DoD from making a decision about the award of the contract.”
The watchdog agency, which was leading a review by “multidisciplinary
team of auditors, investigators, and attorneys”, was aiming to have its
work done by the end of November.
The Defense Department had come under criticism for its handling of
the winner-take-all project, which was marred by accusations of improper
ties between former Pentagon officials and Amazon. Oracle and
International Business Machines waged a fierce lobbying and legal
campaign over the decision to choose just one provider, arguing it would
imperil the Pentagon’s data and stiffle innovation. Both companies were
later eliminated from the competition, but Oracle filed suit.
A judge said the company did not have the legal standing to challenge
the terms of the procurement process. Oracle has appealed that verdict.
Google, another large cloud provider, withdrew from consideration last
year amid employee concerns over the company’s ties to defense
contracting.
As recently as Tuesday, the Pentagon said Defense Defense Secretary
Mark Esper had recused himself from any decisions involving the contract
to avoid the appearance of a conflict of interest because his son works
with one of the original applicants.
IBM confirmed that Esper’s son has been a digital strategy consultant
with the company since February but said that his job was “unrelated to
IBM’s pursuit” of the cloud deal.
The government has ramped up scrutiny of large technology companies,
including Amazon, Apple, Facebook and Google, over issues ranging from
consumer privacy to marketplace competition.
Yet even as Microsoft spent much of the 1990s wrangling with US
officials, ultimately losing a landmark case that accused the software
maker of anti-competitive practices, it has largely stayed out of the
recent round of regulatory glare. The company has even become a steady
government contractor.
Chris Lynch, the former director of the Pentagon’s Defense Digital
Service who helped design the JEDI project, praised the decision on
Twitter. “JEDI Cloud is critical to our women and men in uniform,” he
wrote.
But Representative Steve Womack of Arkansas, one of several
Republican lawmakers who took their concerns about the process to the
White House, said he remained “concerned with the contract structure.”
He has said that the single source bid amounts to “limiting
competition.”
Bezos and Microsoft founder Bill Gates are the two richest men in the world, according to the Bloomberg Billionaires Index.