On Friday, the U.S. Department of Defense (DOD) announced that it has awarded the $10 billion JEDI Cloud contract to Microsoft, setting off a flurry of commentary and speculation. Many had expected that Amazon’s AWS would ultimately be given the contract, despite opposition from the White House. But Microsoft, which had been considered a dark horse in the race, emerged as the clear winner.
“Microsoft Corporation, Redmond, Washington, has been awarded a firm-fixed-price, indefinite-delivery/indefinite-quantity contract with a ceiling value of $10,000,000,000 over a period of 10 years, if all options are exercised,” according to a statement published on the DOD website, “The JEDI Cloud contract will provide enterprise level, commercial Infrastructure as a Service (IaaS) and Platform as a Service (PaaS) to support Department of Defense business and mission operations. Work performance will take place at the awardee's place of performance.”
From my perspective, unexpected Microsoft’s victory signals a new chapter in the larger landscape of cloud services. It’s also a clear sign of CEO Satya Nadella’s exemplary leadership and amazing vision.
Make no mistake. If Amazon had won the contract, people would have shrugged. For Microsoft, this is more than just a big win – it’s a game changer.
“The achievement highlights the emergence of Microsoft’s Azure cloud as a challenger to AWS,” writes Jordan Novet of CNBC. “Early in the process Amazon was seen as the favorite, partly because its AWS business won a deal with the CIA in 2013. Also Amazon had been certified at the highest existing security clearance level, while Microsoft sought to catch up.”
Clearly, this is a watershed moment for Microsoft. It’s also a defining moment for the Pentagon, which has struggled to keep pace with the rapid evolution of information technology.
“The contract has an outsize importance because it is central to the Pentagon’s efforts to modernize its technology. Much of the military operates on 1980s and 1990s computer systems, and the Defense Department has spent billions of dollars trying to make them talk to one another,” write Kate Conger, David E. Sanger and Scott Shane of The New York Times.
I see the Pentagon’s decision as beneficial to the military and to the technology industry. The decision effectively re-vitalizes and re-energizes competition in the cloud services market, which is a net positive for all of us.
Meanwhile, Amazon’s AWS revenue grew slower than analysts expected for the company’s third quarter. Amazon’s AWS is still growing faster than the company as a whole. It’s operating income of $2.26 billion made up roughly 71 percent of Amazon’s overall operating profit, according to GeekWire.
A basic axiom of economics is that competition is good for markets, and the cloud services market is no exception to the rule. Healthy competition usually results in more innovation and fairer prices. I fully expect that to be the case here.
That said, I would be surprised if the story ends here. I’m already hearing rumors that Amazon plans to appeal the decision. And there’s even a chance that Microsoft employees will object to working with the military.
“Last year, a number of Microsoft employees posted an open letter asking the company not to bid for the contract. More recently, its employees also protested against GitHub’s relatively small $200,000 contract with the U.S. Immigration and Customs Enforcement agency. Against this backdrop, chances are we’ll see similar protests now that the company has won this deal with the Pentagon,” writes Frederic Lardinois in TechCrunch.
Frankly, I doubt that Microsoft will give up the opportunity to work on a project of this magnitude. One thing is certain, however: More competition will benefit our industry and contribute significantly to its long term health.